What is an Emission?
Emissions, in the context of cryptocurrency, refer to the creation and release of new tokens or coins into circulation. Emissions are a characteristic of most cryptocurrencies that operate on a proof-of-work or proof-of-stake consensus mechanism, where new coins are created through the process of mining or staking.
In proof-of-work systems, such as Bitcoin, new coins are created through the process of mining, which involves solving complex mathematical puzzles to validate transactions and create new blocks on the blockchain. This process consumes a lot of energy and resources, and it is designed to become more difficult over time.
In proof-of-stake systems, such as Ethereum 2.0, new coins are created through the process of staking, where holders of the cryptocurrency lock up their coins in a special account and earn rewards for helping validate transactions and create new blocks.
Cryptocurrency emissions serve several purposes, such as incentivizing miners or stakers to secure the network, distributing new coins to users, and controlling the overall supply of the currency. For example, Bitcoin has a finite total supply of 21 million coins, which means that no more than 21 million coins can ever be created.
It's important to note that not all cryptocurrencies have a fixed supply. Some cryptocurrencies, such as Ethereum, have an unlimited supply and can continue to create new coins indefinitely. The rate at which new coins are created can also vary from cryptocurrency to cryptocurrency, and it is usually controlled by an underlying protocol or algorithm.
Simplified Example
Think of emissions as a factory that makes toys. The factory can only make a certain number of toys each day. Some factories can make a lot of toys, while others can only make a few. In the same way, some cryptocurrencies can make a lot of new coins, while others can only make a few.
For example, imagine a toy factory that can only make 10 toys each day. Once all 10 toys are made, the factory stops making more for the day. This is like a cryptocurrency that has a limited number of coins that can be made.
Now imagine another toy factory that can make unlimited toys each day. This factory can keep making toys for as long as it wants to. This is like a cryptocurrency that can make an unlimited number of coins.
The number of toys that each factory makes each day is like the number of new coins that each cryptocurrency makes. And just like you can only buy toys that have already been made, you can only buy new coins of a cryptocurrency once they have been "made" and released into circulation.
History of the Term "Emission"
In the early stages of the blockchain's evolution, the necessity for a precise and succinct term to describe the introduction of new tokens or coins into circulation became evident. Early blockchain projects and communities utilized informal terms such as "creation," "distribution," or "minting" to delineate how new tokens entered the network. The term "emission" gained prominence for several reasons: firstly, it established a financial analogy by drawing parallels with traditional finance, where "issuance" or "emission" denotes the release of financial instruments like stocks or bonds. Secondly, "emission" offered clarity and conciseness, providing a straightforward term to characterize the specific process of introducing new tokens onto a blockchain. The widespread acceptance of "emission" within developer circles, user communities, and media outlets further solidified its status as a standard term for discussing token releases within crypto projects.
Examples
Bitcoin: Bitcoin is the first and most popular cryptocurrency, with a finite total supply of 21 million coins. New bitcoins are created through the process of mining, and the rate of emission is designed to slow down over time, eventually reaching zero.
Ethereum: Ethereum is a popular cryptocurrency that operates on a proof-of-stake consensus mechanism and has an unlimited supply. New Ethereum tokens are created through the process of staking, and the rate of emission is adjusted periodically based on the overall health and security of the network.
Ripple (XRP): Ripple is a cryptocurrency that operates on a unique consensus mechanism and has a finite total supply of 100 billion XRP. While most of the XRP is held by the parent company, a portion of the tokens are periodically released into circulation to support network liquidity and incentivize market participants.