Tokenomics Guide for Beginners: By Understanding Token Economics You Can Find The Next Bitcoin

Sausages. They are pretty cool, right? The heart of a hot dog, a great value for your buck, tasty, nutritious—It's all there...or is it?

Sausages. They are pretty cool, aren’t they? The heart of a hot dog, a great value for your buck, tasty, nutritious—it’s all there…or is it? Despite all these benefits, there is a common urban legend that says people who know how a sausage is actually made solemnly swear to never eat sausage again.

Well, cryptocurrencies and sausages have this one thing in common: you’d benefit greatly from learning how they’re made. To dive into that sort of stuff, we need to uncover something called “Tokenomics”, which really is just a word that describes the foundational economic principles behind a cryptocurrency.

Learning about the tokenomics of a project may prove the difference between picking up winners and learning in the news how the new altcoin you invested in suddenly collapsed while the founder bought a new house in the Bahamas. Luckily for you, our “Tokenomics Guide for Beginners” will break down everything you need to know—without the messy surprises.

Plus, by the end of it, we will literally tell you how the sausage is made. So stay tuned!

What Is Tokenomics In Crypto?

Tokenomics is the economic system that governs a specific cryptocurrency project. Think of it like this: at the end of the day, crypto is nothing more than a currency. While the U.S. Dollar has a central bank that determines the issuance of the greenback, interest rates, which determine how money circulates in the economy, cryptocurrencies operate—crypto operates kind of in a similar fashion.

While a digital currency will typically not have an external governing body, its decentralized nature allows it to be self-governing via smart contracts. These predefined contracts are able to determine the issuance of new coins, its deflationary model, its transaction fees, and even governance rules without the need for human intervention.

So, at the end of the day, while crypto doesn’t have central banks—it mirrors traditional economies through mechanisms like staking rewards, burning events, and preset issuance schedules.

Key components of tokenomics include:

How Tokenomics Affects Cryptocurrency Value

Fortunately for us, a cryptocurrency’s value isn’t solely determined by hype or speculation. If that were the case, we could be living in a post-modernist meme world where everything is Dogecoin, and non-Shiba Inu dog breeds are made illegal.

Instead, a cryptocurrency’s value is deeply tied to its tokenomics, the economic framework that governs how tokens are created, distributed, and used. Strong tokenomics can build sustainable ecosystems, incentivizing long-term adoption and a higher potential for long-term growth. Weak tokenomics, on the other hand, can lead to inflationary spirals, sudden market crashes, or outright scams.

Understanding Token Supply And Demand

Token supply and demand are the biggest determining factors of a token’s economy. They may vary from project to project, depending on their utility. Supply refers to the total number of tokens available in circulation, while demand reflects how much people actually want to buy, hold, or use those tokens.

There are generally three types of tokenomics supplies in a project. If you found that difficult to understand, check out this next analogy, where we will once again talk about sausages.

1. The Fixed-Supply Hot Dog Spot: Satoshi’s Wieners (Bitcoin)

Imagine a small hot dog stand named “Satoshi’s Wieners” that sells only 21 hot dogs a day. At first, they’re really cheap. But as word spreads about how great the food is—the influx of new customers allows the owner to really drive up the prices because there are hundreds of people fighting for just 21 hot dogs.

And because this owner built the hot dog stand to only be able to sell 21 hot dogs a day, the demand for each one may increase, but the supply will always remain stable. This is precisely what makes Bitcoin great. It’s a highly in-demand asset with a capped supply of only 21 million coins.

2. The Dynamic Sausage Diner (Ethereum)

Now, seeing the success of Satoshi’s hot dogs, this new Russian/Canadian guy decides to open up a new hot dog stand. But instead of keeping the 21 hot dogs a day cap, he decides to constantly adjust the number of hot dogs a day depending on the number of people coming to eat.

At the end of the day, this makes sausages more accessible, but their price fluctuates based on demand. The restaurant balances inflation (making more hot dogs) with utility (people actually eating them).

This is like the Ethereum network, which has variable issuance rates and use cases (staking, transactions, smart contracts) that influence demand.

3. The Overstocked Sausage Disaster (An Inflationary Meme Coin)

Now, after the success of the last two stands, you decide to open up your own place, the “Hot Meme Stand”. And without giving it too