The Shiba Inu-themed crypto has proliferated over 6,500% in the last year, but what of Dogecoin? Understanding what Dogecoin is and if it is a safe investment aid in understanding why cryptocurrency was even created in the first place, commencing with Bitcoin.
Comprehending the initial ethos behind the crypto movement and its solutions to society are questions one ought to understand prior to investing in any crypto asset. If you’re passionate about pure speculation and taking a risk, then Dogecoin may be for you. Still, if you want to understand the real purpose behind the movement, you may mull alternatives.
Bitcoin: Opting-Out of traditional Banking
Bitcoin came about during the aftermath of the 2008 financial collapse, and while other endeavours aimed at digital money and e-cash had been launched before, its story mainly begins there.
In 2008, retirement accounts were wasted as banks took on abnormally massive amounts of risk via the deployment of mortgage-backed securities and rehypothecation of collateral, erecting an untenable house of cards.
The solution? Government intervention in an avowedly capitalist and free-market economy. The band-aid that would halt the economy’s bleeding was to bail out the banks with taxpayer money. Put another way. Citizens paid the price for the bad decisions that these banks made.
Per Deborah J. Lucas, an MIT professor of finance, those who were advantaged from the bailouts were the institutions rather than the citizens.
The dollar’s value and purchasing power have since been eaten away due to excess pumped into the market with this sort of quantitative easing, particularly since the recent stimulus in the aftermath of the pandemic.
While the abrupt increase of money supply can help boost stock markets, prices of real estate, goods and services, it also diminishes the purchasing power and distance a dollar can go. As a result, those who make the same salaries each year or live paycheck to paycheck can get smashed by the increased prices of things they could afford pre-crisis.
This is where Bitcoin arrived. Bitcoin sought to provide solutions to a series of technical and philosophical questions society faced as regards using money.
Bitcoin took another path. With Bitcoin, the questions asked would all be addressed by the users’ collective. Pt another way, it is a currency created for the people, governed by the people, with no pivotal points of control.
Bitcoin sought to give economic empowerment and autonomy to anyone who wanted access, regardless of consequence. Of course, many have debated the open nature of Bitcoin and the possibilities for illegal use. Still, one could debate that the freedom, transparency and cumulative good it can render our society put its negative use-cases in the shade.
Supply-wise, it was determined that the quantity of Bitcoin would be capped so that its purchasing power would not be diminished as the dollars do. Over time, network users grew considerably, making it stronger and stronger. Now, it has become an international network of users controlled by the people rather than banks or governments.
Embossed in the first block of the chain was written, “The Times Jan/03/2009 Chancellor on brink of second bailout for banks,” a scathing reference to an article about the second economic bailout to English banks during the 2009 recession. Join the noble cause by engaging in robust crypto trading with ROinvesting, ETFinance, or Capixal.
Dogecoin: a promising start
Dogecoin was born of the legendary doge meme and crypto movement when cryptocurrency was gradually picking up pace in 2013.
It was made using existing open-source Litecoin code and other projects, with additional tweaks. It is similar to Litecoin save for the important fact that it lacks a maximum supply. Dogecoin miners earn 10,000 Doge/block, and blocks are born every minute. As a result, 14,400,000 new tokens flood into the miners’ wallets or are sold into the market each day.
In a recent interview, Dogecoin’s co-creator, Billy Markus, said that “The original intent was a parody of all the ‘serious’ clone coins that were trying so hard to differentiate themselves, but all seemed the same. So Dogecoin was just another clone coin, but instead of taking itself seriously, it was just Dogecoin.”
One of Bitcoin’s main purposes was to plug the inflation and diminishing purchasing power that occurs with the dollar, bringing about a new system where that finds no occurrence.
Much of Bitcoin’s current value is extracted from its scarcity and finite supply. Conversely, Dogecoin’s supply is quite literally infinite. Dogecoin miners are killing it in the current market as speculators and meme culture has driven its price to impossible levels. Solving a block, as a miner or pool of miners can make 10,000 Doge.
Another factor to ponder is decentralization. Decentralization is the basis of Bitcoin security. It is a reason why Bitcoin works so well as a currency.
The level of decentralization of a cryptocurrency can be partially assessed by the count of nodes in its network. While some other factors play into this, like miner distribution, it is safer to use node count to compare the decentralization of Dogecoin and Bitcoin as there is no credible data on Dogecoin’s miner distribution.
Per Blockchair, Dogecoin has a paltry 1090 nodes. Such a low count of nodes makes it far more vulnerable to a 51% attack where one person or group controls more than 50% of the network, giving them mastery over it.
Obversely, Bitcoin has nearly 10,000 viewable nodes ranged across 97 countries. As a result, were an attack to take place with Dogecoin, it would put holders at risk of losing all value at a single stroke.
Does a Meritocracy own Most Of the Supply?
Another worry with Dogecoin is that very few wallets own the vast wealth of its supply. This permits a small handful of individuals to have control over price fluctuations.
Currently, 0.002% of Dogecoin wallets hold two-thirds of the coins’ total supply. However, relative to Dogecoin, Bitcoin’s wallet sizes are very evenly distributed. For example, per a Glassnode report, Wallets holding one Bitocin or less hold close to 5% of the total quantity of Bitcoin, wallets with 10-50 Bitcoin hold approximately 9% of the total supply and wallets with 500-1000 Bitcoin hold a not-to-be-sneezed-at 6.6% of the total supply.
Why Is Dogecoin Pumping when It lacks Fundamental Value?
So if Dogecoin’s supply is inflating so much, why does its price keep rocketing? The answer to this is attributable to several recent market conditions.
The most apparent reason is owing to stimulus and inflation. In February of 2020, the economy had $15.4 trillion. After several stimulus packages, it has gotten bloated to nearly $20 trillion. Stock market prices, real estate, commodities, and more have all abruptly increased with the money influx.
Another reason why Dogecoin’s surge has been strengthened is the younger generations’ growing use of finance apps, such as Robinhood. As a result, access to trading and investing has never been higher. What’s more, almost every single large retail brokerage platform culled its commission fees and account minimums to $0 in 2019, culminating in making trading and investing accessible to anyone 18+with a phone.
With such easy reach for younger groups, a new culture has popped up on Reddit and other forums, a great many of which are focused more on humour than sound investment decisions. For example, the subreddit r/dogecoin has seemed to grow parallel to the popular subreddit r/wallstreetbets, known for its memes and risky trades.
Conclusion: Should You Dogecoin-trade?
The answer to that question is personal and contingent upon just how much speculative risk you’re willing to accept. Currently, much of Dogecoin’s rise is apparently to be solely off of speculation and humour. It has certainly provided good comedy and has made people profit, but now the question is how tenable it is.
It is close to impossible to place fundamental value on Dogecoin with its infinite and quickly growing supply relative to finite cryptocurrencies like Bitcoin that are far more decentralized.
Finally, an investment in Dogecoin is grounded mostly in conjecture, and that Dogecoin will keep rising from social trends like meme stocks and r/wallstreetbets, besides Elon Musk’s illimitable Twitter antics. Perhaps it could keep growing as long as Bitcoin is in a bull market, but it’s a risky proposition. Ask the experts at ROinvesting if you stand to profit, at least for the short term.