Can We Teach An Old DOGE New Tricks?
The greatest risk to anyone holding DOGE remains the price volatility, typical of cryptocurrency.
Dogecoin originally started as a meme in late 2013 but has suddenly gained a strong following that has pumped its price to serious market capitalization. This was the least expected to occur given that Dogecoin has no actual use case other than to transfer value, a typical blockchain application.
With supporters like Elon Musk, entrepreneur Mark Cuban, WallStreetBets followers, and some social media influencers on TikTok, the value of Dogecoin began to surge in 2021.
The coin or token called DOGE is now worth (as of this writing) $0.50. Its overall value has reached that of some of the world’s largest multinational corporations (here is a link to some companies).
Dogecoin’s market cap has even surpassed that of Ford and Twitter at some point. It actually reached over $80+ Billion (twice that of Twitter) in market cap before Elon Musk’s SNL appearance, and then it took a plunge as some holders of DOGE exited the market.
The greatest risk to anyone holding DOGE remains the price volatility, typical of cryptocurrency. It is also a Meme Coin for the most part, which is not developed for specific purposes and used more for pump-and-dump schemes. It is a market where prices can suddenly surge, but they can also plummet as quickly.
DOGE began surging in January 2021 and is up 12,000% to date (May 2021). While the price surges, so do the creation of the coin, so it has an inflationary supply model. This keeps the price per coin relatively low due to the large circulating supply.
Since it is prone to pump-and-dump schemes and has a high circulating supply, many financial analysts warn that it is a bad investment for most people.
Aside from those criticisms, Dogecoin does fall in line with cryptocurrency fundamentals, just not investment fundamentals. You can use the Dogecoin network to transfer value and record transactions on a blockchain, but investing in it is another story.
Despite the good news about its value, there are some things that the average holder of DOGE may not be aware of. Dogecoin, as a cryptocurrency project, no longer has a full-time development team that works on the software.
The developers are, for the most part, volunteers who do some maintenance on the code. Its original founders, software engineers Billy Markus and Jackson Palmer, have long abandoned Dogecoin.
The red flag here is no major maintenance or further improvements are being made to Dogecoin. A group of developers has taken over, but they are a small number compared to the development teams on other cryptocurrency projects. Perhaps that may be about to change.
Let us take a look at what makes Dogecoin useful. Even though many laugh at it because it is a meme coin, there are things that Dogecoin was designed to do. The most important thing is that it supports peer-to-peer transactions just like Bitcoin. It was actually a fork of Litecoin that is based on the Bitcoin code base.
Even though it is a Litecoin fork, it differs in several ways. One of the major differences is Dogecoin’s block time is 1 minute while Litecoin is 2.5 minutes. This makes Dogecoin transactions processing time much faster, even compared to Bitcoin’s 10 minutes.
Dogecoin uses the same cryptography techniques as Litecoin. This is based on the Scrypt hashing algorithm, which is used in Dogecoin’s own version of the PoW (Proof-of-Work) consensus mechanism.
Scrypt is less resource-intensive than the SHA256 used in Bitcoin, thus allowing miners to use non-ASIC devices for mining. A GPU can be used by miners, but there are also miners who prefer more expensive ASIC rigs.
Having an ASIC has a big advantage over a GPU in terms of computing power. Since Dogecoin shares a legacy with Litecoin, miners who mine LTC can also mine DOGE. This uses a technique called merged mining or Auxiliary Proof-of-Work, which allows multiple cryptocurrencies to be mined.
With a 1 minute block propagation time, rewards of 10,000 DOGE are given for every block produced. That equates to 14.4 Million DOGE a day or about 5.2 Billion DOGE a year.
A miner who successfully produces a block gets 10,000 DOGE, which is worth (as of this posting), 1 DOGE = $0.50. That can be quite profitable for any miner who gets 10,000 DOGE for producing a block.
As of this writing, Like other PoW consensus mechanisms, Dogecoin mining also involves hashrate (computing power), electrical power consumption (energy use), and difficulty target. The total circulating supply is 129.64 Billion DOGE with a market cap of $62,685,528,736 ($0.4835 per DOGE).
The Key Takeaways
The main criticism against Dogecoin would have to be its inflation rate. Although it was originally capped at 100 Billion coins, it has since added 5 Billion new coins every year since 2015. It was a bug in the software that has never been corrected, so there is no hard cap on the supply of DOGE.
That means that the supply will just continue growing. Unlike Bitcoin and Litecoin, which have capped supplies and a halving of block rewards, Dogecoin has not implemented such mechanisms regularly to keep inflation in check.
Dogecoin actually had one halving back in 2015, but the inflation issue is something that really needs to be addressed.
Dogecoin can also be a pyramid scheme of sorts in which the earlier investors can suddenly leave newcomers holding the bags as the market dumps. This is quite common in these types of projects. It has even inspired new types of meme coins like Shiba Inu and Safemoon.
The investors are a much younger crowd, influenced by social media (e.g. TikTok) and attracted to the idea of just making money. If you treat it more as a fun and easy way to make money rather than a serious investment, then you understand that Dogecoin has very little fundamentals.
A ridiculous observation of Dogecoin is its 10,000 DOGE block reward. Now that figure seems just too crazy to even think about, but it can make miners profitable.
The question is whether this will be sustainable moving forward as the network effect grows the number of users. We have to remember that Dogecoin has just recently surged in value and unlike the larger number of users and transactions on the Bitcoin network.
In order to sustain the rewards to miners, Dogecoin will need to have more and more inflation, which means more pumps from people who FOMO in.
There also needs to be some liquidity in the money supply from sources of revenue generated from the use of the network. This can be through the adoption of DOGE as a currency for payment by some companies and from DeFi protocols.
There are some supporters of Dogecoin who believe that is a faster network for making payments.
This is because blocks are produced every minute. Another argument for Dogecoin is that it is more energy-efficient and less harmful to the environment when mining. Proponents of Dogecoin state that mining DOGE is not as energy-intensive as Bitcoin or other PoW cryptocurrencies.
Doge uses a network hashrate of around 396.26 TH/s (average of 150 TH/s), while Bitcoin is many magnitudes higher at 164.35 Million TH/s (as of May 2021). The higher the hashrate in a network, the more energy is required to produce a block. While the higher hashrate may be alarming, it actually serves a purpose on the Bitcoin network by providing security.
New Development Efforts
Dogecoin developers have been reported to working with Elon Musk since 2019. Perhaps that is the reason for Musk’s fascination with Dogecoin.
Those who follow crypto Twitter may have also seen a tweet about that. This has become big news that has moved markets. With the developers working with Elon Musk, the focus will be on the technical aspects of the cryptocurrency.
There are many things that will need to be improved since Dogecoin is not a second-generation blockchain based on Ethereum that has many application use cases. Dogecoin remains as rudimentary as Bitcoin when it comes to development.
According to a Coindesk article:
.. Dogecoin’s development group of five is “working on new versions,” primarily Dogecoin version 1.21, which will take aspects of Bitcoin Core 0.21 but will still require remolding the code to fit into Dogecoin’s design …
This basically means that Dogecoin follows Bitcoin step by step when it comes to the development process. The good thing about this is that they do use best practices in software engineering, so while Dogecoin may be a meme on the outside, on the inside, it is based on secure and stable code.
There are also concerns with Dogecoin node operation. Since it has become more popular, the number of nodes has increased to about 1,300. The problem is that many of the nodes are not configured properly by their operators. According to a Dogecoin developer, these nodes “are running on the default setting that only allows outbound connections but not inbound ones.”
The problem with this is with regard to the synchronization of nodes on the networks. Inbound connections must also be opened up to allow other nodes to communicate with one another. The configuration must be done correctly, though, or risk cybersecurity threats.
Flare Networks has also joined in on development efforts for Dogecoin. This is through the integration of DOGE with Flare’s main network. This will allow DOGE to be used with smart contracts.
This opens up the use of DOGE in DeFi (Decentralized Finance) applications on the Ethereum blockchain network. Without integration, Dogecoin would not have much interoperability with other blockchains. Users would have to go to digital exchanges to swap between DOGE and other cryptocurrencies.
Adding new features to an old project would be key to further utility. It may seem like being a meme alone has already kept Dogecoin adoption growing.
What developers should be concerned about is the security of Dogecoin’s wallet and network. All it takes is one bad hack to wipe out the network’s value, so that should be as important as features.
Letting The Doge Out
The main driving force for Dogecoin will have to be its community. It has grown a loyal base of holders who are actually using and trading DOGE. The reason it has survived for so long is the interest among its users. Online communities on Twitter and Reddit tend to use DOGE for tipping and trading items.
DOGE has also been used for peer-to-peer payments among people who want to just want to exchange value (no questions asked). Perhaps that is one of the main use cases for DOGE as a currency for quick digital payments that not many people know how to use.
Crypto ATM operator CoinFlip has allowed the purchase of DOGE with cash. Elon Musk asked on Twitter if he should accept DOGE payments for Tesla. While Bitcoin remains strong as a digital gold store of value and Ethereum is the payment settlement layer, perhaps DOGE can become the crypto equivalent of cash.
Unlike cash though, due to the transparent nature of the blockchain, users are pseudonymous and can still be tracked.
Moving forward, bringing new developments to Dogecoin is perhaps necessary to support its growing popularity. It has surpassed established cryptocurrencies in market caps like Bitcoin Cash and even Litecoin. This is because there is a community that believes in it.
Many of those holders may not really be in it for the fundamentals but more out of greed for the money.
If that is the case, then Dogecoin remains on shaky ground. What can help with this is the loyalty of its most die-hard supporters and new vision from its development team on where they want to take this project. Like any system, Dogecoin can remain relevant so long as there is a community that continues to give it value. It would be up to the developers to make sure of that.
Involved in blockchain development and imaging technology.