It started as a joke. Jackson Palmer was poking fun at the hype and wild speculations surrounding cryptocurrencies when he tweeted about Dogecoin on 28 November 2013 and said he would be investing in this then non-existing cryptocurrency because it would be the next best thing in the future. It was essentially a meme. The name was inspired by the Dodge meme. Even its logo features the infamous Shiba Inu dog breed.
Palmer is a product manager at Adobe. His tweet gained some popularity on Twitter. In another statement, he said that he purchased the dogecoin.com domain name. Several websites and social networking sites picked up this statement. Billy Markus, a software engineer at IBM, reached out to Palmer with a proposal to build a software that would launch Dogecoin as a fully functional working cryptocurrency. What started as a satire eventually became one of the most talked about cryptocurrencies and altcoin in the market.
The cryptocurrency reached a market capitalization of over USD 85 billion on 5 May 2021. Even Tesla and SpaceX chief executive Elon Musk and billion entrepreneur Mark Cuban have agreed that it is the “strongest” cryptocurrency when used as a medium of exchange due to its strong and further emerging community of users and supporters. Note that Musk has been working with Dogecoin developers to improve transaction efficiency.
But what exactly is Dogecoin and why it has become popular? For starters, as a cryptocurrency, it uses the same general principles of blockchain technology that power Bitcoin, the Ethereum platform and its native Ether cryptocurrency, and the Cardano platform and its native Ada cryptocurrency. The underlying technology uses scrypt technology and proof-of-work consensus similar to Litecoin and Luckycoin blockchain platforms.
The popularity of this meme-inspired and somewhat satirical cryptocurrency boils down to mass appeal. There are thousands of crypto-coins and crypto-tokens in the market. The more popular ones can be too complicated to grasp while others seem untrustworthy. Dogecoin seems more accessible and less intimidating. Furthermore, backed up by prominent personalities such as Musk and Cuban, it seems more credible compared to less popular altcoins.
The Pros: Advantages of Dogecoin
Growing Community of Users
One of the advantages of Dogecoin is that it has an established and further growing community of users and supporters. It is one of the top ten cryptocurrencies in the world in terms of market capitalization. It even ranked fourth on one occasion. Cuban and Musk explained that its growing user base makes it an ideal medium of exchange.
Note that the community donated worth USD 30,000 to fund the trip of the Jamaican bobsled team to the 2014 Sochi Winter Olympics, another donation worth USD 11,000 to build a well in Kenya, and another worth USD 55,000 to sponsor NASCAR driver Josh Wise.
Decentralized Exchange Compatibility
This cryptocurrency can be transacted and traded on decentralized exchanges. Specifically, the Ren Project has enabled it to work on the Ethereum blockchain platform, as well as access the decentralized finance network. This means that it is compatible with the emerging decentralized finance movement within the cryptocurrency market.
In addition, although it cannot interact with smart contracts directly because it runs on its own blockchain with no built-in smart contracts feature, it can be “wrapped,” thereby locking it in a state interoperable with a contract until it is later released.
Positive Side of Volatility
Cryptocurrencies are extremely volatile by default due to their sensitivity to speculation-related occurrences, increasing competition intensity, and lack of universal consensus as a collective class of assets. Their historical performances have experienced extreme highs and sudden price drops within short periods. The same is true for Dogecoin.
However, volatility can have some advantages, especially for day traders or those individuals who buy and sell assets within one day. Price swings in a given day can allow cryptocurrency traders to earn considerable gains through day trading.
The Cons: Disadvantages of Dogecoin
Has No Supply Cap
The lack of a supply cap is one of the biggest disadvantages of Dogecoin. Unlike Bitcoin and the Ada cryptocurrency of Cardano, which are deflationary in nature because they have a predefined cap on supply to create scarcity and potentially increase its value in the future, it is deflationary. Cryptocurrencies with no supply cap are unideal assets to hedge against inflation.
Furthermore, the continuously growing supply will eventually require more expansive blockchain mining activities. Because this cryptocurrency uses a proof-of-work mechanism to achieve consensus, it will require expanding further its pool of miners and their powerful computers to handle an increasing number of transactions in the future.
Criticisms of Dogecoin
The mainstream media and financial experts had a hard time taking this cryptocurrency seriously. A handful of analysts have also noted that it is an extremely risky investment characterized by pump-and-dump behaviors and higher sensitivity to speculations and fads driven by herd mentality. Others call it a pyramid scheme.
In his 2021 article published by Foreign Policy, David Gerard argued that there is no good use for cryptocurrencies except trading. He argued further that these “assets” have no use cases. Individuals unfamiliar with what they are doing and simply joining the bandwagon often fall prey to fads relating to personal finance and investment.
Poor Technical Support
Dogecoin has a relatively poor technical support despite its growing community of users and supporters. The development team is not as big as Bitcoin, Ethereum, and Cardano. Furthermore, the product roadmap is not as clear as these cryptocurrency market giants.
There have been no key technological updates and developments since 2015. It is also important to highlight the fact that it does not offer any unique selling proposition in terms of technology. The pronounced goals or aspirations of this cryptocurrency and the entire blockchain platform are not as ambitious compared to the major players.
Conclusion: Pros and Cons of Dogecoin
Novelty is definitely one of the key advantages of Dogecoin. The fact that it started as a joke and has referenced an infamous meme has catapulted it to mainstream popularity. Furthermore, the same mainstream appeal has piqued the interest of individuals and allowed them to explore and understand cryptocurrencies further.
Of course, it shares the criticisms of cryptocurrencies, the risks or factors affecting the cryptocurrency market, and the disadvantages of blockchain technology. However, when compared to other cryptocurrencies, one of its major drawbacks is that it might not be a worthwhile asset to invest in or trade because of its hype-driven value and sensitivity to speculation-related occurrences.
FURTHER READINGS AND REFERENCES
- Gerard, D. 2021. “Confused About Dogecoin? Here’s How It (Doesn’t) Work.” Foreign Policy. Available online
- Locke, T. 2021. “Dogecoin Rallies after Elon Musk Agrees with Mark Cuban that It is the ‘Strongest’ Cryptocurrency as a Medium of Exchange.” CNBC. Available online