The cryptocurrency world is chaos. There are over 4,000 different cryptocurrencies. They go up and down. One day Bitcoin is down 50%, and Dogecoin goes up after a tweet. Dogecoin is the trendy cryptocurrency de jour. Where did it come from?
CNET explains that Dogecoin is a cryptocurrency, a form of digital money that, much like bitcoin, enables peer-to-peer transactions across a decentralized network, based on a meme. There are differences in cryptocurrencies. Bitcoin is the original blockchain proof of concept. True believers say Bitcoin can transform how money works in the 21st century. Dogecoin is a digital coin with a picture of a dog on it.
Dogecoin’s most well-known supporters are multi-billionaires Mark Cuban and Elon Musk. Mr. Musk, the CEO of Tesla Inc. (TSLA) and SpaceX has used his tweets to his 50 million followers to send the cryptocurrency surging. In April, when Mr. Musk tweeted “Doge Barking at the moon” and shared a photo of a painting by Spanish artist Joan Miró, and the cryptocurrency took off. Now Mr. Musk is at it again. He hosted Saturday Night Live and plugged Dogecoin. Most recently he tweeted about taking dogecoin payments for a new Tesla and SpaceX, just revealed it will allow a customer launching a payload on an upcoming lunar mission to pay in dogecoin.
Where did Dogecoin come from?
Dogecoin has become one of the buzziest cryptocurrencies. Its price has surged more than 10,000% so far in 2021. Dogecoin has a murky history at best. Its first exchange is wrapped up in charges of fraud, extortion, and assault. While Dogecoin has gotten all the attention, the original cybercurrency – Bitcoin continues. But the two cryptocurrencies have major differences. There are three important distinctions between dogecoin and bitcoin, according to CNBC.
Dogecoin is inflationary
Meltem Demirors, CoinShares chief strategy officer calls Dogecoin inflationary. She told CNBC,
…more doge is printed every minute of every day, giving doge a potentially infinite supply … every minute of every day, 10,000 more dogecoin are issued. That equates to nearly 15 million doge per day or over 5 billion doge per year.
An unlimited cap on supply can negatively impact value over time.
On the other hand, Bitcoin has a finite supply of 21 million. James Ledbetter, editor of fintech newsletter FIN told CNBC the finite quantity creates a “built-in scarcity … akin to the way that gold or diamonds are valuable because they are scarce.” He explained that because Bitcoin is limited, as demand increases, the price of bitcoin should also increase.
Dogecoin was ‘created for sillies’
Another difference between dogecoin and bitcoin is the reason each was created. Bitcoin launched in 2009 to become a decentralized digital currency. Bitcoin supporters see the cryptocurrency as digital gold and a hedge against inflation. Trust in bitcoin has grown with investors during its 12-year run, which led to the cryptocurrency selling for record-high prices this year.
In comparison, dogecoin was created as a joke. In 2013, IBM software engineer Billy Markus and Adobe developer Jackson Palmer, based the cryptocurrency on the “Doge” meme. The meme involves the inner monologue of a shibu inu dog expressed in comic sans with broken modifiers: “so scare,” “much noble,” “wow.” In a Reddit post, Mr. Markus explained the cryptocurrency was “created for sillies.” He continues. “… I threw it together, without any expectation or plan. It took about 3 hours to make.” As a result, dogecoin lacks technical development and isn’t as secure as bitcoin.
Dogecoin is missing an ecosystem
Bitcoin has an extensive and well-funded ecosystem that does not exist with dogecoin. Mike Novogratz, CEO of Galaxy Digital, told CNBC that bitcoin is “a well-thought-out, well-distributed store of value that’s lasted for 12 years and is growing in adoption, where dogecoin literally has two guys that own 30% of the entire supply.” He continues;
… there’s no developers on it, there’s no institutions coming in. But it’s got this moniker of the people’s coin right now … It’s a little bit of a middle finger to the system. I think it’s dangerous because once that enthusiasm dies, if it dies, you could have a long way down…
A find-and-replace job
CNET reports that most of dogecoin is a copy and replace job from the bitcoin. Most of the development was Ctrl+F ‘Bitcoin,’ replace with ‘Dogecoin.’ Mr. Markus says, “…from ‘that seems like it’s funny’ to actually doing it, took about three hours. It’s almost trivial to create a new cryptocurrency.“
Mr. Markus admits he knew enough to change a few core elements for Dogecoin. For example, Mr. Markus created 100 billion dogecoins (as opposed to bitcoin’s 21 million) and made them easier to mine. (Dogecoin is already close to being mined out, while bitcoin’s final coin will be mined in 2140.) He changed the font (to comic sans of course) and changed every mention of the word ‘mine’ to ‘dig’ (because dogs don’t mine, they dig…).
Bitcoin vs. Dogecoin
| Bitcoin | Dogecoin | |
|---|---|---|
| Symbol | BTC | DOGE |
| Year developed | 2009 | 2013 |
| Initial purpose | Created to be used as a currency or store of value | Created as a joke spoof of Bitcoin and the doge meme |
| Approximate market capitalization* | $1.02 trillion | $41.4 billion |
| Number of coins* | 18.69 million | 129.24 billion |
| Maximum number of coins | 21 million | Unlimited |
| Bankrate.com |
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While it may be nice to buy a Slim Jim with a dogecoin or go to a basketball game or ship things to the moon – there is no real reason to buy into dogecoin.
In Economics terms – Is Dogecoin (or any cryptocurrency) liquid? How easy is it to buy a gallon of gas, your dry cleaning or a Slurpee with the cryptocurrency de jour?
Until the day when it is easy to convert a dogecoin to something I want when I want it – dogecoin is nothing more than a speculative play for redddiers and billionaires – who can afford to lose their investments.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.
