Dogecoin: The Value Proposition That's Worth More Than a Penny  by@atrigueiro

Dogecoin: The Value Proposition That's Worth More Than a Penny

January 6th 2021 43,422 reads
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Anthony Watson HackerNoon profile picture

Anthony Watson

Coder and the Author of "Cryptocurrency Investing in the Age of Dollar Chaos"

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Cryptocurrency gains coming into 2021 have been impressive. Bitcoin is trading at an all-time high and approaching $36,000.00 per BTC. This is practically double the peak achieved in late 2017 before the precipitous drops of 2018. The year 2021 is feeling a lot different than 2018 in the cryptocurrency universe.

Yes, the SEC is suing Ripple. The government claims XRP is a security. This has caused the coin's price to crash. Despite this, the rest of the cryptocurrency universe is up and up big. Bitcoin looks like it is here to stay. Ethereum also looks very likely to have a long life. Litecoin, Lumens, and LINK appear healthy too. There are a lot of cryptocurrencies out there.

There is a cryptocurrency out there that many consider a joke. That cryptocurrency is Dogecoin. One can be excused for thinking this since the cryptocurrency was created literally as a joke. As such the value of the coin has historically been in fractions of a penny.

Dogecoin was created by Jackson Palmer and Billy Markus to satirize the growth of altcoins by making the doge internet meme into a cryptocurrency. It is a derivative of Luckycoin which forked from Litecoin and uses a Scrypt algorithm. Dogecoin started its initial coin production schedule with 100 billion coins in circulation. By mid-2015 the 100 billionth Dogecoin had been mined though. Now, an additional 5 billion coins are put into circulation every year.

There is no cap to the supply of coins and thus the coin can inflate infinitely. Dogecoin had a supply limit of 100 billion coins, which when launched was far more coins than the top digital currencies were allowing. Nonetheless, by February 2014, Dogecoin founder Jackson Palmer removed the limit. He announced there would be no cap.

This cap removal was partially to continue the joke. Bitcoin and other cryptocurrencies do have a cap on the number of coins the system will support. Dogecoin without a cap should suffer from a constant reduction of its value over time. It is eight years later though. The Shiba Inu is still grinning and Dogecoin is trading around a penny. This is a significant increase over its historically low fraction of a penny price.

Cryptocurrency ecosystems are kept alive by mining activities. These activities in general involve the miners maintaining nodes on the network and processing transactions for the cryptocurrency rewards of solving complex equations meant to verify network viability. Bitcoin's supply is capped at 21 million coins. As the cap is approaching, the rewards for mining have been reduced as far as the number of coins. However, because the price of Bitcoin has been increasing the reduced coin count has not seriously changed miner behavior.

No one actually knows what will happen when the cap is hit and no more Bitcoin will be rewarded for mining. The idea is that the network will be self-sustaining by this point. Transaction fees are expected to compensate node operators since mining will no longer yield coins.

It is possible miners may flee the Bitcoin network for more lucrative currencies. This would harm the network and make the dreaded 51% attack more possible. It is also possible the Bitcoin protocol will be changed to allow for more than 21 million coins.

This IS possible. Code can be changed. One wonders what might happen to BTC value was this to happen suddenly and without warning. Insiders would make a killing shorting the coin if they knew ahead of time. However, this type of speculation is for another essay.

Back to the Dogecoin value proposition, because there is one. It is why Elon Musk is tweeting about it. It is why I am of the mind I should accumulate as much Dogecoin as I can. At least any time the price drifts much below a penny.

Dogecoin has a value proposition because there is so much of it. That value proposition is increased precisely because it is NOT capped. The entire mining ecosystem understands what the rewards are for supporting the network. There is no rush to an "alleged" hard cap. This makes the network stable going into the future.

There is also a known amount of coin inflation built in to keep the ecosystem alive. Annually, five billion coins are added to the system. This actually limits the GROWTH of supply. Ergo, if DEMAND OUTSTRIPS SUPPLY boom we have increased value. Cryptocurrency ecosystems are growing by leaps and bounds. A greater than five percent increase in transaction traffic is very possible. In fact, some would say it is LIKELY.

Even with so much Dogecoin out there, the value is currently going up. This means the ecosystem is growing. It began with just artists and content creators tipping each other, but this has grown to a fully functional currency that can be used to buy things. There is so much Dogecoin, one is less likely to hang onto it and NEVER spend it. One can always obtain more so the ecosystem is encouraged to be alive and functional.

This is why I think Dogecoin's price can grow beyond a penny. I find a dollar a lot harder to imagine unless Dogecoin becomes the currency of choice for more people. It is easy to imagine growth here though. Growth in a living breathing cryptocurrency network which can only add less than 5% to its supply according to the current protocol. If there is more than 5% growth in Dogecoin usage in a given year then the value should go up. Supply and demand are still driving this market. Think about it.

Disclaimer: The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice.
Please conduct your own thorough research before making any investment

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