Dogecoin is the Shiba Inu-themed cryptocurrency that today is worth more than SpaceX or General Motors and almost three times as much as Credit Suisse. This “joke currency” is today worth more than $70 billion at 60 cents per token. The price is up 87% in the past week, 785% in the past month, and nearly 10,000% year to date in 2021!
Dogecoin was created in 2013 by Jackson Palmer, then an employee in Adobe Systems’ marketing department, and Billy Markus, then an IBM software engineer. The pair quite literally created the currency as a joke to capture the spirit of a popular internet meme at the time, the doge. The doge meme featured a picture of a quizzical Shiba Inu with multicolored text in Comic Sans font depicting the dog’s inner monolog.
Dogecoin is a codebase fork of Luckycoin, which itself was a codebase fork of Junkcoin, which was a codebase fork of Litecoin, which in turn is a codebase fork of Bitcoin. Dogecoin originally launched using the Scrypt hash function for its proof-of-work consensus algorithm, before forking to become merge-mined with Litecoin in late 2014.
I’ve had friends that I’ve been trying to get into crypto since Bitcoin was $1,000 finally start texting/calling me. But they are asking what I think about Dogecoin.
I will readily admit that I missed the incredible run in Dogecoin’s price lately. But I am not salty about it and congratulate those that took the ride higher. At Nicoya Research, our Crypto Corner portfolio has done very well, consistently outperforming the already impressive gains of Bitcoin. But I have to wave a flag of caution here on Dogecoin.
To new investors rushing into the crypto space to buy Dogecoin, it is really important to understand that Bitcoin is very different from Dogecoin. Some are making jokes comparing the two, but these are some of the key differences that all investors should understand before putting capital at risk…
Bitcoin is absolutely scarce. There will never be more than 21 million Bitcoin. Dogecoin is infinite. The system is on track to mint 14.4 million new Doge each day and 5.2 billion more Doge each year, forever.
Bitcoin’s issuance is predictable. The users, who are self-interested to preserve the system, control the rules. Dogecoin’s issuance is unpredictable. It can and has been altered. For example, in 2014 the creators simply changed the monetary policy from finite to infinite.
Bitcoin is decentralized as a result of a robust architecture of full nodes, where individuals run the Bitcoin software at home or work. There are tens of thousands of these worldwide. Users, not miners or developers, decide which blocks are valid and which software to run.
Dogecoin is not decentralized. Nodes are hard to run and there are at most, a few hundred unique economic actors running them, and probably way fewer. There is no evidence that devs, miners, or whales would have any trouble changing the rules of the system if it suited them.
Bitcoin has a strong culture of self-custody. Millions of people + institutions directly hold millions of BTC. This prevents capture. Dogecoin has a GME culture. Many ape into the asset on apps like Robinhood, which don’t permit self-custody, making it vulnerable to capture.
Bitcoin is a trillion-dollar asset adopted by well-known, major corporations as a store of value. It is spreading through Wall Street and the global banking system. Dogecoin is a 70 billion-dollar asset which has been adopted by retail traders and a handful of whales.
Bitcoin has global + local liquidity and in every major urban area on earth someone is happy to buy BTC from you. Robust p2p markets exist worldwide as shown by LocalBitcoins/Paxful. Dogecoin is only available on select exchanges + doesn’t have p2p markets or infrastructure.
Bitcoin is one of the largest + most active software projects in the world, upgraded continuously. Its latest major upgrade Taproot is now in the activation process. The Dogecoin codebase is on life support, barely updated since 2017. It’s essentially a dead software project.
The creator of Bitcoin is unknown. If they were known, they would be in prison because BTC threatens the fiat system as well as dollar primacy as a world reserve currency. The creators of Dogecoin are well known, and fine, because it’s a joke that doesn’t threaten anyone.
The largest governments in the world including China, India, Nigeria, and Turkey have tried to limit citizens from exchanging fiat for BTC. They have failed and usage has exploded. The largest govts have not taken any specific action against Doge because it is non-threatening.
Yes, people can make a lot of money buying and selling Dogecoin, *if* they can time the market. Studies suggest that only about 5% of people are successful in trying to time the market with day trading. And even then, they will have to deal with high short-term capital gains taxes, because few actually hold Dogecoin for the long run, for all of the reasons listed above.
Remember: Dogecoin has had several insane pumps like this before, only to later fall in value by 90%+. In sum: Please do not listen to anyone who says Dogecoin is better than, no different than, or even remotely similar to Bitcoin.
Another thing that seems important to mention, 1 single address holds more than 27% of Doge, and the top 101 addresses own ~67% of all Doge. Of course, these numbers can be distorted as exchanges often hold large amounts of crypto in a few addresses. But Bitcoin is more widely distributed than Dogecoin.
And for folks saying that Doge inflation will eventually trend to zero “just like” Bitcoin, consider that in 2030, Doge inflation will be 39%, or 90x Bitcoin’s rate by that stage. And the ultimate point remains folks can change the issuance pretty easily. Not so with BTC.
Put another way, Doge’s supply will grow by ~110% by 2050. BTC’s supply will grow by ~12% by 2050.
A high hashrate is important because it makes a network secure. Bitcoin’s hashrate is ~176,000,000 TH/s. Doge’s hashrate is ~248 TH/s. Dogecoin is immensely less secure than Bitcoin.
One bullish aspect is that Dogecoin had a fair launch. Like Bitcoin, there was no token presale, pre-mine, or VC fundraise.
Memecoins with celebrity endorsements, social media popularity, adorable imagery and price momentum can do very well in short bursts. But we believe these volatile moves go in both directions and that many investors could get burned from chasing Dogecoin higher.
If you have profited from the move, congratulations! If you are long, I sincerely wish you the best and would love to see Dogecoin succeed and hold recent gains. But make sure that you understand the key differences between Dogecoin and Bitcoin outlined above, understand the risk, employ some form of risk management and invest only what you can afford to lose.
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