The Shiba-Inu-themed meme coin recorded a jaw-dropping surge of over 6,000% from the beginning of this year to its recent all-time high (ATH) of $0.7390. However, along with the rest of the crypto industry, Dogecoin suffered a debilitating crash in mid-May. The meme coin now trades at $0.2200 and ranks as the tenth-largest cryptocurrency in the market (press time data).
With this, you begin to see why this is one of the most talked-about cryptocurrencies in 2021. However, what exactly are the attributes and impact of DOGE on the crypto market, and is it a sustainable project? You have to keep reading to find out what we think.
A Brief History On Dogecoin (DOGE)
To put it directly, Dogecoin originally came about as a joke project in 2013 by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer. The developers aimed at creating a version of Bitcoin as a parody for the multitudes of coins occupying the space back then.
In an interview with Insider, co-creator Billy Markus noted that:
“The original intent was a parody of all the serious clone coins that were trying so hard to differentiate themselves, but all seemed the same. Dogecoin was just another clone coin, but instead of taking itself seriously, it was just Dogecoin.”
The developers built Dogecoin using existing open-source code from Litecoin and other crypto projects and added a few changes to it. The crypto project operates on an Auxiliary Proof-of-Work (AUXPoW) algorithm. Like Litecoin, DOGE has an infinite supply, as 5 billion coins get added to the pool every year. Dogecoin miners receive 10,000 coins per block as a reward for solving blocks. Typically, a new block gets solved on Dogecoin every minute, meaning that 14.4 million coins enter the market every day.
Impacts of Dogecoin on the Cryptocurrency Community/Industry
In the crypto space today, there are several ongoing arguments and discussions about the carbon footprint of many cryptocurrency, especially those operating on a PoW consensus mechanism like Bitcoin, Litecoin, and Dogecoin. While DOGE does not consume as much electricity like Bitcoin, it has contributed to the growing issue of energy consumption from its mining activities.
The Environmental Impact of Dogecoin
It is worth mentioning that the impact of DOGE mining activities is a bit more difficult to parse than some other cryptocurrencies. Thanks to its lighter AUXPoW protocol, DOGE has a lower hash rate compared to pure PoW protocols like Bitcoin’s SHA-256 Mining algorithm.
As of May, reports showed that Dogecoin’s annual energy consumption amounted to 2.5550 GWh. This is a significant amount of consumption power considering that the entire USA uses 3,990 TWh. Meanwhile, Bitcoin’s yearly electricity consumption number came in at a whopping 1446.6264 TWh, 36.2% of the USA’s consumption numbers.
With a significant amount of this electrical power coming from coal-burning, it has sparked outrage in environmentalist circles and governments, given the massive impact fossil burning has on climate change.
As you would expect, this has had a damaging impact on the image of cryptocurrency for investors, thereby depleting the true adoption potentials of the industry.
Large Investor Monopolize Dogecoin
Compared to most other top crypto blockchains, Dogecoin is a “ghost town.” Yet, the native token (DOGE) keeps recording huge spikes in value whenever there is a market-wide uptick. The latest of such surges occurred in early August when DOGE rallied by over 70%.
Despite having an impressive YTD performance, many analysts believe that DOGE is not a suitable long-term investment vehicle. Analysts argue that hardly anybody uses Dogecoin citing the network’s 23,000 daily transactions recorded in August as proof. Compared to the 200,000 daily transactions recorded by Bitcoin or 1.2 million recorded by Ethereum in the same period, it is clear Dogecoin does not get used frequently.
That said, why does the price of DOGE continue to surge despite having such a slim user base? The answer to this question lies in its vastly unequal ownership.
Analysts argue that Dogecoin has one of the most lopsided ownership distributions in the crypto industry, with one address reportedly holding about 28% of all DOGE tokens. Additionally, a minuscule 11 wallets control 46% of all circulation coins, while only 82 wallets control 64% of the total supply.
On August 8, Dogecoin recorded the transfer of over $5 billion worth of coins by its users. Meanwhile, Ethereum, with a significantly larger user base recorded only $8 billion on the same day. This report goes to show just how uneven and fragile Dogecoin is as an investment tool. This attribute has, yet again, rubbed many investors the wrong way and has caused them to steer clear of the crypto industry.
The Proliferation of Dogecoin Copycats (Meme Coins)
The recent boom recorded in DOGE opened the floodgates to many copycat projects looking to replicate similar success. While this expands the investment/trading basket for the crypto community, some have argued that it might be a healthy development for the industry.
Commenting on the proliferation of meme coins, Larry Cermark, Director of Research at crypto analytics provider The Block, noted that the increase in Dogecoin copycats had triggered spikes in transaction fees in their host blockchains, especially the Ethereum network. Larry tweeted that:
“I don’t have the exact numbers on this, but anecdotally, these new Doge copycats are taking a shit ton of recent block space and causing gas spikes to 300+.”
As the name suggests, meme coins are cryptocurrencies inspired by internet trends, jokes, or memes. While many traders and investors have become overnight millionaires thanks to meme coins, many analysts believe that, like jokes, they should not get serious consideration.
Unlike other crypto assets, meme coins solve no real-world problems and have no utility or fundamental foundation.
Some of the top meme coins in circulation today include Dogecoin (ranked #10), Shiba Inu (#47), Safemoon (#212), and Monacoin (#377).
The Benefits of Dogecoin on the Cryptocurrency Community
Despite the arguments by analysts against the tenth-largest cryptocurrency, Dogecoin adds immense benefits to the crypto community. While some members of the crypto community do not consider DOGE a trustworthy long-term investment option due to its foundational background works are currently underway to give the underlying network more substance.
In May, billionaire CEO Elon Musk announced that he had engaged with “Doge devs to improve system transaction efficiency.”
One impressive feature of the Dogecoin network is its immaculately low transaction fees coupled with swift transaction speeds, two desirable features for any crypto trader or investor.
While some analysts see the infinite supply of DOGE as a flaw, it is, in fact, a strength for the meme cryptocurrency. Because of this feature, investors can rest assured that they can always purchase DOGE whenever they feel like it, without worrying about inflated prices due to scarcity. This feature makes the cryptocurrency more reliable as a payments asset (currency) than other cryptos with a capped supply.
Also, the Dogecoin community argues that 1 DOGE will always equal 1 DOGE regardless of the changes in costs to dollars. They claim
Another notable benefit of Dogecoin to the industry is its community, arguably the network’s most valued feature. While it does not pull as many daily transactions like Bitcoin or Ethereum, Dogecoins boasts one of the largest fan bases. The Dogecoin community includes many prominent personalities, including Elon Musk, Snoop Dog, Mark Cuban, amongst many others, and several support groups across social media platforms like Twitter, Reddit, and Facebook.
This tightly-knit community played a crucial role in the meteoric rise seen in DOGE this year by trending hashtags globally across several platforms. There’s no denying the far-reaching impact the DOGE fan base has on the cryptocurrency community at large.
Finally, many Dogecoin users have put their holdings to good use by giving to charity and other noble purposes. This group has carried out numerous charitable projects (both known and unknown) across the globe making DOGE one of the most used cryptocurrencies in this line of activity. Such exemplary practice has helped court support for the industry as a whole in the global space.
While the current nature of Dogecoin makes it unsuitable for long-term investments, there is no denying that it is a force to reckon with in the crypto space. Its speculative attribute and online presence continue to attract traders and investors to the crypto market, thereby enlarging the cryptocurrency community. Flaws and all, Dogecoin (DOGE) is one of the most valuable cryptocurrencies in the crypto community.