Dogecoin Mechanism.

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This is not financial advice.

General Conclusion

In the past time, we have witnessed tremendous growth from Dogecoin. Especially this growth comes from Elon Musk when he constantly “memes” about this coin. It is clear that even though Dogecoin is only created just for fun, this coin has reached a market cap of over US$60 million a few days ago.

In today’s article, let’s dive into Dogecoin based on the analysis of the economic mechanism we often use. Spoiler alert: this might not be the coin you want to put your money in. At least we do not.

Note: This article is not meant to be offensive, we respect the development of any coin in the space. Let’s go!

What Is Dogecoin?

A meme coin
A crypto currency
Built using the Bitcoin infrastructure, but not related to Bitcoin prices

Dogecoin ($DOGE) is an open-source p2p cryptocurrency. It can easily be sent through the internet from person to person with security. You can send Dogecoin anywhere in a second, faster and cheaper than Bitcoin.

One of the important points for Dogecoin is that it is already accepted at online retailers. Dogecoin can be used in payment, buy items at gamestop, trade and so much more.

$DOGE In Real Life

What is make Dogecoin truly unique from other currencies?

Dogecoin’s ease of use makes it the perfect way to instantly send cash gifts to people all around the world.

You can send 10 cents to your favourite comment on Twitter or $10 to your favourite band to purchase their latest album, you can even send $100 to a charity that you support.

If you are a creator your fans can financially empower you for the first time. You can directly receive cash from them, rather than a valueless “like” on Facebook or “retweet” on Twitter. This allows you to focus on creating content instead of thinking about counting cents.

How Did $DOGE Start?

Dogecoin was created on December 6, 2013, by a pair of software engineers as a joke.

Billy Markus, an IBM programmer from Portland, Oregon, created his cryptocurrency from bitcoin source and at the time attracted a small pool of miners.

Since Markus wanted his cryptocurrency to be public, he sought help from Jackson Palmer, who works for Adobe (ADBE). Palmer purchased the domain dogecoin.com – a formation for the “doge” meme that was popular on the internet at the time.

The site originated as a joke: the image of the Shiba Inu dog representing $DOGE was the first image, and was surrounded by a series of broken English Comic Sans text.

On dogecoin.com, its mascot is captioned:

“Dogecoin is an open-source peer-to-peer digital currency, favoured by Shiba Inus worldwide.”

The Economics of $DOGE

The same with other cryptocurrencies, $DOGE is a digital currency that can be bought and sold like an investment and spent like money.

While each cryptocurrency is unique, they share some similarities with its more well-known peers, since they are all forks of Bitcoin — Bitcoin Cash. But they have a few key differences.

Unlike bitcoin, which has only 21 million Bitcoins that can be mined, dogecoin has 129 billion coins in circulation and will continue to make new blocks of coins available for mining each year. That’s part of the reason why a dogecoin is currently valued at around $0.45 and a bitcoin is valued at around $40,000.

Market Design

While cryptocurrency is gaining more acceptance as a currency for buying goods, dogecoin is not being used much in the real world. It has several niche markets, including using dogecoin to make money for online artists.

And the main difference is from the active online community of dogecoin. This is what makes this coin so interesting. The group, which is active on Reddit, has donated money (in dogecoin) to charitable causes and in 2014. Or the group successfully raised a grant for drivers advertising dogecoin in their cars.

Mechanism Design

Governance

$DOGE has no administrative features. The same is true for cryptocurrencies that are forked from Bitcoin. The governance is baked directly into the code. This is because it is a simple payment use-case, unlike other DeFi protocols with more complex computation that we have been discussing thus far.

Structure

$DOGE uses the same PoW algorithm as Bitcoin. Miners can own $DOGE by participating in maintaining the network as $DOGE.

Token Design

Token Policy

The design of $DOGE is not fixed in supply, meaning it can be mined forever and its value depends on demand from users.

Bitcoin, like many other altcoins, has a hard limit on the number of cryptocurrencies they will allow. Dogecoin does the opposite, allowing for an ever-increasing supply but in a steady absolute amount each year.

For example, in 2040, there will be no more Bitcoins that can be mined. Therefore, this will encourage hoarding of the Bitcoin supply. This will push up Bitcoin’s price, but reduce Bitcoin’s actual transaction volume (i.e. reduce the available floating volume).

On the other hand, by allowing 5 billion $DOGE per year to increase the supply of Dogecoins infinitely, the supply will increase, but eventually, reach the actual limit. Thus, we can calculate the inflation rate of a currency over time.

For example, look at the chart I’ve compiled below. It shows that every decade the supply increases by 50 billion Dogecoins.

Given the amount of 5 Billion $DOGE being diverged each year, the annual inflation rate will gradually decrease.

In other words, the inflation rate improved over time, starting from 5% in 2015 to less than 4% in 2019, ~3% in 2027 and ~2.5% in 2035.

Financial Incentives

In this respect, $DOGE is paid to those who join the network. The money earned from mining $DOGE will be the main profit for mining.

TLDR:

$DOGE is a cryptocurrency that was created by a joke, but has an amazing growth as it is in the top 10 of the largest cryptocurrencies by capitalisation.

When looking at the design aspects, $DOGE is basically similar to Bitcoin but without a fixed supply and has the same amount of $DOGE mined each year (5 billion $DOGE). In terms of mining, it is different from Bitcoin as the number of Bitcoin mining is halved every 4 years.

Financial incentive when you become a miner, you join the network, maintain it and get a reward of $DOGE. Despite having a very simple mechanism, the community of Dogecoin is very large and loyal. That’s why this Cryptocurrency still exists.