- Tiena Sekharan
What explains the success of Dogecoin?
Updated: Jun 14, 2021
Bitcoin’s strength is its decentralization
One of the reasons that bitcoin works is that it is decentralized. Many cryptocurrencies claim to be decentralized and they are certainly more decentralized than say the U.S. dollar, but there are different levels of decentralization and no currency comes anywhere close to bitcoin’s level.
Bitcoin has several stakeholders- coders, users, miners, and nodes. While these stakeholders are collaborating to ensure the success of the coin, there is constant tension between them as well. For example, increased block sizes might be good for miners (as it would allow them to earn more in transaction fees) but not for nodes (who would need more storage space).
This relationship has developed organically with no party capturing power. This is because the time to capture power was in the initial years of the life of the coin and at that time it was not obvious that bitcoin would work. Also, the people who could have captured power (Satoshi Nakamoto and Hal Finney) are no longer around.
Bitcoin’s success has spawned several copycats. Which copycat will succeed?
Now that the success of bitcoin has proved that blockchain technology can be used to create a secure digital currency, several copycat digital currencies have been created from the same code base. With so many copycats, which ones will stand out?
The coins that stand out will be the ones that are marketed most extensively. The rest will languish. An individual or team will need to take charge- write the code, market the project, mine the coins, and maintain the nodes. But if the same person or group of persons are coding, marketing, mining, and storing blocks, then the blockchain is no longer decentralized.
Therefore, the conundrum is that - For a copycat to be successful, it must be centralized, but if it is centralized then it no longer functions as a decentralized currency.
Dogecoin as Digital Silver?
This is where Dogecoin comes in. It started as a joke. The creators who didn’t care much for bitcoin, thought it would be hilarious to have a cryptocurrency with a Shiba Inu meme as its logo, and went on to build it on the same code base as bitcoin. They didn’t think it would ever be taken seriously.
The meme coin went viral without any sort of marketing effort. Other developers contributed to the project even after co-founder Jackson Palmer took an “extended leave of absence” from the crypto community. Everyone from r/wallstreetbets to Elon Musk to Tiktok stars jumped in
What this all meant was that Doge grew without power getting concentrated with a central figure. Similar to bitcoin, its creator is no longer involved in the project.
Bitcoin is the undisputed Digital Gold but one could argue that Doge is a good contender for the role of Digital Silver. Silver has underperformed gold but it has outperformed U.S. dollars and that may be a good enough reason to buy Doge.
Mind you, that decentralization includes many parameters and Doge doesn't do well on many of them. Top 100 addresses own 67% of all Doge in circulation, indicating centralized ownership. 67% of market cap was traded in the last 24 hours, indicating wash trades.
## I personally do not own doge and do not plan to ##