Crypto Analysis Series - Part 4: Dogecoin

Intro

Two guys, Billy Markus, and Jason Palmer were introduced to the crypto-world in 2013, a time were several bitcoin-like copycat cryptocurrency projects were popping up regularly with little or no difference from the original bitcoin source code. With hundreds and thousands of nonsensical altcoins flooding the market, a few people began creating spoof cryptocurrencies and brazenly promoted their absurdity as a selling point. There were harmless parodies, intended for nothing more than a few laughs. However, the hysteria and buying patterns drove the prices of these gag cryptocurrencies up to bizarre heights. Even the creators of said altcoins could only look on in bewildered amusement.

It was a trend to build your own cryptocurrency at that point, as several had quickly gained traction and amassed a market cap of several million dollars. Billy and Jason decided they will try their hands as well, in making up a random cryptocurrency, based on an internet MEME complete with the much-hated Comic-sans themed repository/website, in order to market it as a joke so that the community realizes the scrupulous practices being carried out in the name of cryptocurrencies.

Both the founders probably did not realize that their joke would turn out to be incredibly valuable in monetary terms, with a dedicated community of loyal users and real-life use cases. It didn't take much time for Dogecoin to shift its marketing and business strategy from being a joke to be a cryptocurrency with actual cross-border use, maybe accumulating a demographic broader than Bitcoin itself.

Breakdown

Introduced in December 2013, Dogecoin was forked from Luckycoin (a derivative of Litecoin) with a fixed market supply of 100 billion DOGEs, distributed through a cryptographic mining algorithm similar to Litecoin. After realizing that it actually is well received and used, the fixed supply was changed to infinite, with Billions being mined every day at the time. Dogecoin prides itself of being backed by a loyal community of users who actually envision DOGE to reach substantial heights. One example of this is the Dogecoin wallet hack that gave away several million coins, wherein almost immediately, the community started a fund called "SaveDogemas" where users can donate a small amount to refund everyone who lost funds in the attack. In a short while, the funds were accumulated and re-distributed to the affected parties.

'When I jokingly tweeted about "investing in Dogecoin" in late 2013, I never imagined that the tongue-in-cheek cryptocurrency I had just brought into the world would still be around in the year 2018, let alone hit a $2 billion market cap like it just did over the weekend.'

Jackson Palmer

Technical details:

Max Market Supply: Started off as 100 billion but forked to accumulate an infinite supply

Current Supply: Approx. 117 billion (November 2018)

Blocktime: 1 minute

Block reward: 10,000 per block

Inflation rate: 5.2 billion doge per year

Mining Algorithm: DigiShield

Difficulty retarget: after each block

Use cases

Dogecoin is mainly well-regarded for its incredibly short block time when compared to the average cryptocurrency, due to which it has been regularly used as a transfer mechanism among exchanges, wallets or commodities. Also due to its relatively high liquidity low market value and negligible mining fee, Dogecoin is the go-to currency for value transfer among small-market players who cannot afford the high transfer fees of Bitcoin, Ethereum, Neo, etc.

Following are the several use-cases Dogecoin has found in the real world, mostly due to the continuous voluntary activities carried on by the local community.

Through the ‘Dogecoin Foundation', the community donated to charitable causes such as sending $30,000 to Kenyans in need of drinking water, helping the Jamaican bobsled team participate in the Winter Olympics, and raising over $25,000 for a British organization that trains service dogs for children with disabilities.
Due to its high liquidity and low-transfer fee, Dogecoin has found itself as being one of the most used cryptocurrencies for cross-border payments, fulfilling one of the first real visions of a cryptocurrency
In the online gaming market, Gamers have enthusiastically taken up the concept of Dogecoin for buying and selling virtual gaming good, thereby making money out of their hobby. It has opened up a new business area altogether.
This might just be the most fascinating use-case yet when the members of the Dogecoin Reddit community decided to fund $55,000 (around 67 million Doge at the time) to Driver Josh Wise for his NASCAR race at the 2014 Talladega Speedway. Wise finished at the last place, but the effort from the community was much appreciated by all.
Dogetipbot is another effort by the community to help users tip anyone they want to with cryptocurrency.

Criticisms

Inspite of all that Dogecoin has achieved, it faces many criticisms for its backward nature and humorous approach to money and finance.

The most fierce criticism is with respect to the core developing team of Dogecoin. There has been no software update to the Dogecoin protocol since Jan 2015 which brings many vulnerabilities from back in the day still open to manipulation. There is periodical news about how certain dogecoin wallet was hacked and a few million Doge was stolen. The community tries as much as it could to cloud it, but it ultimately questions the security of the protocol and the integrity of the loyal members.
Criticisms sprang when Jason Palmer himself questioned the legitimacy of his "Joke cryptocurrency". His article on Motherboard in early 2018 puts the question forward about why does the cryptocurrency still function? His view is that the ecosystem should've realized the unimportance of the protocol long ago and moved ahead for further research and innovation
The 1 minute block time that Doge boasts is sometimes considered a huge threat to the security and integrity of the cryptocurrency. Protocol experts argue that the reason Bitcoin has a 10-minute block time is not arbitrary but well thought out as it provides security and discourages internal divides through the "longest chain wins" idea. The block time of Doge being only 1 minute opens the cryptocurrency for a wide array of attacks and internal division. It is argued that if Dogecoin appreciates in value over time, we might see a brutal fight for legitimate power, similar to the BTC vs BCH divide.

Take away

Unlike most cryptocurrencies that carry a fixed supply, Dogecoin is one of the few startups that feature an inflationary supply, to help with constant growth. From a market cap of about $13.5 million in January 2015, Dogecoin broke all conceptual predictions when it crossed the $2 billion dollar mark in late 2017.
Dogecoin, in some ways, brought out the humble, nice side of the internet. The internet can often be a cold, mean place, where people just want to troll one another. But Dogecoin and the community that is built of off about 40,000 and growing of people on Reddit and there's more internet-wide, brings out the best in people. That's just one side of the coin though.
Looking at the currency trend for several years can reveal that Dogecoin is still living due to the efforts of the developers and member of the Dogecoin community. It has been a conscious effort of many players who just want to show that on the Internet, anything and everything which has backing can survive. Be it a joke or a real-life usable service. One can argue that Dogecoin is both at the same time.

Sources