From the beginning, boosters of Dogecoin have said the meme-themed cryptocurrency was different from all the others. Many of the other major currencies, like Bitcoin and Litecoinhave a hard cap on the number of coins that can be created; when Bitcoin hits 21 million coins inno more new units of the currency will even come onto the market.
Dogecoin, on the other hand, will go on creating new coins forever—making it more akin to currencies issued central banks. There are a couple reasons behind the decision. The first is that Palmer was hoping to ensure the health of the Dogecoin network itself. New coins enter the market through a process called mining. Using an elaborate guessing game of solving incredibly complex mathematical equations, one group of miners somewhere on the system is rewarded with a block of freshly minted currency every so often.
For cryptocurrencies with a limited supply, the rate at which new coins are generated gradually slows over time until it hits zero. As block rewards get lower and lower over time, these guys disappear and move on to a newer, more profitable alt-coin. This is the fate of most coins coming on the market and why you see them popping up and dying every day. By keeping the reward there, the hope is that a number of miners will remain and keep the network running into the future. If it costs more U.
Imagine how much the price would have swung up if there were no new bitcoins coming onto the market. But a constant, expected increase in value also has a downside—hoarding. If someone is holding currency they know is going to increase in value, they have an incentive to hold onto it.
This strategy works well for assets like stocks, but no one is trying to build a global payments network exclusively using shares of Exxon Mobil. The deflation issue has already hampered some business attempting to deal in Bitcoin. Dogecoin is known primarily for two things: Dogecoins move from person to person at a rate far higher than any other cryptocurrency. The majority of this transaction activity comes in the form of users donating Dogecoins to each other, either by giving to charity or tipping each other with the help of automated bots on social media sites like Twitter and Reddit.
Much of this free flow of Dogecoin can be attributed to a single coin only being worth a fraction of a penny, making the act of tipping someone for making a clever comment on Reddit only a tiny bit more consequential than hitting the? Adding more units to the money supply a. Basically, the amount of money in an economy should ideally grow at at about the same rate as the economy itself.
A little bit of price inflation, however, is often seen as healthy for an economy. Since people know that the unit of currency sitting in their pocket is slowly becoming less valuable the longer they keep it there, they have an incentive to spend it—an act that makes an economy grow.
Currently, only a small handful of merchants accept Dogecoin, but there are efforts to expand that base. Having a nice, steady, predictable money supply is actually a good thing. One positive sign for Dogecoin to keep inflation at a healthy rate, despite a constant projected expansion of the overall number of coins, is that, while virtual currencies technically last forever, a significant number of them simply become lost.
A coin that nobody mines is a dead coin, so by keeping the incentive there be it with fairly low rewards past the target cap, we hope that Dogecoin can continue into the future rather than just dying like the majority of other alt-coins.
Aaron Sankin is a former Senior Staff Writer at the Daily Dot who covered the intersection of politics, technology, golden retrievers who know how to dunk, organizations adapting to our increasingly connected world, online privacy, the role of dank memes in popular culture, Twitter bots, and that same golden retriever who as it turns out is also pretty good at lacrosse.
He lives in Seattle, Washington and became a reporter at the Center for Investigative Reporting in Latest Chrome update may have broken millions of web-based games Phillip Tracy — May 7. The key is for the currency to hit that inflationary sweet spot. Aaron Sankin Aaron Sankin is a former Senior Staff Writer at the Daily Dot who covered the intersection of politics, technology, golden retrievers who know how to dunk, organizations adapting to our increasingly connected world, online privacy, the role of dank memes in popular culture, Twitter bots, and that same golden retriever who as it turns out is also pretty good at lacrosse.
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