Does Dogecoin Coin Have Utility?

Salomon Kisters

Jun 27, 2022

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You’d be surprised that the cryptocurrency with the tenth-largest market capitalization (2022), Dogecoin, has no real-world utility to back its value, and the asset is purely based on speculation.

The cryptocurrency industry came into being in 2009 with the launch of the first decentralized blockchain, i.e., Bitcoin. In the following 13 years, so many new blockchains and crypto projects emerged and came to light.

Many declined in value soon after their release, while some thrived and developed into full-fledged ecosystems hosting numerous applications on their network.

Currently, the crypto space comprises more than 12,000 projects based on at least 1,000 different blockchain ecosystems. It includes a wide range of projects developed for various purposes.

Some are made to facilitate DeFi (decentralized finance), others accommodate P2P autonomous transactions, and still more provide scalability solutions to the existing protocols.

Among these, a group of cryptocurrencies known as meme coins is quite popular. These tokens serve no practical use, merely created for poking fun or making a joke.

Dogecoin, one of the earliest cryptocurrencies, actually belongs to this group. However, the widespread individual adoption and the cult following have earned it a unique position in the crypto space.

Dogecoin: A Brief History

As mentioned already, like the rest of the meme coins, Dogecoin started as a joke. The name and the logo are both based on a popular online meme of the Shiba Inu dog breed: Doge.

The project was created in 2013 by Jackson Palmer – an Australian software developer working in Adobe. Palmer was a skeptic observer of this newly emerging crypto sector. His earlier tweets about this technology are a satirical take on the technology.

The developer had two tabs open on his computer: CoinMarketCap (the biggest crypto price tracking site), and the other was an article about the Doge meme. When switching between the two tabs, he got an idea about combining the two elements and creating a cryptocurrency based on the Doge meme.

He named it “Dogecoin.” After getting positive feedback from social media for the sarcastic idea, he bought the website domain: dogecoin.com. However, he did not have the software written that could make Dogecoin a real cryptocurrency.

During this time, another software developer at IBM, Billy Markus, reached out to Palmer via Twitter. Markus had wanted to create a cryptocurrency project for a long time, but he was facing difficulties promoting his ideas.

When he came across the Dogecoin buzz, he asked if Palmer was willing to create an actual cryptocurrency based on this idea and got his permission to build a blockchain for Dogecoin.

Palmer and Markus officially launched the cryptocurrency on December 6, 2013. The project took off immediately, and within the next two weeks, DOGE (Dogecoin’s native token) had already surged 300% in price.

However, in the next couple of years, the joke became less relevant as the industry began to mature. The Dogecoin community faced the first major blow in 2015 when Jackson Palmer announced his resignation from the project. The developer stated that the community around the cryptocurrency and the capital it produced had become “toxic.”

Meanwhile, Alex Green (aka Ryan Kennedy) – the creator of a Dogecoin exchange called Moolah – further tarnished the community’s image. Green was found guilty of a crypto scam.

He convinced the Dogecoin community to donate large sums for the development of his exchange. But later, it was revealed that he used this money to buy himself $1.5 million worth of Bitcoin. Apart from that, he was also prosecuted for being involved in several other crimes and was sentenced to 11 years in prison.

The cryptocurrency gained momentum again during the bull runs of 2017 and 2021, rising 8,100% and 20,300% in price, respectively. As for the rest of the crypto market, 2021 was an especially productive year for Dogecoin.

The cryptocurrency got listed on some of the major crypto exchanges, such as Binance. Moreover, Elon Musk – CEO of Tesla, Inc., and SpaceX – showed massive support for the coin and praised it multiple times in his cryptic tweets.

How does Dogecoin Work?

Like the rest of the prominent cryptocurrencies, Dogecoin has its own blockchain. This blockchain is a rip-off of another cryptocurrency, Luckycoin (not active anymore), which itself was derived from Litecoin’s blockchain code.

It is a decentralized digital ledger and uses cryptographic techniques to validate transactions and record them on the database.

In order to reach a consensus, Dogecoin uses a variant of the Proof of Work (PoW) model, called auxiliary Proof of Work (APoW). This consensus mechanism enables the simultaneous mining of blocks on multiple blockchains without incurring additional costs.

In the case of Dogecoin, this merged mining protocol allows the network’s nodes to mine LTC (Litecoin’s native token) and DOGE at the same time.

In this model, the miners compete against each other by solving the same algorithmic problem for both PoW blockchains. As a result, the process requires fewer energy resources and less computing power.

However, the reward received after the completion of the block is twice the usual amount, as new coins are minted on both blockchains. The primary purpose of merged mining is to rapidly increase the hash rate of the newer and lesser-known cryptocurrency. On top of that, it also reduces the risk of the 51% attack on both networks.

The APoW model enables Dogecoin to process about 30 transactions each second, almost 5-6 times faster than the largest cryptocurrency, Bitcoin. Initially, the block reward was set to be random, varying anywhere from zero to one million DOGE.

This practice continued till February 2018. When the cryptocurrency reached the total supply of 100 billion tokens, the reward was fixed at 10,000 DOGE per block.

You should also note that Dogecoin has no fixed maximum supply, meaning an unlimited number of DOGE tokens can be created throughout its lifetime. This feature makes DOGE an inflationary currency which will negatively impact its value over time. Moreover, there is no policy to tackle this problem either.

Dogecoin Value and Utility

The value of every crypto is defined by the utility it offers. If a project is doing well in DeFi or Web 3.0 space, strengthening its fundamentals, you will probably see its price rise over time.

Take the example of the second-largest cryptocurrency by market capitalization, Ethereum. It provides a platform for the development of decentralized applications.

On top of that, it also accommodates DeFi and NFT minting. As a result, almost 75% of the total active dApps in the industry are built on the Ethereum blockchain.

Similarly, AAVE, another popular cryptocurrency, enables users to lend, borrow, and earn interest on their crypto holdings. The entire procedure is successfully carried out without the involvement of any third-party validating entity.

In 2014, the Dogecoin community raised funding to sponsor the Jamaican bobsled team for Sochi Winter Olympics and NASCAR driver Josh Wise at the Talladega All-Star race. They also donated $50,000 to fund the installation of clean water wells and solve Kenya’s water crisis.

Yet, the cryptocurrency does not offer any practicality on technical or commercial grounds. We have not seen a single major developmental improvement ever since the coin was launched.

No signs of any such upgrade can be seen in the apparent future. Moreover, there is no obvious development team behind the project trying to find solutions to all these problems.

Jeffrey Halley – a market analyst at Oanda Asia Pacific Pte with over 25 years of experience –says, “Dogecoin has no apparent commercial or investment use other than as a conduit for speculative mania and the attempt to make a buck. I suspect much of its appeal lies in the fact that it is very, very cheap to buy and sell, as opposed to $60,000 for Bitcoin, making it much more approachable to a retail trader who fancies a flutter.”

However, despite Dogecoin’s inability to serve any practical purpose, a large number of businesses and brands have started accepting it as a legitimate payment method. Following are some noteworthy companies and business sectors where you can use Dogecoin.

Online Gambling

DOGE is one of the most commonly accepted cryptocurrencies in the online gambling world. From sports betting sites to online casinos, you can find a wide range of gambling platforms where you can play using this crypto token.

Movie Theaters

AMC Entertainment was the first big cinema franchise to accept DOGE for ticket payments. Soon after, Regal Cinemas also started allowing DOGE transfers for tickets and merchandise purchases.

Retail Stores

Thousands of product distribution and logistics companies and retail sellers worldwide allow their customers to make payments using Dogecoin. Among these, GameStop and Walmart are some of the biggest names.

Entertainment

Several entertainment companies, including social media sites (Reddit) and streaming platforms (Twitch), have been accepting Dogecoin payments for some time now. You can pay for subscriptions and tip creators using DOGE.

Dogecoin as Investment

Dogecoin is one of the most popular names in the cryptocurrency space today. But the lack of utility and unnecessary dependence on speculation to drive the price high or low places it in the same spectrum as pump and dump coins.

According to the managing director at Kraken for Europe, Curtis Ting, “…investors buy Dogecoin to participate in a self-deprecating joke about their inability to invest wisely, which keeps going as the price of an individual Dogecoin continues to appreciate.”

The project will most likely lose most of its value over time due to becoming irrelevant and the uncontrollable inflation it is headed towards.

That’s why most analysts and financial experts advise staying away from this asset.

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