Many people are surprised that Dogecoin (DOGE) has survived up to this point. That’s because it was originally meant to be a joke coin. But the joke keeps growing, and is now getting listed on more exchanges. Actually, if its founder didn’t downplay it early this year, Dogecoin would be bigger than it is today. Luckily, it has a strong community backing it, a community that has kept the momentum alive. One of the biggest assets to Dogecoin is it’s practicality as a currency.
Unlike most cryptos including bitcoin (BTC), Dogecoin (DOGE) is inflationary. It increases in supply by up to 5% per year. You are probably wondering, why is an inflationary crypto a good thing, when more supply means lower value? Well, this is may be true, but only to a limited extent. If a currency is inflationary, it actually encourages people to spend it, and this increased usage creates more demand for the currency. Over time, the demand outpaces supply, thereby leading to an increase in value that is higher than the value lost to inflation. In short, Dogecoin gets to grow in value, while at the same time growing in usage as an everyday currency.
The problem with deflationary currencies is that they encourage hoarding. That’s because, if the expectation of an investor is that value will increase due to a constrained supply, then there is no point in spending. You would rather hold on to your coins, in the hope that the price will rise at a later date. This is quite evident in bitcoin. As of January this year, more than 60% of Bitcoins had never been spent, and that number has not changed much. The only reason why people buy bitcoin (BTC) is to HODL it and hope the price will rise. The same applies to other deflationary cryptos too.
Now this may work for bitcoin (BTC) but it won’t work for the rest. It will work for BTC because of its first mover advantage, and a huge network that gives it the capacity to pivot as a digital store of value. The rest of the coins pretty much need spending for them to have any long-term value at all.
As such, being deflationary is counterproductive. That’s because they encourage hoarding, which in turn reduces their chances of adoption. Everyone can rave on about adoption all day, but if no one is willing to spend, it won’t happen. The ending will be that many of them will gain in a deflation driven bubble, then crash for good due to a lack of any meaningful use-case in the real world.
In essence, Dogecoin (DOGE) happens to be one of the cryptos that could slowly take over as a currency for every day transactions. Once that happens, people will start to take it more seriously as an investment. The only thing that Dogecoin (DOGE) needs at this point is for its developer team to believe more in the coin, and talk it up more.