Jason Potts, Professor of Economics, RMIT College, Chris Berg, Senior Analysis Fellow and Co-Director, RMIT Blockchain Innovation Hub, RMIT College.
Probably the most tough issues in finance proper now is determining the basic financial worth of cryptocurrencies. And the previous week has difficult this additional.
For a lot of cryptocurrency traders, the worth of Bitcoin relies on the very fact it’s artificially scarce. A tough cap on “minting” new cash means there’ll solely ever be 21 million Bitcoin in existence. And in contrast to nationwide currencies such because the Australian greenback, the speed of launch for brand spanking new Bitcoin is slowing down over time.
Dogecoin, a cryptocurrency that takes its title and brand from a Shiba Inu meme that was widespread a number of years in the past, doesn’t have a cap. Launched in 2013, there at the moment are 100 billion Dogecoin in existence, with as many as 5 billion new cash minted every year.
However how can a forex with a seemingly limitless provide have any worth in any respect?
And why did Dogecoin’s value immediately surge more than 800% in 24 hours on January 29?
On the time of publication, the “memecoin” was worth about AUD 5.6 billion available on the market.
An extended-running joke delivered to life
Dogecoin is among the unique “altcoins”: cryptocurrencies launched within the few years after the pseudonymous Satoshi Nakamoto first launched Bitcoin into the wild.
From a technical perspective, Dogecoin isn’t very modern. Like many early altcoins, it’s primarily based on the unique supply code of Bitcoin.
Or extra technically, it’s primarily based on Litecoin, which in flip was primarily based on Bitcoin — however with some small modifications comparable to sooner transactions and the removing of the provision cap. However Dogecoin is way more fascinating when seen by way of a cultural lens.
The cryptocurrency was created by software program engineers Billy Markus and Jackson Palmer — though Palmer, an Australian, has since walked away from the undertaking. They branded it with the Doge meme partly to be humorous, but additionally to distance it from Bitcoin’s then questionable reputation as a forex for illicit transactions.
Now, Dogecoin has outlasted virtually all of the early spinoff altcoins and has a thriving neighborhood of traders. In 2014, Dogecoin holders sponsored the Jamaican Bobsled Group. Soon after, they sponsored a NASCAR driver.
Collectivism results in creativity
Dogecoin was made as a joke to make enjoyable of cryptocurrencies, however destiny loves irony. Essentially the most ironic final result can be that Dogecoin turns into the forex of Earth sooner or later.
However Dogecoin is finest regarded as a cultural product, somewhat than a monetary asset. The fact is few cryptocurrency customers maintain it as a critical funding or to make use of in common transactions. As a substitute, to personal Dogecoin is to take part in a tradition.
Folks purchase it as a result of it’s enjoyable to have, is inherently amusing and comes with a welcoming and satisfying neighborhood expertise.
If we begin considering of the cryptocurrency as a cultural product, final week’s sudden leap in Dogecoin’s value is sensible. The increase got here simply after a meme-centric neighborhood managed to drive the share value of videogame retailer GameStop from US$20 to US$350 in mere days.
This swarm behaviour was in contrast to something seen earlier than — and it frightened international monetary markets.
One significantly fascinating side of the Reddit discussion board r/WallStreetBets — which coordinated the assault on the hedge fund that had successfully wager on GameStop’s share value falling — was what number of customers have been having enjoyable.
It’s no shock exercise surrounding Dogecoin has the same vibe; it was designed to be enjoyable proper from the beginning.
Doge: icon of the web
Some folks take part in monetary markets as a type of consumption — which means for leisure, leisure and to expertise neighborhood — simply as a lot as they do for funding.
Cultural property comparable to Dogecoin are laborious to systematically worth when in comparison with monetary property, a bit like how we don’t have a elementary theorem for pricing artwork.
Virtually by definition, the demand for a memecoin will fluctuate as wildly as web tradition itself does, turning cultural bubbles into monetary bubbles. RMIT professor and crypto-ethnographer Ellie Rennie calls these “playful infrastructures”.
By inspecting Dogecoin carefully, we will be taught loads in regards to the interaction of know-how, tradition and economics.
Furthermore, cryptocurrencies are terribly numerous. Some are constructed for small funds or to be resilient holders of worth. Others shield monetary privateness or act as an inside token to handle sensible contracts, provide chains or electrical energy networks.
Underneath the hood, Bitcoin and Dogecoin look virtually precisely the identical. Their code differs in only some parameters. However their financial features are virtually solely reverse.
Bitcoin is a sort of “digital gold” adopted as a safe hedge towards political and financial uncertainty. Dogecoin, alternatively, is a meme folks add to their digital pockets as a result of they assume it’s humorous.
However in an open digital financial system, memes transfer markets.
Be taught extra:
Elon Musk Lights Dogecoin Candle Again, Removes Bitcoin From Twitter Profile
GameStop: How Redditors Played Funds For Billions (And What Might Come Next)
A Reddit Army Blurs The Line Between Crypto and Traditional Finance