Bobsleds, Shiba Inus, and the Wacky Economics of Dogecoin

Cryptocurrencies” are defined as a digital medium of exchange. Since the inception of Bitcoin in 2009, a massive wave of digital currencies has flooded the global internet market. While Bitcoin still reigns as the dominant digital currency of the world at over 600 USD per coin, other “alt-coins” fill niches that Bitcoin cannot occupy.

Painting by Inti Orozco

Painting by Inti Orozco

Though Bitcoin is seen as a global, peer-to-peer form of exchange, it lacks a human element of heart and goofiness. Dogecoin, born as another mock-up of Bitcoin, is unique because it embodies the accessibility that is absent in Bitcoin.

Dogecoin was first conceptualized in December of 2013, by the programmer Billy Markus. Markus dreamed of a cryptocurrency that would be fun and able to reach a greater audience than just technologically-adept users. To make this a reality, he employed the popular internet meme of “Doge,” simply a picture of a Shiba Inu (a breed of dog). The creation of Dogecoin, according to him, also arose out of a wish to distance cryptocurrency from traditional dark roots.

In an interview with Vice, co-creator Jackson Palmer explained, “A lot of cryptocurrency—namely Bitcoin, with its history with Silk Road—has been sitting in the shadows. It’s associated with the dark web,” Palmer said. “So I think by combining a coin with a meme, which is something that people see spammed to hell on their Twitter and Facebook feeds every day, I think it adds a face, the Doge face, and makes it more accessible. It’s something people can get behind. It’s no longer this shady thing that geeks in basements use.”

However, the actual science and economics of Dogecoin is much more complicated than the friendly appearance insinuates. Dogecoin and other cryptocurrencies have faced difficulty as the question of regulation has come up.  While called a “currency”, Dogecoin isn’t backed by any central power, which has been quandary for regulators trying to define it.

As Dogecoin is not backed by a central bank or government,  it fails to pass the “currency” test in many countries.  But as a commodity, Dogecoin would be exposed to taxes such as the Value Added Tax, which could make it too expensive to use as a method of payment. Currencies are usually exempt from the VAT.

Currencies gain value in part because of the value of the country they represent. Buying a US dollar can be thought of as buying into the United States economy, in a sense betting on its success.  As such, currencies gain value as their respective economies grow.  Cryptocurrencies are based upon mathematical principles, which represent no value. Instead, cryptocurrencies are worth only what general society collectively believes they are worth. A robust economy for a currency, such as Dogecoin, pushes up its value as more people believe that Dogecoin is worth something, which in turn reinforces the idea further.  While technically this means Dogecoin, and money, is being created from no value, this is no different from any other traditional or cryptocurrency.

This societally guaranteed belief also makes Dogecoin extremely vulnerable.  While it may be valuable now, a widespread sell-off could lead to a sharp devaluation in prices. One extreme sell-off could spark a resulting storm of devaluation and sales, further fueled by the fact that those to sell first would profit the most.  A way to understand this would be to imagine a theoretical magnet that grows more powerful as it attracts objects, such as iron filings.  In a comparison using the magnet, the magnet represents dogecoin, and iron filings represent investors and users. As more iron filings (investors), latch on to the magnet, the attraction of the magnet grows stronger.  But as soon as the first large block of iron fillings detach, the magnet grows exponentially weaker moving more and move iron filings to detach in turn.  While traditional currencies can fight this extreme devaluation through measures taken by a central bank, Dogecoin, based upon mathematical principles, is vulnerable.

Dogecoin is unique among others as fundamentally an inflationary currency, much like most traditional currencies in the world today.

Dogecoin enter the market through “mining”, where computers compete to be the first to solve an equation.  The winning computer is rewarded with a “block” of coins.  Computers can also be linked together into networks to increase processing power.  These networks offer opportunities for newcomers to start generating Dogecoin without dedicated powerful “mining” computers.  The difficulties of the equations also adjust to the power of the computers trying to solve them, so that coins will always be released at a constant rate.  Even with an exponentially more powerful computer beginning to mine, no more coins will be released then before.  Another important thing to recognize is that Dogecoin differs from Bitcoin in it’s mining model.  “Blocks” of Bitcoins begin to decrease in value over time, until the predetermined amount of 21 million Bitcoins are eventually released.  “Blocks” of Dogecoin will constantly be released at a rate of around 5 billion per year, which makes it an inflationary currency.

This mining also serves a secondary purpose beyond introducing coins into the markets.  While computers mine for coins, they also verify the transactions taking place.  In this way, all transactions have a record kept and can not be easily faked.

As an inflationary currency, more Dogecoins are always entering the market.  Therefore, over time there is inflation, where currency isn’t worth as much as in the past. Because of this, there is an incentive to spend, which powers the economy.  In contrast, deflationary currencies, such as Bitcoin, have a fixed amount of currency to enter the market. At a certain point (estimated around 2140 for Bitcoin), no more coins will enter the market, but instead coins will be removed, as hard drives are destroyed or data is lost.

Because of its deflationary nature, there is little incentive to spend Bitcoin, which leads to static investment and a stagnant Bitcoin economy.  There are already examples of this phenomenon, as people invest in Bitcoin hoping for a jump in value back to previous highs of $1000 US per coin.

Thus, ideas of community are extremely different when contrasting Dogecoin with Bitcoin. In general, Bitcoin users tend to be much more introverted and even shady due to the deflationary nature of the currency. However, Dogecoin users seek as much expansion and publicity of their currency as possible in order to increase its value.

To publicize Dogecoin, users collaborate to find projects that will both make an impact on the global community while simultaneously gaining attention for Dogecoin.

These initiatives are spearheaded through one central organization called the Dogecoin Foundation. First conceived by the founders of Dogecoin, the Foundation pledges “to promote use of the currency through a combination of goodwill, charitable, and promotional endeavors, and providing incentives to those with the skills to improve the experience of using the coin,” according to their website.

Though the foundation was only recently established, it has several initiatives to show for its short existence. One such example is crowdsourcing the Jamaican national bobsled team, who, in January of 2014, had qualified for the Winter Olympic Games in Sochi. Despite qualifying, the team was unable to pay for the trip to Russia, and released a public plea for monetary support.

The Dogecoin foundation discovered the fundraiser, and immediately employed the Dogecoin users to help. In the short span of just 3 days, the community raised over 27 million Dogecoins, or approximately $30,000 USD (at the time) for the cause, completing the majority of the desired goal.

The funding earned the desired amount of publicity for Dogecoin as well; major news sources around the world picked up on the story, and the currency gained recognition from news sources such as NPR, Business Insider, The Guardian, and Forbes. In accordance with the attention, Dogecoin witnessed a large bump in price.

Since the bobsled fundraiser, the Dogecoin Foundation has pursued several other causes with the support of the Dogecoin community. The organization attempted to fund the Indian athletes for the Winter Olympics, and had even raised 4 million DOGE before the Indian government stepped in to cover the costs.

Currently, the most-focused fundraiser is Doge 4 Water, a non-profit organization hoping to reach their goal of 40 million Dogecoins to build two wells and bring clean water to rural parts of Kenya. This goal was reached on March 16th, with over 40 million Dogecoin (over $31,000 US). The foundation can thank anonymous Twitter user “Hood” (under the pseudonymic Twitter handle @savethemhood), who donated 14 million (Almost $11,000 US) Dogecoins via a tweet using an automated “tipbot.”

Forbes has hailed Hood’s tweet as “The Most Expensive Tweet Ever,” but the tweet also demonstrates the simplicity and power of cryptocurrency. Two parties exchanged this massive sum of money for virtually no tax or transferring fee.

In order to better understand the nature of Dogecoin, we reached out to the centralized community on Reddit ( We created a post, explaining our idea of writing a story about the currency for the Paper Tiger, expected a mild response with one or two users offering to help. Instead, our post reached the front page of the Dogecoin subreddit within 12 hours of the posting, and received dozens of comments expressing support for the article as well as offers to help in any way possible. We believe that the motives of these users to express their support for the publication of an article on Dogecoin is similar to their reasons of funding charities; they sought the attention of news as a way to gain more publicity, and increase the price of Dogecoin.

Additionally, we received several Dogecoin tips, ranging from 5 coins to 1000. We accepted this sum by setting up a virtual wallet to collect them.

In total, we were given 1640 Dogecoins, which amounts to a whopping $1.27.

Furthermore, some of the stories from users we received expressed the ambitiousness and optimism of the Dogecoin culture, as well as the absolute devotion users have to the currency. One user stated that her husband had quit his job to manage the complex hard drives needed to mine Dogecoins full-time. The Ladera Granola Company, based out of Ladera, California, notified us that they had recently started selling 12 ounce bags of their granola for 14,619 Dogecoins, and change the price with the rising and falling exchange rate for DOGE. One entrepreneur in Wisconsin even put his house on the market for 100 million Dogecoins in March. Users such as these embody extreme confidence in Dogecoin, risking loss of profit and time because they believe that Dogecoin has developed so much in its three months of existence, it is worthy of taking seriously.

Upon concluding our research for this story, we were left with the 1640 Dogecoins, and found ourselves lost for a cause. We pondered continuing to try to gain tips on Reddit, and saving up and investing in Dogecoin. We also thought about saving our small sum for several years, and selling them for thousands of dollars when /r/dogecoin attains their goal of surpassing Bitcoin. But we thought realistically, and decided to donate it to Doge 4 Water, all $1.27 of it. With a few simple clicks, we parted from our newly attained cash. Though we knew we would not become millionaires selling DOGE in the future, we corresponded with the values of the Dogecoin community, and supported their cause, playing our part in advancing towards the future of universal internet money.

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