Elon Musk's interest in Dogecoin seems to have come and gone, like a flash in the crypto-pan. Millions of crypto users piled into Dogecoin, hoping that the serial entrepreneur's interest would create untold wealth for those holding the cryptocurrency.
But for many, Dogecoin was always a meme cryptocurrency, one that was never meant to amount to anything other than a bit of fun.
So, why did Dogecoin fail, and will the Dogecoin price rise again? Here are seven reasons Dogecoin isn't going anywhere fast.
1. Dogecoin Is an Inflationary Cryptocurrency
The amount of Dogecoin in existence is already phenomenal. Billions upon billions of Dogecoin are held in crypto wallets worldwide.
Furthermore, around 5.2 billion new Dogecoin is minted in a typical year. The circulation and supply of Dogecoin are enough that anyone holding a bag of the coins will see the value of their investment decrease with time. With the lack of a supply cap, there is no knowing how many Dogecoin will eventually enter circulation.
On the flipside, Dogecoin's inflationary nature is one of the things that attracted Musk to Doge in the first place, making it more akin to a real (fiat) currency—and precisely what crypto advocates are trying to move away from.
2. Very Few Businesses Accept Dogecoin
In a world where cryptocurrency adoption remains relatively low, Dogecoin is a meme crypto in a world where Bitcoin and Ethereum have become household names.
On current trends, Dogecoin remains an obscurity, bolstered by its popularity on sites such as Twitter, Reddit, and TikTok, but still just an oddity elsewhere. Cryptocurrency is still confusing for vast swathes of the global population, and one based upon a funny picture of a dog is difficult to comprehend.
Cryptocurrency directory, Cryptwerk, lists over 2,000 different services that accept Doge as a payment method. The only problem? You've probably never heard of any of them.
In comparison, Bitcoin is now accepted as payment in tens of thousands of locations worldwide, and the country of El Salvador now accepts the cryptocurrency as legal tender.
3. Dogecoin Ownership Is Top Heavy
Cryptocurrencies are designed to be decentralized to prevent a single entity from exerting control over the network.
There arent many perfect examples, but the weighting of Dogecoin towards its most powerful wallets is poignant, with a single wallet controlling over 27 percent of the total Dogecoin supply. Just over 700 wallets control 80 percent of the entire Dogecoin distribution, placing the total ownership of the cryptocurrency into a small number of hands.
Now, wondering about Bitcoin? The wallet values are very different, so it's different to compare directly, but the top 80 percent of Bitcoin owners are shared between more than 15,000 different wallets.
4. Dogecoin Isn't as Decentralized as Bitcoin or Other Cryptos
Another issue that will stop Dogecoin's growth is the lack of network nodes. In terms of blockchain technology, a node is a computer connected to the network that processes transactions, ensuring the security of the network. That there are hundreds of nodes is what makes a blockchain decentralized, to begin with.
But, Dogecoin lacks in nodes. A the time of writing, there are just under 800 nodes. In comparison, there are over 12,000 Bitcoin nodes. Fewer nodes means less trust, and in the case of Dogecoin, it also means higher transaction fees.
Dogecoin Update 1.14.4 Will Reduce Transaction Fees
Before moving to the next point, it's worth considering Dogecoin update 1.14.4, which went live in September 2021. The update will strengthen the Dogecoin network and, most importantly, reduce transaction fees. For example, in mid-2021, a single Dogecoin transaction cost more than $ 2.50, but this dropped to around $ 0.30 by September.
5. Musk's Support Should Be Taken With a Pinch of Salt
Outside of the amusing Dogecoin memes and picking up the "Dogefather" moniker, Musk's input to Dogecoin is relatively small. But, as a hype-man with a global audience, you probably couldn't wish for a better advocate.
But Musk has flipped-flopped on cryptocurrency before, most notably publicly denouncing Bitcoin for its environmental issues. Musk is unlikely to take issue with Dogecoin's energy usage (it uses a hybrid AUX-PoW algorithm to conserve energy during mining), but there is a chance he simply moves onto the next big shiny tech project.
6. Dogecoin Has Very Little Going For It
What attracts users to Dogecoin? The blockchain organization? The underlying fundamentals of the token? Or, is it just about Elon Musk and the dank memes?
Although more effort is being made to develop Doge into something more respectable, most users aren't in it because they believe in the project or that Dogecoin will seriously challenge Bitcoin, Ethereum, and other cryptos. Furthermore, Dogecoin cannot host NFTs, won't be used in smart contracts, doesn't work with dApps, and offers very little to its users.
Dogecoin's main use case is "fun."
While it's easy to dismiss that as a silly notion, Dogecoin's community is very active and involved, and it's easy to get swept along for the ride.
7. Pump and Dumps and FOMO Will Lose People Money
The final reason why Dogecoin will never work is that due to its extremely low entry point and status as a meme-crypto, people use it as a pump and dump scheme. The only reason Musk and other high-profile users are even talking about Dogecoin is because of an effort between various social media platforms to push its price to $ 1.
It didn't get quite that far (topping out at $ 0.73 in May 2021), but it caught the imagination of millions of users worldwide. When something goes stratospheric, as Dogecoin did, people FOMO into the token, hoping to ride the rocket to the top. Inevitably, people lose out and lose money.
As Dogecoin is so top-heavy, all it takes is a few wallets to sell at the top to crash the cryptocurrency's price completely. Dogecoin isn't unique in this nature, but it is definitely one of the most well-known cryptocurrencies with exposure to these issues.
Dogecoin Is a Scam
Those are the words of Dogecoin co-creator Jackson Palmer. The statement covered cryptocurrency as a whole, with Palmer labeling the entire industry and ecosystem as nothing more than a get-rich-quick scheme for the already wealthy.
Dogecoin, then, is just another cog in the crypto machine, waiting to pump, dump, and scam its users. How Elon Musk's investment and oversight influence the meme cryptocurrency remains to be seen, but as with Doge, the cult of Elon is just as strong.
As ever, with any cryptocurrency or investment, never invest more than you can afford to lose, and do your own research before plowing money into something you might not fully understand.
