It’s always better to be smart than ignorant, but sometimes you just have to be lucky. Let’s say an investor, Claudia, had an emergency fund on hand during the peak of the pandemic last April and was given the freedom to use her first $ 1,200 stimulus check for investment purposes. Know nothing of Dogecoin (CRYPTO: DOGE), or whatever it does, it goes all-in. In hindsight, her courage paid off, as Claudia’s meme purchase would have turned into a staggering $ 168,240 to date, and it would have more than doubled if she had paid off during the highs last May.
So what did this meme cryptocurrency – which started out as a joke – gain so much? And more importantly, is the meteoric rise of Dogecoin a harbinger of what’s to come?
Cryptocurrencies are more like cyber organisms in that they are constantly evolving. Just because Dogecoin started as a meme doesn’t mean it has to or will always stay that way. Let’s look past the fear, uncertainty, and doubt – known in the cryptocurrency world as FUD – surrounding the iconic Shiba Inu cryptocurrency and see why it could be a solid investment.
Both of them last month Tesla‘s CEO Elon Musk, affectionately known as “the Dogefather” by Dogecoin fans on Twitter, and billionaire owner of the Dallas Mavericks Mark Cuban, claimed Dogecoin was the “strongest” cryptocurrency as a medium of exchange. By the way, Cuba’s NBA team also accepts Dogecoin as a means of payment for tickets and merchandise. Three years ago, only about 154 merchants around the world accepted Dogecoin as a means of payment. That number climbed to 1,662 in September, with 70% of businesses being from outside the US
It’s way too short Bitcoin (CRYPTO: BTC)which is accepted by 7,440 merchants worldwide. Note, however, that adoption isn’t the main reason Dogecoin is a solid buy. After all, a competitor Litecoin (CRYPTO: LTC) has a much smaller market cap, but a greater number of companies that accept it – over 3,000 in fact.
To understand why Dogecoin has value, we must first understand the current state of the cryptocurrency ecosystem. Miners play an essential role in validating transactions for proof-of-work networks like Bitcoin, but their equipment is high-energy and environmentally harmful, especially if it is a coal-fired power station that produces the electricity.
The solution for many in the cryptocurrency community is to develop proof-of-stake networks and simply let the coin owners validate transactions themselves. However, such a setup would completely destroy the livelihoods of miners.
So here comes Dogecoin Doggy paddling his way to the rescue. Each DOGE transaction uses less than 0.01697% of what it takes to send Bitcoin from one address to another. This is because the cryptography used in Dogecoin is less complex than that of Bitcoin and requires less processing power to validate transactions. In addition, the network was intertwined with that of Litecoin early in its development so that miners mining LTC can also mine DOGE at the same time.
In addition, DOGE has an inflationary supply, with 5 billion new DOGE being introduced each year on top of its existing supply of 131.1 billion. This ensures that miners always receive adequate rewards for their role in validating transactions. All you need is that the net inflow of capital exceed this inflationary benchmark in order for the value of the coin to go up.
In the end, his network created an ecosystem that is friendly to all participants, miners, users and the environment. Additionally, thanks to endorsement from celebrities like Musk, Dogecoin has a higher level of acceptance than other under-the-radar cryptocurrencies that could do the same job.
The future is bright
Dogecoin’s biggest bullish catalyst is the re-establishment of a central development team. Notable members are Vitalik Buterin, the founder of ether, who joined the board of directors of the Dogecoin Foundation last month. The Dogecoin Foundation was established in 2014 but disbanded over the years as the developers lost interest in the project. Now it’s making a comeback.
In the near future, the Dogecoin network could encounter new protocol upgrades like the smart contract functionality that will allow it to keep up with that of Ethereum and Bitcoin after its taproot upgrade. On September 3rd, Elon Musk sponsored a major network upgrade that increased security and reduced transaction fees.
Overall, Dogecoin has its paws firmly rooted in a unique niche and remains a solid investment over a two-year period. Even if this situation could change, the return of the developers would ensure that the network can renew itself and solve new blockchain problems. But do you know that the perfect time to hit the cryptocurrency ended some time ago.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.