I wrote this for the FreeFloat newsletter. It’s published as is here.
I will admit something first. Dogecoin is fun. Dogecoin makes you laugh out of sheer joy, despite yourself. Dogecoin sucks you down into a rabbit hole of memes, parodies, and all things not serious.
But is everything a joke? Obviously not. So, in that spirit – let’s get serious.
Bitcoin is an idea. A meme, if you will. Like how the original Doge meme is backed by a cute Shiba Inu dog, the Bitcoin meme is based on the idea of what money is. As we know, money is just a made up thing – a meme – which people ascribe value to. Money doesn’t have to be “backed by” anything. All you need is the collective belief of people in the meme of money. To take this comparison further, on the Doge side, the meme goes a bit deeper than just the dog. We have words like: “much”, “wow”, “so”, “amaze”, “many”, etc. that can enhance the context in which the Doge meme is being used. On the Bitcoin side, you have the mythical founder, dead simple cryptography, and a few other powerful ideas that go on to implement a glorified ledger of IOU’s. That ledger is considered legit because of the meme that Bitcoin is set in stone.
If Bitcoin itself is a meme, why not make a coin out of a literal meme? Enter Dogecoin.
Started off in 2013 as a joke, Dogecoin needed to work just like Bitcoin, but with a few tweaks. Why tweaks? Why not? It’s just a joke anyway. But sadly though, these weren’t “fun tweaks”. Like there is no Doge ASCII art in the transactions, or a “much wow” after every block of transactions. The tweaks were almost arbitrary technical departures from Bitcoin. Notably:
- Changing the inter-block arrival rate (Bitcoin: 10 minutes, Dogecoin: 1 minute).
- Proof of Work with the SCRYPT hashing algorithm in Dogecoin vs. SHA256 in Bitcoin.
- Arbitrary rewards for block producers, but now changed to a fixed reward of 10000 Dogecoins per block (which are generated every minute).
Dogecoin works, in the sense that the jokes are funny, and if you choose to – you could use Dogecoin as money. If enough people choose to use it, it might very well thrive, not just survive. In 2021, enough people are buying it, holding it, talking about it, “meme-ing it”, and watching its value skyrocket in terms of USD. Because it’s funny, it’s an F.U to the traditional financial establishment, and perhaps even to the Bitcoin establishment (whatever that is).
But if everything about Dogecoin is warm and fuzzy, what gives?
Two things, specifically.
1. What makes a meme?
A meme implodes if what literally backs the meme fails to work. When I say “literal”, I mean the literal thing that backs the meme. Like in the case of Doge the meme, we want that Shiba Inu dog to have been real dog (and not secretly a stuffed toy), and the meanings of English words like “much” and “wow” to not change. In the case of Dogecoin, the literal technology that underpins the meme has to work. Let’s say Dogecoin can be double-spent because of the quirky way it is mined, or let’s say users cannot audit the global supply and the ownership of their Dogecoin because they cannot run a full node, or let’s say Dogecoin’s governing rules change tomorrow….for the lulz. In fact, those tweaks that Dogecoin did over Bitcoin can be argued to be quite unsound. These, and other technical artifacts can undermine the Dogecoin meme fundamentally.
Without being controversial, I can say that Dogecoin is orders of magnitude weaker than Bitcoin in these terms.
Why is that? That’s my second point
2. Stronger meme
Bitcoin’s meme is serious, to the point of almost being noble. This has inspired serious people. Some of these people have worked hard to make small technical improvements over the surprisingly good initial design, make the code robust against bugs, have a small footprint, and keep running forever. Some others have looked hard at the theoretical aspects of Bitcoin to see why it works, and have almost convinced themselves that it works because it has to work. Some others have meme-ed the idea that Bitcoin’s rules cannot change at all, and have fought long and hard wars of attrition to keep it as it is. There are entire industries built around Bitcoin’s mission, and words like “mission” get used quite often.
On the other side, we have Elon Musk and Joe Weisenthal of Bloomberg who have meme-ed about Dogecoin. And they have meme-ed well. Like Elon putting a Dogecoin on the literal moon (whatta great meme). Joe has even joked that Dogecoin is a purer incarnation of what a cryptocurrency should be, without all the added serious baggage of Bitcoin. I argue the opposite. The serious nature of the Bitcoin meme is what makes it work, by getting the virtuous cycle of seriousness begetting robustness begetting soundness.
To meme Dogecoin into a phenomenon stronger than Bitcoin, it has to come from many fronts. Textbooks have to written about it. Academic conferences dedicated to it should emerge. Universities should start teaching courses about it. CME has to create a futures market for it. Central Banks all over the world have to start aping it. Folks should be drilling holes into the Alps to create vaults that can store a piece of paper with a private key written on it. These and many more have to happen for a meme to emerge stronger. Also, critically, despite the memes, the thing has to not change, and keep its singular purpose.
Bitcoin, luckily, had many things go its way, which kick-started the virtuous cycle of meme-ing, and those memes attracting people who were good enough to improve the thing that underlies the memes. Dogecoin might get there as well, or might not.