Beyond doubt, things have not been easy for Dogecoin in the recent months. When the coin was created in December 2013 by Jackson Palmer and Billy Marcus, it was intended as a joke and not designed to last for more than a year. A total of 100 billion Dogecoins was set to be released in just a little over a year, while mining rewards were set to random amounts to add some fun to the mining. The latter functionality was based on the cryptocurrency Luckycoin.
In an unexpected turn of events, the coin quickly became an internet hype. In January, the Dogecoin community subsequently surprised the world by helping to raise sufficient funds to send the Jamaican Bobsled Team to the Sochi Winter Olympics. The successful fundraiser attracted attention from most mainstream media, and helped to propel Dogecoin’s total market value briefly to an all-time high of more than $90 million mid-February.
Even though the coin’s market value has not been back at that level since, it was not the last time the digital currency would surprise the world. In March, Dogecoin made global headlines again during the Doge4Water fundraiser. During this campaign, one anonymous benefactor by the pseudonym savethemhood used the Dogecoin Twitter Tip Bot to donate $11,000 in Dogecoins via a single Tweet. This Tweet became known as the most valuable Tweet in Twitter history.
But it did not stop there, and within the same month the Dogecoin community managed to fund a NASCAR sponsorship for driver Josh Wise. This time, the community raised 67.8 million Dogecoins (worth about $55,000 at the time). The money was used to wrap Josh Wise’s car in a Dogecoin skin, dubbed the Dogecar, for the May 4 Aaron’s 499 at the Talladega Superspeedway. The community also helped Josh Wise to win the Sprint All-Star Fan Vote, beating household name Danica Patrick. This led to the Dogecar making a second appearance in the Sprint All-Star Race. One week after this race, the community raised enough money in a T-shirt sale to secure another appearance. The Dogecar will be racing for the last time (for now) at the Geico 500 at the Talladega Superspeedway, on October 19.
By the end of May, however, Dogecoin’s growth began to stagnate. The market value of the digital currency had already dropped by more than half at this point, but the decline started to accelerate even though the currency’s monetary expansion rate had also gone down. One of the reasons for this was the currency’s obviously limited lifespan in terms of mining, and the troubles it was facing with respect to network security as a consequence. This was a known issue, but still managed to spark panic and uncertainty throughout the community when a Dogecoin developer by the pseudonym Ileti suggested altering the coin’s mining schedule to buy time to find a solution.
The suggested change included adding 50 billion more Dogecoin’s to the currency’s total supply than it would under the old schedule until mid-2016. After this period, Dogecoin block rewards would be 5,000 coins per block, rather than 10,000 per block which would be the original final point. Such a move would be unprecedented, and goes against the predefined and decentralized nature of cryptocurrencies. Cryptocurrencies are set-up so that no central entity should be able to control monetary supply like a central bank, so they are launched with a predefined monetary policy which is not touched afterward. Attempts at damage control afterward were in vein, as it had now created uncertainty surrounding previously undisputed variables. Without a proper solution offered as an alternative, the wound was left bleeding for more than two months. This was despite the fact that a solution was already available, as Litecoin-founder Charlie Lee suggested to merge Litecoin mining with Dogecoin mining in April. Instead, this was not implemented until August.
ASIC Scrypt miners
In the meanwhile, all Scrypt coins including Litecoin and Dogecoin were also facing the coming of a new generation of ASIC Scrypt miners. Bitcoin, Litecoin and Dogecoin all run on Proof of Work (PoW) mining, which is extremely competitive by nature. Greed and economies of scale will typically trigger an arms race in PoW mining. Being Scrypt coins rather than SHA-256 like Bitcoin (already subject to an arms race), Litecoin and Dogecoin had a natural entry barrier put in place to keep ASIC miners away. But unfortunately, real ASIC resistance does not exist, and when it gets financially interesting to do so ASICs can be configured to run any mining algorithm. This finally became reality mid-2014, when a huge number of state-of-the-art ASIC miners started to flood the network of Scrypt coins.
The total market value of these miners equaled a significant share of the market value of all Scrypt coins combined, making it extremely difficult for each miner (costing up to $10,000) to earn itself back. With so many miners left desperate to earn their investment back, they will mine and dump Scrypt while squeezing out existing miners from the network. This also has a centralizing effect on the total network hashrate, and overall hurts both prices and security quality.
Community Gone Sour
For Dogecoin, the worst was yet to come as hardly one month later it was revealed that gaming accessory company Ultra PRO was trying to trademark the word “Doge.” Many Dogecoin community members feared that this could put Dogecoin’s vendors at risk of being sued should the filing be successful. Ironically, the debate surrounding the matter turned out causing the biggest damage to the cryptocurrency when Dogecoin co-founder Jackson Palmer publicly clashed with Moolah-founder Alex Green. It was not the first time there had been tensions between prominent Dogecoin community members (weighing down on the community mood), but things escalated quickly when Green announced he would file an opposition to the trademark. The argument ended with Palmer stating he would be “stepping away from this sadly cult-like subreddit.”
At the time, the number of subreddit Dogecoin subscribers was at 88,000. Growth had been stagnant for the past month (adding less than 1,000 subscribers), and the dispute between Palmer and Green marked a turning point. Even though most community members sided with Green, some followed Palmer’s example and unsubscribed as well. Since then, the number of subscribers has been slowly declining causing the subreddit to lose over 750 of its members over the past two months. In terms of growth, this puts Dogecoin among the top 10 worst performing subreddits (out of 466,950) over the past 30 days according to Redditmetrics.
The developments have taken a big chunk out of Dogecoin’s value. The digital currency has seen its total market capacity decline by more than two thirds compared to the end of May. At the same time, the currency’s more valuable rival Litecoin has seen its value go down by no more than half despite being the primary target for the new Scrypt ASIC miners. A difference in monetary expansion rates could also cause this divergence, but with Dogecoin’s current annualized monetary expansion rate at 44 percent and Litecoin’s current annualized monetary expansion rate at 40 percent this difference is negligible.
The only question now remaining for Dogecoin is whether the battered cryptocurrency will be able to turn the tide. With merged mining with Litecoin finally being enabled, it could relieve the coin from the most imminent security threats. At the same time, Dogecoin co-founder Jackson Palmer has made his return to the Dogecoin subreddit. The previous combined with a new Dogecoin Foundation being formed last month has brought some of the authentic optimism back to the community.
Optimism alone will not be enough to turn the tide for Dogecoin, but it could allow the community to focus on fortifying the foundations of the coin. As Bitcoin is generally perceived as a complicated technology, the cryptocurrency landscape definitely seems to have room for a coin with a dog on it. In any case, with the Dogecar appearing at least once more at the Talladega Superspeedway in October it would be too early to completely write-off the joke that turned into a currency.