DOGE took a big hit over the past day or two thanks to the recent announcement by the creators that the currency would continue producing DOGE at a rate of 10k/block (5 billion yearly) past the originally announced maximum of 100 billion. This came as a shock to many, although it is in line with the originally announced distribution plan, which simply states that blocks 600,001+ will receive 10k DOGE.
The BitCoinTalk Speculation forum quickly picked up Mugabecoin to replace their former preferred pejorative, Dogeshit. But they’re not right.
A common complaint levied against coins that distribute quickly is that they reach the maximum before they reach a sufficient level of adoption to decentralize control of the currency. To use a hyperbolic example, if I build a coin that distributes the total amount in a week, it will be concentrated in very few hands–mostly mine and my close associates or friends. The longer a coin takes to reach maximum, the more easily more people can receive it over time, the more easily more people can receive access to it, and the more likely it is to reach widespread adoption. This is one of the major strengths of Bitcoin: the supply won’t have mostly dried up until the late 2020s.
It’s still one of the major ways Bitcoin could fail. If too much speculation occurs, and too many people are hoarding, newer investors may never enter the market for fear that they’re “too late”. There have been rumblings of this already, to some extent.
As a result, I believe this inflationary mechanism is Dogecoin’s newest strength–and probably the second best argument for long-term bullishness.
It’s not as powerful as the community behind it. I doubt anything will ever overcome that–coins can be a popularity contest, just like elections. Charity brings many new hands, and Shibes are relentlessly good-of-heart.
Inflation also brings in new hands. Inflation keeps speculators from grabbing too much of a hold too early. Rampant inflation is bad. Unexpected inflation is bad. Uncontrolled inflation is bad.
Dogecoin’s inflation is none of those things. Controlled, steadily decreasing, predictable inflation is fine. This is where DOGE differs from a government. Their inflation rate is unpredictable, and can spike way out of control in either direction, causing depressions, recessions, and so on.
To begin our discussion, here’s a chart comparing the per annum inflation of BTC and DOGE:
DOGE is decreasing in an asymptotic arc. BTC, by nature of its four-year reward change, decreases in spikes. We can see that it very quickly reaches nil–in the late 2020’s, it becomes so small as to be mostly meaningless. At that point, DOGE is still inflating at a rate coming down from 3%.
What does this mean? In short, there’s a longer time frame in which new DOGE is entering the marketplace. This diminishes the value of hoarding DOGE, which in turn makes it likely that the currency will be more evenly distributed. Income inequality is a popular buzzword going around now in the US. DOGE would be expected to have reduced income inequality as a result of this inflation.
As a whole, though, is this a good thing? Not for anyone who bought DOGE planning to resell it and who never planned to enter the ecoshibestem. Who is it a good thing for?
It’s a good thing for people who believe in the currency. It makes it much less likely that people will hoard DOGE, which I view as the most likely possible destructor of a cryptocurrency. Mass hoarding without adoption leads to bubbles and crashes. Mass hoarding without adoption leads to currency abandonment. Inflation leads to less mass hoarding. What good does mass hoarding do? It creates a store of value, rather than a currency.
It makes gold, rather than a dollar.
Shibes want a dollar. Speculators want gold.
Bitcoin is gold. There’s nothing wrong with gold–it’s just a different kind of thing than a dollar. You use it in different ways. It’s still a medium of exchange, it’s just a less mobile one. It concentrates wealth rather than distributing it.
And if there’s one thing Shibes love, after all, it’s distributing wealth.
Alright, enough text: time for chart two. This is a long-term chart (like space-age long) of Dogeflation rates per annum:
Some landmarks from that:
- 3% inflation in 2029
- 2.5% in 2036
- 2% in 2045
- 1.5% in 2062
- 1% in 2095
If you want an equation, the number of DOGE in existence doubles after 20 years, then 40 years, then 80 years, then 160 years, etc. The rate of inflation decreases in direct proportion, halving every time the number doubles.
As you can see, it eventually reaches levels nearly all of us consider acceptable. It starts off high–5% would definitely be a problem if it continued. But it won’t. And the way it won’t is predictable.
That’s the strength of cryptocurrencies. Due to their decentralized, math-based nature, they are perfectly predictable.
If only governments were the same:
To repeat the initial point:
- Unpredictable inconsistent inflation rate: bad
- Predictable consistent inflation rate: bad
- Predictable inconsistent inflation rate: good
DOGE, BTC, LTC, and nearly all other cryptocurrencies share that fourth trait. A predictable and steadily decreasing rate of inflation is not inherently bad. I would prefer it started off a little lower, though. I’d recommend that those in charge speak to someone who understands it better than I do (perhaps an economist instead of a philosopher), but if I had to guesstimate, I’d think 7.5k per block might work out better. This starts inflation at around 4%, deflating to 2% in the mid 2030s, which seems preferable.
I’m no economist, though.
Dogecoin is not Mugabecoin: the rigors of math will always prevail, and predictability leads to irrelevance in a rational market.
In the short-term, I’m bearish on DOGE. I don’t think the small drop from the mid 180s to the upper 150s (about 15%) appropriately reflects the change in value per DOGE as a result of this announcement. I’m still long-term bullish, and if anything, I’m now more so–Dogecoin just gained a second relatively unique attribute. It’s now an inflationary cryptocurrency with the strongest community.
It’s a community and a currency, not a community and a commodity.