Dogecoin is a unique phenomenon in the fascinating world of cryptocurrencies. It’s barely six weeks old, and as I write this post its network has more computing power than any other cryptocurrency except for Bitcoin. It made headlines this weekend when its community raised enough money to send the Jamaican bobsled team to the Sochi Winter Olympics.

From a technical standpoint, Dogecoin is essentially a branded clone of Litecoin (the second cryptocurrency in terms of total market value). Without a doubt one of the most important factors contributing to Dogecoin’s popularity is its community. The Dogecoin subreddit has almost 40k users right now. The front page usually has a good mix of humor, good will, finance, and technology. Check it out if you haven’t already.

There’s another more subtle factor that I believe plays in Dogecoin’s favor: its tiny value. One DOGE is worth about $0.0015 right now. In other words, one dollar buys you about 600-700 DOGE. Contrast that with Bitcoin: $1 is about 0.001 BTC. This puts Bitcoin and Dogecoin in two completely different mental buckets for most people. One BTC is comparable to an ounce of gold. The press reinforces this idea, and many people view Bitcoin as a digital store of value. The daily transaction volume of BTC is about 0.2 percent of the total bitcoins in existence, which means that BTC does not circulate very much yet.

Contrast this with Dogecoin, for which the daily transaction volume is close to 15%. Where does that money go? Perhaps the most common usage of DOGE is to give online tips. Compare the activity of Reddit’s bitcointip and dogetipbot, and you’ll see the latter is much more active. What would you prefer as a tip, 100 DOGE or 0.000002 BTC? Both are almost meaningless in terms of monetary value, but receiving 100 units of a coin does feel better. It’s also easier to give tips; you don’t have to think much about tipping someone 10, 25 or 100 DOGE. With BTC you either have to choose a dollar amount, or be very careful with the number of zeroes.

The reason a DOGE is worth so little is the total supply of coins. The Bitcoin software has an embedded constant called MAX_MONEY. For Bitcoin it’s set to 21 million, which means that if Bitcoin takes over as a world currency it will be impossible for most people to ever own one. Litecoin is only slightly better, at 84 million. For DOGE, it’s one hundred billion (perhaps more, yet to be decided). This makes it unlikely that one DOGE will be worth $1 any time soon (or ever). It’s easy and fun to exchange $20 for 10k DOGE and give a fraction of them to strangers on the internet. Anyone can still mine hundreds of dogecoins per day with a desktop computer, and not feel very attached to them. Being a “slumdoge millionaire” is still affordable to many.

In a world where people get a kick out of likes or retweets, Dogetips take it up a notch. A Dogetip is an upvote that you can use, internet karma points that are actually worth something. So fun, very value.

Image credit: /u/binxalot, this person deserves tips. Of course I accept them too 🙂

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