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To The Moon: What Dogecoin Holders Can Do To Increase Its Value

21 Jan

DogeCoin is a cryptocurrency. If you’ve heard of BitCoin, you’ve heard of cryptocurrencies before.

Open your wallet. Take out a banknote. How can you tell if the note is real or a forgery? Well, they guys who made it have some criteria you can use to check. A magnetic stripe, maybe. Or special printing. Or, take it to the bank and try to deposit it. If they accept it, it was real. You still have the money, but now it’s in the form of bits and bytes on the bank’s computer.

Cryptocurrencies are also made of bits and bytes. To tell if they’re real, you perform some mathematical calculations on these bits and bytes. These calculations are based on cyptography, hence bitcoins – and dogecoins – are called cryptocurrencies. There are a few dozen different cryptocurrencies in the world today – it’s relatively easy for someone with the technical knowhow to set up their own. The most popular is Bitcoin. Dogecoin is one of the newest.

Dogecoins, like Bitcoins, can be ‘mined’. The inventors of Dogecoin laid out the mathematical formula for testing a Dogecoin to see if it’s real. However, they didn’t apply this formula to all possible inputs. This means that anyone with the right software can start testing new ‘blocks’ of input data to find the real Dogecoins. Once they are found, the software calls out ‘It’s mine!’ over the internet, and the new Dogecoins have a new owner.

Dogecoin owners (who call themselves Shibes) hold (and mine) the currency in the hope that, like Bitcoin, it will be worth a lot one day. In this article, I want to lay out a few things shibes must do to make their dreams come true. What kind of fuel do the laws of economics provide, for shibes on their way to the moon?

Suppose you want to sell me a banana. Of course, you want to make some money, but does that mean you can charge the moon? Absolutely not! I won’t buy it if the price you’re charging is much more than what I’d pay to get the banana elsewhere.

Likewise, I’m not going to pay you much more for a Dogecoin than I’d pay to get the Dogecoin elsewhere.

Suppose, now, I want some Dogecoin. I could buy some at the market price, or I could mine some. Since Dogecoin is new, mining is cheap – a simple PC can net me a few hundred a week. If I had a good graphics card, I could get a lot more. Hence, Dogecoin is cheap.

There’s a strict upper bound on the price of Dogecoin – the cost of mining it. Before Dogecoin can go to the moon, the cost of mining must go up. This will happen naturally over time, but it shows the first thing shibes must do to get their currency to the moon.

1) Mine Dogecoin, and encourage others to do so.

If you want to start mining Dogecoin, there’s a start-up guide here. The guide didn’t quite work ‘out of the box’ for me – but I believe it will for most people, if you read the instructions carefully.

As the supply of mineable Dogecoins goes down, the cost of mining will increase. The lid holding Dogecoin’s price down will be slowly lifted.

This doesn’t guarantee that Dogecoin’s value will increase. If I set up my own cryptocurrency tomorrow, and mined it all so that I held every one, nobody would be interested. Its value would be zero.

What, then, gives a currency value?

People use currencies for three things.

  •  A medium of exchange
  •  A unit of account
  •  A store of value

For example, people use dollars to buy and sell real things. I sell my services as a mathematician, I can use the money to buy, say, chocolates. I don’t have to find a chocolatier who wants some calculus done, I just have to find one who accepts the money I’ve earned from my employer. Dollars (US and otherwise) are an established medium of exchange. My willingness to accept dollars as pay stems from my confidence that I’ll be able to spend those dollars in the future. This confidence arises not so much because of a government promise, but because I observe that most businesses already accept dollars as payment. The chocolatier can’t suddenly turn around and refuse to accept dollars – they have their own bills to pay, after all.

Since dollars are so popular as a medium of exchange, most people count their money in dollars. Or pounds. Or Renimbi. Most societies have a default unit of currency that they count their money in. They judge their wealth or poverty based on the number of these currency units they have or owe. And this works for one main reason. They can be sure that their dollars today can still buy about the same amount of stuff next month or next year.

Prices in dollars are stable. I don’t have to worry about the massive changes in the price of bitcoins or gold from year to year. This stability doesn’t come from a government promise, but from the fact that society is hooked on dollars. Hence, I can also use dollars as a store of value – I can safely earn dollars this year, and keep the money to spend next year.

Shibes want Dogecoin to go “to the moon” – to increase in value. Perhaps it will. If Dogecoin is to become a viable store of value, it must first become a widely used medium of exchnage, and perhaps a unit of account. Only then can Dogecoin owners be confident that the Dogecoins in their pocket will still have value next year. The meteoritic rise of Bitcoins over the past two years, and its high volatility, makes it less likely to be used as a medium of exchange, since retailers can’t be sure of its future value. Nonetheless, if Dogecoin owners want their currency to gain value, the second thing that’s required is:

2) Accept Dogecoin as payment for services, and encourage others to do so.

The cost of mining places an upper bound on the price of Dogecoin that must be lifted. Its wide acceptance as a payment method places a lower bound that can be raised. For Dogecoin to reach the moon, both pieces must all into place.

I’ll do my part now – as of today, I’ll accept Doge as payment for two computer games I have on sale. Ð3999 will get you a copy of the PC or Mac version of either Traffic Jam Game or Mathteroids. Or you can get the pair for Ð5999. Send payment to DQpLXLYkTQAq2hVhPUQyGkuc5sRb5pdZvc, and email me at mike40033+doge@gmail.com with the wallet address from which you sent the coins, so I know who to send the games to.

 
 

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