MELBOURNE: One of the crucial tough issues in finance proper now is determining the basic financial worth of cryptocurrencies. And the previous week has sophisticated this additional.
For a lot of cryptocurrency traders, the worth of Bitcoin relies on the very fact it’s artificially scarce. A tough cap on “minting” new cash means there’ll solely ever be 21 million Bitcoin in existence.
And in contrast to nationwide currencies such because the Australian greenback, the speed of launch for brand spanking new Bitcoin is slowing down over time.
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Dogecoin, a cryptocurrency that takes its identify and emblem from a Shiba Inu meme that was widespread a number of years in the past, doesn’t have a cap.
Launched in 2013, there at the moment are 100 billion Dogecoin in existence, with as many as 5 billion new cash minted annually.
However how can a foreign money with a seemingly limitless provide have any worth in any respect? And why did Dogecoin’s worth all of a sudden surge greater than 800 per cent in 24 hours on Jan 29?
On the time of publication, the “memecoin” was price about A$5.6 billion on the stockmarket.
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LONG-RUNNING INTERNET JOKE
Dogecoin is among the authentic “altcoins”: Cryptocurrencies launched within the few years after the pseudonymous Satoshi Nakamoto first launched Bitcoin into the wild.
From a technical perspective, Dogecoin isn’t very modern. Like many early altcoins, it’s based mostly on the unique supply code of Bitcoin.
Or extra technically, it’s based mostly on Litecoin, which in flip was based mostly on Bitcoin – however with some small modifications equivalent to sooner transactions and the removing of the availability cap. However Dogecoin is rather more attention-grabbing when seen by a cultural lens.
The cryptocurrency was created by software program engineers Billy Markus and Jackson Palmer – though Palmer, an Australian, has since walked away from the venture.
They branded it with the Doge meme partly to be humorous, but additionally to distance it from Bitcoin’s then questionable repute as a foreign money for illicit transactions.
Now, Dogecoin has outlasted virtually all of the early by-product altcoins and has a thriving group of traders. In 2014, Dogecoin holders sponsored the Jamaican Bobsled Group. Quickly after, they sponsored a NASCAR driver.
Elon Musk, the world’s richest man, is among the many cryptocurrency’s high-profile advocates. In December final 12 months, a tweet from Musk despatched Dogecoin’s worth hovering.
A CULTURAL PRODUCT
Reddit threads proclaim Dogecoin’s worth as a brand new world foreign money. Musk himself shared an analogous sentiment just a few days in the past. Talking on the app Clubhouse, he stated:
Dogecoin was made as a joke to make enjoyable of cryptocurrencies, however destiny loves irony. Probably the most ironic final result can be that Dogecoin turns into the foreign money of Earth sooner or later.
However Dogecoin is greatest considered a cultural product, quite than a monetary asset. The truth is few cryptocurrency customers maintain it as a severe funding or to make use of in common transactions.
As an alternative, to personal Dogecoin is to take part in a tradition. Individuals purchase it as a result of it’s enjoyable to have, is inherently amusing and comes with a welcoming and satisfying group expertise.
If we begin considering of the cryptocurrency as a cultural product, final week’s sudden soar in Dogecoin’s worth is smart. The increase got here simply after a meme-centric group managed to drive the share worth of videogame retailer GameStop from US$20 to US$350 in mere days.
This swarm behaviour was in contrast to something seen earlier than – and it frightened world monetary markets.
One significantly attention-grabbing facet of the Reddit discussion board r/WallStreetBets – which coordinated the assault on the hedge fund that had successfully wager on GameStop’s share worth falling – was what number of customers had been having enjoyable.
It’s no shock exercise surrounding Dogecoin has an analogous vibe; it was designed to be enjoyable proper from the beginning.
MEMES CAN MOVE MARKETS
Some folks take part in monetary markets as a type of consumption – that means for leisure, leisure and to expertise group – simply as a lot as they do for funding.
Cultural belongings equivalent to Dogecoin are arduous to systematically worth when in comparison with monetary belongings, a bit like how we don’t have a basic theorem for pricing artwork.
Virtually by definition, the demand for a memecoin will fluctuate as wildly as web tradition itself does, turning cultural bubbles into monetary bubbles. RMIT professor and crypto-ethnographer Ellie Rennie calls these “playful infrastructures”.
By inspecting Dogecoin intently, we will study quite a bit concerning the interaction of expertise, tradition and economics.
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Furthermore, cryptocurrencies are terribly various. Some are constructed for small funds or to be resilient holders of worth. Others defend monetary privateness or act as an inner token to handle sensible contracts, provide chains or electrical energy networks.
Below the hood, Bitcoin and Dogecoin look virtually precisely the identical. Their code differs in just a few parameters. However their financial features are virtually completely reverse.
Bitcoin is a form of “digital gold” adopted as a safe hedge in opposition to political and financial uncertainty. Dogecoin, alternatively, is a meme folks add to their digital pockets as a result of they suppose it’s humorous.
However in an open digital economic system, memes transfer markets.
If none of what occurred with GameStop made sense to you, take heed to monetary veterans break down how completely different gamers powered the surge and which listed firm might see copycat assaults in CNA’s Coronary heart of the Matter podcast:
Jason Potts is Professor of Economics at RMIT College. Chris Berg is Principal Analysis Fellow and Co-Director, RMIT Blockchain Innovation Hub at RMIT College. This commentary first appeared on The Dialog.