Recently, serial entrepreneur Elon Musk of Tesla and SpaceX fame reiterated his help for Dogecoin (DOGE) on Twitter and throughout an interview with Bloomberg on the Qatar Economic Forum. Despite the truth that the meme-based cryptocurrency has dropped from an all-time excessive of USD 0.76 to a present worth of round USD 0.08 since Musk touted the altcoin on Saturday Night Live on May 2021 and he is at present dealing with a USD 258bn lawsuit that alleges the entire thing was nothing greater than a pyramid scheme, the Tesla and SpaceX CEO told Bloomberg:
“I simply know lots of people who are usually not that rich who, you recognize, have inspired me to purchase and help Dogecoin. I’m responding to these individuals.”
Also, in December 2021, Musk made the case for Dogecoin as a greater various to Bitcoin (BTC) throughout an interview with MIT Research Scientist and podcast host Lex Fridman. In Musk’s view, larger on-chain capability (resulting in decrease transaction charges) and perpetual inflation are two key options that give Dogecoin an edge over Bitcoin.
“[Dogecoin] truly does have a a lot greater transaction quantity functionality than Bitcoin, and the price of doing a transaction, the Dogecoin charge, could be very low,” stated Musk. “Right now, in the event you wished to do a Bitcoin transaction, the value of doing that transaction could be very excessive. So, you might not use it successfully for many issues.”
In phrases of the differing financial insurance policies between Bitcoin and Dogecoin, Musk indicated that an issuance price that’s too low would result in hoarding and disincentivize spending. In Bitcoin, the issuance price is lower in half roughly each 4 years, whereas Dogecoin has a flat issuance price that doesn’t change.
While Musk has turn out to be probably the most distinguished influencers within the crypto markets over the previous couple of years, each of those factors made relating to Dogecoin’s supposed advantages over Bitcoin don’t maintain as much as the slightest little bit of scrutiny.
Don’t evaluate Dogecoin to Bitcoin’s base chain
Musk is appropriate in his declare that Dogecoin can deal with many extra transactions per second than Bitcoin on the base layer, however evaluating the on-chain transaction prices of Bitcoin and Dogecoin isn’t a helpful train.
The Bitcoin community is being developed through a multi-layer method that permits customers to choose into secondary layers, such because the Lightning Network, to allow a lot quicker and cheaper transactions. In truth, the transactions on the Lightning Network are quicker and cheaper than what’s at present attainable on Dogecoin, whereas additionally retaining a comparatively excessive diploma of decentralization. Fees for Bitcoin Lightning Network transactions are typically a fraction of a penny and method zero, whereas median Dogecoin transaction fees were over USD 0.10 as lately as final month and over USD 0.40 late final 12 months (charges have lately collapsed to beneath USD 0.01 alongside the Dogecoin worth).
It ought to be famous that the upper transaction prices on Dogecoin have largely been brought on by higher-than-needed default charge settings in pockets software program and at exchanges. Dogecoin’s median transaction charges may decline additional if builders and exchanges implement decrease charge settings for his or her customers, however in the long term, preserving a document of all transactions on the bottom blockchain layer shall be dearer than a layer-two system just like the Lightning Network, result in centralization pressures because of the elevated prices of working a full node, or each.
On-chain Bitcoin transactions allow the very best diploma of censorship resistance for worth transfers within the digital realm, however the actuality is that this excessive stage of decentralization isn’t wanted on each transaction.
For this motive, it is smart for Bitcoin to take a layered method to scaling the place separate, upper-layer protocols can be utilized for particular sorts of transactions.
For instance, the Lightning Network allows quicker, cheaper funds for on a regular basis transactions, the Liquid sidechain allows new options on a federated sidechain with quicker block occasions, RSK permits for bitcoin for use to pay for fuel on a federated sidechain that’s suitable with the Ethereum Virtual Machine (EVM), and federation-backed Chaumian banks, resembling Minimint, can allow improved privateness for immediate, Lightning-esque funds.
With Dogecoin’s concentrate on low-cost funds, it could be greatest to match the meme-based cryptocurrency with the Lightning Network relatively than on-chain Bitcoin transactions, as these two networks are working in the identical area of interest. Musk touts the transaction capability of Dogecoin, however the variety of transactions that may be processed by the Lightning Network is successfully limitless, as there isn’t a cap on the variety of funds that may be made as soon as a consumer has a channel open on the secondary cost protocol.
Additionally, the flexibility to transact with friends straight relatively than interacting with a expensive, inefficient blockchain results in a lot decrease transaction prices. That stated, it ought to be famous that there’s nonetheless a scaling limitation right here based mostly round customers relatively than transactions, as customers should be capable of make at the least one on-chain transaction to hitch the Lightning Network.
Data reveals Bitcoin’s Lightning Network is catching as much as Dogecoin
The information reveals Bitcoin’s secondary protocol layers, that are nonetheless within the early phases of improvement, are already extra energetic than Dogecoin. And the explanations behind this actuality ought to be apparent. If you may get the important thing characteristic of Dogecoin, particularly quick and low cost funds, with the relative stability of BTC (at the least when in comparison with different cryptocurrencies), then it could make sense to go for that method.
According to the latest obtainable information, Bitcoin’s Lightning Network alone might have already surpassed Dogecoin when it comes to cost exercise. In April, Arcane Research put out their second report on the Lightning Network, and it indicated that Bitcoin’s funds layer had accounted for greater than 800,000 transactions within the month of February. This is roughly double the variety of Lightning Network transactions made in February of 2021. More lately, Breez Technology CEO Roy Sheinfeld revealed that his firm alone is doing 200,000 to 300,000 Lightning transactions per 30 days, which signifies much more development might have taken place since February.
According to data from Coin Metrics, the Dogecoin community was processing roughly 30,000 transactions per day in February, which might quantity to somewhat beneath 870,000 transactions for the month. However, Dogecoin’s transfers per day, which is a metric that makes an attempt to search out a number of funds in the identical on-chain transaction, was round 83,500.
This would put Dogecoin’s month-to-month funds rely at round 2.4 million. That stated, these numbers are roughly the identical as they had been in February 2021.
Of course, evaluating cost exercise on Bitcoin’s Lightning Network to Dogecoin’s on-chain exercise is way from a precise science for a wide range of causes. For one, Lightning Network exercise occurs off-chain, which implies it is way more tough to gather the related information. So, for instance, Arcane Research depends on third-party reporting for his or her information. However, extra direct comparisons will be made with information from particular retailers. In the case of each Coincards and Bitrefill, the latest information reveals Bitcoin’s Lightning Network accounts for extra exercise than Dogecoin on a month-to-month foundation.
Furthermore, the transactions on the Lightning Network are more likely than on-chain transactions to be real-world funds, as alternate adoption of this Bitcoin layer-two know-how remains to be low. According to the aforementioned report from Arcane Research, round half of Lightning Network transactions fall beneath the class of micro rewards or gaming. There are various Lightning-enabled video games and apps that reward their customers in small items of bitcoin, often known as satoshis, and that is the place quite a lot of the exercise takes place in the present day.
While Musk has talked about sure sorts of transactions being priced out of the Bitcoin community as a consequence of excessive charges, the truth is the small quantity of satoshis transferred as gaming rewards through the Lightning Network can be uneconomical on Dogecoin at scale.
It must also be famous that the bottom Bitcoin community dwarfs each the Lightning Network and Dogecoin in terms of transactions, processing round 250,000 transactions and 800,000 transfers per day.
The supposed advantages of Dogecoin’s financial coverage
In phrases of Musk’s feedback on the advantages of Dogecoin’s various financial coverage, the truth is market members are usually not going to desire to carry a extra inflationary asset, even when it hypothetically can be extra useful for the general economic system. In common, individuals act in their very own self-interest, not for the frequent good.
Additionally, Dogecoin’s financial coverage turns into more and more deflationary over time anyway, because the issuance price per block is a set quantity relatively than a share of the present provide. In different phrases, the theoretically-negative speaking factors relating to Bitcoin’s deflationary financial coverage additionally apply to Dogecoin. Of course, Dogecoin governance is so centralized at this level that Musk may doubtless push by a change to the financial coverage with out a lot pushback. However, the flexibility for the issuance price to alter makes the coverage much less credible and subsequently much less attention-grabbing as an investable asset.
With all of this in thoughts, maybe the one actual benefit of Dogecoin is that its emblem has a canine on it.
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Learn extra:
– Another Elon Musk-fueled DOGE Rally Ends With a Dump
– Popular Meme Coin Dogecoin Used in ‘Most Serious’ Crimes
– Elon Musk Should Listen to Cathie Wood on Bitcoin
– Bitcoin On-Chain Metrics Strongest Among Peers – Kraken
– As Bitcoin Scales With Lightning Network, What Role Does Litecoin Have to Play?
– Don’t Fear the Reaper: Why the Market Downtrend Is Good for Crypto
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