Why a Currency Based on an Internet Joke Should Be Taken Seriously
More companies are accepting "altcoins" such as Litecoin and Dogecoin in addition to the more common Bitcoin, showing that even silly currencies based on Internet memes can open merchants to new markets of consumers.
"There was enthusiasm in the community and we were getting a lot of requests from active members of the community to start accepting [Litecoin and Dogecoin]," says Tyler Roye, co-founder and CEO of eGifter, a provider of mobile gift cards.
Litecoin, the second largest digital currency by market capitalization, was created in 2011 as an alternative to Bitcoin, technically similar but with faster transaction confirmations and more currency units.
Dogecoin, a clone of the Litecoin protocol, was created in 2013 named after the widespread "Doge" meme, an Internet joke that pairs a photo of a Shiba Inu dog with simplified, awestruck phrases. Dogecoin has no currency unit cap and a significantly faster production schedule than other digital currencies. Dogecoin has seen markedly fast adoption because of the community's carefree attitude and its use as a tipping system on social media.
EGifter is working with GoCoin, a cryptocurrency payment gateway, to allow consumers to pay with the two altcoins. GoCoin allows clients to immediately exchange digital currencies into U.S. dollars to avoid price volatility risk. GoCoin charges 1% per transaction.
Since announcing the integration on April 8 at the Inside Bitcoins conference in New York, eGifter has had "quite a few" consumers purchase gift cards using the two altcoins, says Roye.
"It's a land grab right now; the first payment provider to accept altcoins is in a good position," says Ben Doernberg, a strident member of the Dogecoin Foundation, an educational and support group for the community. "Altcoins are a really good way for a startup payment provider to differentiate themselves."
Roye agrees. Becoming a new option for altcoin users took only a couple days integration time, he says.
The merchants who accept altcoins are usually the early adopters of Bitcoin. BeesBros, a Utah-based bee-keeping business that's been accepting Bitcoin since 2012, allows customers to pay with Litecoin also.
The Dogecoin Dilemma
Some Bitcoin enthusiasts have been annoyed with Dogecoin's rise in popularity. While some of this negativity stems from seeing Dogecoin as a mockery, the altcoin's fast production cycle lets it serve as a glimpse into the future of Bitcoin mining.
The mining process, wherein users confirm blocks of transactions in exchange for a small amount of the digital currency, occurs much faster for Dogecoin than for Bitcoin. Based on the price per Dogecoin, the process of mining the currency will likely stop being profitable in about a year, whereas Bitcoin will keep rewarding miners in a profitable manner for a much longer time.
At this point, miners may simply stop working because they have no financial incentive to stay. If that happens, it means the end of Dogecoin.
There's debate in the digital currency community about what will need to be done to keep people mining transactions on the Bitcoin and altcoin networks. With Bitcoin, some have considered implementing a transaction fee to reward miners after the current incentive expires.
Since Dogecoin will hit this mark sooner, Dogecoin "is the canary in the coal mine," Doernberg says.
The current reward for Dogecoin miners is 250,000 Doge (roughly $110), but this reward will halve in two weeks, Doernberg says, and then halve again in a month or so. That cycle continues until the mining reward hits 10,000 Doge, which will be the constant reward going forward.
By comparison, Bitcoin miners receive 25 bitcoins for each block confirmed, or about $11,000. Prior to November 2012, it was 50 bitcoins. Most Bitcoin transaction blocks are confirmed by pools of miners, so the reward is split among a large number of individuals.
Since the Dogecoin community doesn't want to institute higher, mandatory transaction fees, Doernberg says there are a few other options being discussed.
One is merge-mining, which is the process of linking one cryptocurrency's mining to a separate cryptocurrency's mining, says Doernberg.
Charlie Lee, the creator of Litecoin, recently suggested that Dogecoin could link up with Litecoin. Mining hardware would be able to authenticate transactions on both currencies' public ledgers and rewards would be doled out in both Dogecoin and Litecoin.
Another solution, says Doernberg, could be a community mining project raising money to subsidize cheap mining software to give out to individuals on USB sticks. The Dogecoin community, which is very passionate, would likely participate to help the network and the USB mining hardware would use a negligible amount of electricity, he says.
The last option would require switching the mining algorithm, so that no other miners can work on the Dogecoin network using the same type of algorithm. Dogecoin and some other altcoins use an algorithm called scrypt, and Bitcoin uses SHA-256, which must be mined with application specific integrated circuits (ASICs).
In this way, people who wanted to mine Dogecoin would have to purchase specifically-built machines, says Doernberg. This would ensure that the people mining Dogecoin are invested in the currency, rather than people who are in it just for the profit.
The Bitcoin and cryptocurrency community in general should pay attention to Dogecoin as it nears this point, because Dogecoin can "help the community at large figure out these kind of scaling issues," says Doernberg.