The cryptocurrency Dogecoin (DOGE -6.24%) and its Shiba Inu mascot captivated investors at the beginning of 2021, sending its price soaring to nearly $0.74 -- a massive return, considering the price of Dogecoin at one point in 2019 was just a fraction of a penny. Along for the ride has been tech wizard and Tesla founder Elon Musk, who counts Dogecoin as one of three cryptocurrencies he owns.
Tweets from Musk have sent Dogecoin flying, and the SpaceX founder has vowed to help improve the network. But with the price of Dogecoin now back down to around $0.17, can Musk still turn Dogecoin into a winner?
Working to grow Dogecoin
Like many other cryptocurrencies, Dogecoin is a digital currency that runs on a decentralized network. Via the network, users can transmit money instantly to one another anywhere in the world as long as they have internet. Two developers started the cryptocurrency as a joke in 2013. Musk said he got involved in Dogecoin specifically because he saw that many of the production-line workers at Tesla owned it.
Image source: Getty Images.
Musk has reportedly been working with the Dogecoin developers since 2019 and even offered to help fund further development of the network, to which the founders declined. But the developers have heeded Musk's advice to try and increase transactions per second (TPS) on Dogecoin's network and make the network more energy-efficient. That has become a big issue for crypto networks like Bitcoin because miners use a tremendous amount of computer power to solve cryptographic puzzles to earn new tokens.
In fact, media outlets recently confirmed that Dogecoin plans to transition the network from the proof-of-work mining concept that involves using massive amounts of computer power to a proof-of-stake (PoS) concept. In PoS, owners of the cryptocurrency stake their tokens to become validators on the network and approve transactions to create new blocks and tokens.
Musk also does not seem to be losing any interest in Dogecoin -- despite its decline in recent months -- and has used his influence to make it more usable for commerce. In January, Tesla announced it would accept Dogecoin for purchases of some merchandise, sending Dogecoin's price up some 15% following the news.
Can Dogecoin become a big winner?
While I have no intention of disputing Musk, it's hard for me, at this time, to see Dogecoin becoming a winner. For one, I don't see anything particularly unique that sets Dogecoin apart from the thousands of other cryptocurrencies out there.
There is nothing exciting about the network from a functionality perspective. While it can process more TPS than Bitcoin, many other cryptocurrencies can process many, many more TPS. Additionally, Dogecoin doesn't have smart contract capabilities like Ethereum, so programmers can't use it to create decentralized applications, or dApps. While the network is transitioning over to a PoS concept, I think this is a step that most blockchain networks will eventually adopt because of how energy-intensive mining has become.
Dogecoin also does not have good supply-and-demand dynamics from an investor standpoint. There are more than 133 billion tokens in existence, and that number is set to increase by 5 billion a year, meaning there's no hope of this token being seen as a hedge against inflation.
Finally, the big thing I think Dogecoin had going for it was that it really used the power of marketing, memes, and its Shiba Inu mascot to build a fun community. The Dogecoin community isn't gone, but other tokens -- like Shiba Inu, which seemingly began as a knockoff of Dogecoin -- have followed a similar strategy and taken some of that marketing momentum, in my view.
Dogecoin still might be here to stay
The good news for Dogecoin investors is that I don't think the token is going away. Dogecoin still has more than a $22 billion market cap and the continued backing of Musk, who is a superstar in the tech world. It also seems pretty well established in the crypto world, so I imagine it will continue to move up and down with the broader crypto market. In a way, Musk has already succeeded in making Dogecoin a winner. But as for another insane run like the token went on in early 2021, I think those days are over.
