In the aftermath of the Merge, Dogecoin (DOGE -0.70%) is now the second-largest proof-of-work crypto in the world by market capitalization, trailing only Bitcoin (CRYPTO: BTC). Of course, that's not really saying much, given that there are now only a handful of proof-of-work cryptos remaining in the ranks of the world's top 100 cryptocurrencies.
By now, it has become evident to many in the crypto community that proof of stake is a far superior alternative to proof of work. Not only is proof of stake a faster, more efficient, and cheaper consensus mechanism for verifying transactions on the blockchain, it also uses considerably less energy. Thus, if Dogecoin is to have any chance of remaining relevant in the future, it needs to follow the lead of Ethereum (CRYPTO: ETH) and make the transition to proof of stake.
Why does proof of stake matter?
As we have already seen with other blockchain projects, nearly every performance metric is improved when you adopt a proof-of-stake consensus mechanism. Throughput capacity is boosted, transaction finality times drop significantly, overall transaction processing speed is improved, and transaction fees are lowered. That's one big reason Ethereum decided to make the transition to proof of stake: It simply could not compete with relatively new proof-of-stake blockchain projects like Solana (CRYPTO: SOL) when it came to performance.
As long as you are just buying Dogecoin every now and then, these improved performance metrics might not matter. But if you are buying and selling NFTs, using decentralized apps, or playing blockchain games, they matter a lot. Right now, for example, Dogecoin can process only 30 to 40 transactions per second. A proof-of-stake blockchain like Solana can theoretically process 65,000 transactions per second.
The rise of Dogechain
For too long, Dogecoin has clung to the idea of being a proof-of-work blockchain, primarily because it was modeled after Bitcoin. Since Bitcoin was proof of work, it only made sense at the time (back in 2013) to make Dogecoin proof of work as well. But it has now been nearly a decade since the original launch of Dogecoin. Times change and businesses need to adapt.
The good news, if you're a Dogecoin investor, is that a way to transition Dogecoin to proof of stake has already been explored. This summer saw the sudden emergence of Dogechain, a completely new blockchain project that called itself a Layer 2 scaling solution for Dogecoin. While the Dogechain project did not have the formal blessing of the Dogecoin development team, it did show what might be possible if Dogecoin were to update its underlying blockchain technology. It would become much easier to build on top of the Dogecoin blockchain, and that means a sudden explosion of value for the Dogecoin ecosystem.
Support from Ethereum
A key factor in making this transition to proof of stake happen is the involvement of Vitalik Buterin, the co-founder of Ethereum. Vitalik Buterin is now a top advisor for Dogecoin, and he has said in the past that he would help Dogecoin make the transition as soon as he was finished with the Merge. Presumably, Buterin knows exactly how to do this, and the Dogecoin transition should not be nearly as technologically complex as the Merge was for Ethereum.
In one encouraging sign, Dogecoin's current Trailmap lists "community staking" as a priority for the blockchain. This would suggest that the Dogecoin Foundation has been at least thinking about a transition to a proof-of-stake blockchain. However, this is still in proposal (not project) status, and it's not clear what is being planned for 2023.
The only way to unlock Dogecoin's value?
At this point, I don't think even continued support from billionaire Elon Musk (the so-called "Dogefather") is really enough to turn around Dogecoin. Since Musk made his much-anticipated appearance on Saturday Night Live in May 2021, Dogecoin has weakened considerably. Performance just couldn't match the hype.
Making the move to proof of stake might be the only way to unlock the true value of Dogecoin. When the Dogecoin Foundation releases its new Trailmap, which outlines its strategic priorities for the year ahead, I will be looking closely to see whether there is any progress on this front. If not, it's safe to say that Dogecoin is not viable even as a highly speculative meme coin.