Dogecoin has no cap for four main reasons. These are to disincentivize people from hoarding, replace lost coins, reward miners continually to keep the network secure and keep the transaction fees low.
Most of the cryptocurrency such as Bitcoin, Binance Coin, Cardano, etc. has a cap. Dogecoin, however, has no cap. The Doge blockchain adds 10,000 coins every minute into the network. At this rate, 5.256 billion coins are added per year.
There is a misconception that Dogecoin used to have a cap, but later, developers removed it. It’s not true. This coin does not have any cap from its inception. The choice to put no cap is intentional, not an accident.
Bitcoin was started in 2009 and Dogecoin in 2013. By 2013, it was evident that Bitcoin had some inherent economic flaw. Developers designed Dogecoin to solve those problems. Let’s examine Bitcoin’s critical flaws that may cripple it in the future and how Dogecoin overcomes those by not putting a cap on the coin supply.
Bitcoin is deflationary. It has a max supply of 21 million coins. So far, miners have mined 18.5 million Bitcoin.
After the 2008 housing market crash and Occupy Wallstreet protests, Bitcoin was started. The primary goal was to create a decentralized financial system free of government and big banks’ control.
Bitcoin was supposed to free us from fiat currency. People were tired of the government printing money each year, known as quantitative easing. Our USD is inflationary. So, Bitcoin was designed to be deflationary by putting a 21 million coins cap. At the time, it seemed a good idea, but later we found it was not.
Why are diamonds expensive? We know diamonds are not rare, and some companies create diamonds in factories. Diamonds are costly because there is artificial scarcity, and we believe diamonds are valuable.
Up until 1938, diamonds were very cheap, and no one cared about them. But genius ads campaign — Diamonds are Forever — coupled with market manipulation skyrocketed diamond demands.
Similarly, Bitcoin has a limited supply. People now consider Bitcoin as digital gold. So, everyone is buying and hoarding it in hopes that the price would go up and they can sell it at a profit. Bitcoin is now considered an investment vehicle, not a currency.
Bitcoin has lost its purpose of becoming a decentralized currency. Why would I spend my Bitcoin to purchase a Tesla? Instead, I would hold on to it and see my investment rise.
The only way to prevent people from hoarding a cryptocurrency is by making a cryptocurrency inflationary. It’s the first reason for not having a cap on Dogecoin. Bitcoin encourages people to collect it, and Doge encourages people to spend it.
Blockchain technology is designed in such a way that no one can steal your cryptos from your computers or phones unless you keep your coins on your online wallet. It has another negative effect. If your computer hard drive crashes, or you lose your phone, you lose your Bitcoin forever. There’s no way to recover those coins. It’s estimated that 20% of Bitcoin is lost forever. In the future, we will lose more for sure.
Deflationary model, hoarding, and lost coins make Bitcoin unsuitable for becoming a transactional currency. Dogecoin never put a cap because it wanted to replace lost coins. The number of Dogecoin will never diminish because of lost phones or computer crashes. It’s the second reason for not having a cap on Dogecoin.
When we use our debit or credit card to purchase something, money from our cards goes through a payment processor such as Visa, Mastercard, Discover, etc. Generally, shop owners pay the fees, which typically varies from 1% to 3%.
Similarly, in the blockchain network, miners (powerful computers) process all cryptocurrency transactions. These miners earn money in two ways:
- Transaction fees.
- Block reward in cryptocurrency for successfully computing transactional blocks.
In the Bitcoin network, the block rewards have fallen steadily. When the Bitcoin supply reaches 21 million, there will be no more block rewards. Even now, Bitcoin mining is hardly profitable with the block rewards. When the cap is reached, and block reward reaches zero, Bitcoin mining would be unprofitable unless the transaction fees are crazy high.
If I’m a miner, why would I keep my computers hooked to the Bitcoin network if it’s unprofitable? Block rewards are going away, and there are fewer transactions, thus more negligible earning from fees for miners. If miners leave the Bitcoin network, the transaction will take hours to process, and the network would become vulnerable to a 51% blockchain attack. We don’t know when it will happen, but it’s going to happen sooner or later.
Dogecoin intentionally has not put a cap on the coin. It gives 10,000 Doge as block rewards every minute. Thus there will always be an incentive for miners to keep this network secure and operational. Furthermore, because of these rewards, Dogecoin has the lowest crypto transaction fees. It’s the third reason for not having a cap on Dogecoin.
The cryptocurrency was designed to be a digital currency. Now, if we veer away from this goal, then it’s not a currency. Dogecoin’s main purpose was to become a digital currency, not a collector’s item. It’s why it does not have a cap, and it’s not a bad thing.