Dogecoin prices have jumped dramatically in recent days and weeks; But these gains are only on the coin. If you, too, feel left out of the Dogecoin leap and plan to invest in this volatile market, this article may be able to warn you of the risks involved.
CoinDesk at the report The latter examines the fundamental dangers that threaten Dogecoin investors. You can read this article below.
Yesterday, there was a commotion on social media and Dogecoin associations. The Dogecoin hashtag on Twitter was one of the hottest hashtags in many regions.
Dogecoin users aim to bring the price of this digital currency to a new historical high, and others hope to raise it to $ 1. But let’s put aside the compliments and excitement of the market; There are many risks to Dogecoin that any investor should be aware of before entering the Dogecoin market.
The Dogecoin supply is unlimited
Dogecoin co-founder Jackson Palmer decided in February 2014 to lift the Dogecoin supply limit. Prior to that date, Dogecoin was limited to 100 billion units. This was done to encourage the holders of this digital currency to use it as a tool for rewarding.
Unlimited supply means Dogecoin inflation; In other words, there are more and more Dodge Quinnas in circulation every day. However, bitcoin has a limited supply of 21 million units and no more bitcoins are produced.
But why is the unlimited supply of Dogecoin a problem? Supply and demand are the two determinants of the reasonable price of goods, services and assets. Many economists believe that higher demand, combined with limited supply, increases the likelihood of an asset rising in price. On the other hand, low demand and high supply reduce the price of assets.
In the case of Dogecoin, the situation is a little different. Currently, the demand for this digital currency is higher than the number of Dodge coins entering the market, and therefore, its price is increasing. Even with unlimited supply, if buyers buy an asset at supply size or more, the price will rise to balance the market.
There is a big “but” in this, and that is that in order to keep the price of Dogecoin constant, its buyers must constantly buy this digital currency; Because there is no rare feature in the case of Dogecoin that acts as a supportive factor.
To better understand this, imagine that you are shoveling snow in a blizzard that never ends; If everyone gives a hand, the snow can be shoveled, but in the end, the snow is more likely to win the field!
Dogecoin is getting bigger every day
At present, 10,000 new Dodge Coins are added to the blockchain of this digital currency every minute in the form of block rewards; In other words, 14.4 new Dodge Coins are generated every day, and this amount reaches 5.2 billion units in one year.
Dogecoin has a production ceiling of 10,000 units per minute; This means that Dogecoin will not be produced in more than one minute. The only thing that changes in this Blockchain is the difficulty of extraction, and this characteristic is redefined after each block. Extraction difficulty also increases and decreases depending on the number of miners competing to produce the blocks.
Dogecoin’s extraction difficulty is currently at its highest level in two years. Extraction difficulty also affects the profitability of extracting this digital currency, which is currently at its highest level in history.
Lack of technical development
In 2015, Palmer criticized the toxic digital currency community and announced that he was withdrawing from the project. Describing the area, he wrote:
The digital currency community is becoming more and more like a number of individual libertarians sitting in a corner waiting to make money. They sometimes come up with crude business ideas that fail to materialize.
The development of this memquin is currently in the hands of a small number of developers who are continuing the work from where Palmer left off. Over the past six years, Dogecoin has grown exponentially. The digital currency was last updated last month, with the release of version 1.14.3 of the Dodge Coin Core. The last major update of this digital currency took place in November 2019. No updates were released for Dogecoin between 2015 and 2018. For a better comparison, the Bitcoin network is updated almost every day.
The developers of Dogecoin argue that the digital currency network does not require much constant updates. Dogecoin developer Maximilian Keller writes:
The Dogecoin network is running steadily, and the rules of the network have not changed in a way that puts it at risk. The Dodge Coin network does not necessarily face the challenges that the Bitcoin network faces; For this reason, the problem is not so acute for us.
Not surprisingly, a network with a market value of $ 50 billion and $ 9.1 million in community fund needs constant updates. Even if we consider Dogecoin a joke, the need for these updates is still felt.
On the other hand, it should not be forgotten that Dogecoin is more likely to climb. Due to the rumors in cyberspace, the advice of celebrities to buy this digital currency and the humorous culture on which this digital currency is based, the growth of Dodge Coin has exceeded the growth of Bitcoin price. However, we have to wait and see what will happen to this digital currency in the long run.