Editor’s Note: This article was updated on Feb. 8, 2021, to correct one instance misstating the number of new Dogecoin per year.
Dogecoin (CCC:DOGE-USD) could actually turn into a usable currency for one simple reason. It is designed to increase its supply at a set absolute rate. This guarantees that for a long time the supply will increase at a fairly steady rate.
As a result, the supply is considered inflationary, not deflationary like Bitcoin (CCC:BTC-USD). For example, there are now 128 billion Dogecoins in circulation. The rate of increase in the number of Dogecoins, once mined, is no more than 5 billion per year.
Inflationary Supply Rather Than Deflationary
Bitcoin, as well as many other alt-currencies, has a hard cap on the number of crypto coins they will allow. Dogecoin does the opposite, allowing an increasing supply but at a steady absolute number each year.
For example, by 2040, there will be no more Bitcoins able to be mined. As a result, this will encourage excessive hoarding of the supply of Bitcoins. This will push up the Bitcoin price, but reduce the actual trading volume of the Bitcoins (i.e., deflating the float available).
On the other hand, by allowing five billion Dogecoins per year to increase the supply of Dogecoins for infinity, the supply will grow, but eventually, reach a practical limit. Therefore, we can calculate the inflation rate of the currency over time.
For example, look at the chart I have put together below. It shows that every decade the supply will grow by 50 billion Dogecoin.
However, the rate of increase (i.e., the inflation rate of the supply) slowly tends to drift down. It reaches a limit, as the term is defined in calculus, of +5% a year within about 170 years.
However, from a practical standpoint, the supply will tend to grow from 3% to 4% annually over the next decade.
But over the next decade or so it slows down to grow between 2 and 3%. This means that the inflation rate of the supply will trend down slowly and predictably.
You can see this in the next chart I have put together on the right.
Usage as a Currency
Therefore, for all practical purposes, the growth rate of Dogecoin is predictable. That means it can more easily be used as an actual currency — for the purchase and sale of goods and services.
Since people will not be hoarding the supply of Dogecoin, it will tend to have more practical usage in the economy.
Moreover, the annual supply increase will tend to mimic the growth of the global economy. For example, the annual gain in 2025 will be 3.5%. That might be a bit high compared to world growth by then.
However, by 2030, the annual gain in the Dogecoin supply will be 2.9%. This may be close to the average annual gain in the global economy.
This shadowing of global growth by the Dogecoin supply will also tend to provide sufficient liquidity and erase efforts at hoarding of the supply. Hoarding is the main reason why Bitcoin has been rising. But that is also why it has had a hard time gaining traction as a real currency for transactional purposes.
What to Do With Dogecoin
Everyone knows that Dogecoin started as a joke between two programmers. However, it has been designed in such a way as to allow itself to be used as a real currency with steady-state supply growth characteristics.
Investors who are so inclined to buy cryptocurrency cannot ignore this alt currency, for the simple reason that it is different from almost all the rest of the pack. Its inflationary, rather than deflationary supply traits give it a leg up, so-to-speak, in the cryptocurrency universe.
On the date of publication, Mark R. Hake did not hold a long or short position (either directly or indirectly) in any of the stocks in this article.