Dogecoin, one of the most popular crypto coins of 2021 is also famous for not having any cap. But do you wonder why? Check the article to know more
Whenever a cryptocurrency is evaluated, one of the primary factors taken into consideration is the supply cap. This parameter helps estimate the long-term performance of the coin.
Bitcoin, the world’s largest and most popular cryptocurrency, has a total cap of 21 million, out of which around 18.5 million coins are already in circulation.
But all cryptocurrencies need not have an upper limit of circulation, one of them being Dogecoin which has an almost unlimited supply. Let’s first understand what a supply cap is.
What is a Supply Cap?
A supply cap is the upper limit of the quantity of cryptocurrency that will be created or mined through the network. Once the upper limit is reached, the miners will stop receiving the block rewards. Then, they will only earn transaction fees. For Bitcoin, it is estimated that this state will be reached by 2140.
In the case of Dogecoin, there is no supply cap. That means when the value of a coin increase, there will be more incentive and chance for the people to mine these coins.
After mining, it can be moved onto a cryptocurrency exchange where it can be invested or traded. But as more miners enter the market, more will dump new coins to the market and this will eventually cause the value or the price of the coin to fall.
Many investors and long-time traders believe that Doge follows a scheme similar to pump and dump, and should not be taken seriously due to the eventual drop in value.
But there are quite a few others who consider it as a serious contender for mainstream digital currency in the future.
Why Dogecoin has No Cap?
There have been rumors that it was intentional on the part of Doge’s developers, not to have the supply cap. They wanted to create a currency that would be unlimited in supply, and motivate people to spend.
Although the currency was created as a joke, it is being used for transactional purposes in certain places.
Here are some of the reasons due to which there has been no supply cap on Dogecoin:
Transactions are Cheaper
Dogecoin is a form of altcoin created by developers with the intention that people must spend it. Therefore, they decided purposely to make it inflationary.
On the other hand, Bitcoin is deflationary, which makes the value of the coin rise concerning other currencies. As a result, Bitcoin has become more of a form of investment, and many retail, as well as commercial investors, have put money on it for the long term.
The concept is simple – if you feel that the value of Bitcoin is going to be more next year than now, you are less likely to use it for everyday transactions.
But a currency like Doge will encourage spending due to unlimited supply, and people may not see it as a form of investment due to not much increase in future prices as well.
Coins Supply Forever
According to some estimations, around 20% of all the mined Bitcoins so far have been lost. This usually happens when people buy and store the crypto coins in some wallet, and forget access to it.
This increases the deflationary nature of Bitcoin even more, as there won’t be a replacement for these coins.
In the case of Doge, there is an unlimited supply. So, even if the coins are lost in millions, it does not affect the value of the coin a lot.
Even for the owner of the coins, it may not matter much because the value of one single coin is not that significant.
Long Term Rewards for Mining
There will come a point when there won’t be any Bitcoins to mine. But it won’t be the case for Dogecoin. Once the supply cap for Bitcoin is reached, the only incentive for the miners will be the transaction fees.
In the case of Dogecoin, there will always be the typical block reward of 10,000 Doge. This is a good enough motivation for people to mine forever. Another added advantage – Dogecoin is accessible enough to mine by beginners and amateurs.
On the other hand, it is impossible to mine Bitcoin with a normal and even a high-end PC or Graphics card.
Dogecoin has no cap because of three main reasons: Transactions are cheaper, Coin Supply forever means there is no limit on total number of Dogecoins and long term rewards for mining.
Considering the advantages mentioned above, and encouraging people to spend Dogecoin in everyday transactions, the developers may not have kept a supply cap to the cryptocurrency.
However, the currency still needs to be popular enough to draw more commercial investments, and there is a long long way to go before it becomes mainstream.