How Dogecoin changed my perspective on cryptocurrency
I have long been a Bitcoin hater, for many reasons. But then, a fortnight ago, something happened. Dogecoin came into existence, and for some reason, I just couldnât get mad about it. After some thoughtful self-evaluation this week, Iâve realized that Dogecoin has actually reversed my position on cryptocurrency. Hereâs why: basically, Iâve come to see Dogecoin as an absurdist art project, mocking the entire global financial system.
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Okay, maybe Iâm taking something thatâs silly way too seriously. Do I really believe that sentence? This question was key for my own understanding of Dogecoin and where it fits into the world. Itâs the first question many people ask when they first hear about Dogecoin:
Wait. Is Dogecoin a real thing?
â horse >>= js (@jcoglan) December 18, 2013
Searching for âis dogecoin realâ on Twitter reveals a lot of people who harbor the same confusion. Hereâs the thing: if you are confused if Dogecoin is ârealâ or not, youâre basically on a wild ride. Critically investigating the ârealnessâ of Dogecoin leads you to realize that itâs basically just as ârealâ as âreal money,â whatever that means. And if Dogecoin is absurd, then so is the entire financial system.
Dogecoin as symptom of the postmodern condition.
â Steve Klabnik (@steveklabnik) December 19, 2013
Wait, letâs back up here. What do I mean when I say Dogecoin is âjust as realâ as, letâs say, Euro? And in economics, most questions end up leading to âWhat is the meaning of âvalueâ?â Itâs one of the most fundamental questions of the field. And there are many different positions. For the purposes of this post, Iâm going to explain things from the perspective of the âsubjective theory of value,â which is arguably the most dominant explanation of value in the field today. Iâm painting this concept with a pretty wide brush. Please note two things: Iâm not an economist by training, I just enjoy reading lots about it, and I donât subscribe to the subjective theory of value. That said, I am trying to represent it as accurately as possible in this post.
The simplest formulation of the subjective theory of value is this: something has whatever value a person says it has. Put another way, my coffee cost $3 because a bunch of people all agree that itâs worth $3. I, as an individual, have goals that I want to accomplish. In this case, itâs to write this blog post. To accomplish this, I made a rational decision: make some coffee at home, or go to the coffee shop. I have various resources that allow me to accomplish this goal, namely, that I have three United States dollars. So I take all the information thatâs available to me, and make a decision: three dollars is a pretty small amount of money to me (Iâm lucky in this regard), I donât have anything else I need to do at home, the coffee shop hasnât changed its prices at all in the last week, so I can be pretty sure itâs still $3. So I decide that getting out of the house is worth at least three dollars to me, and I got to exchange my 3 USD for one latte. You can see how endlessly complex this is: if I had chronic pain, for example, I may not want to walk down the steps, so that changes my decision. Maybe I needed to do laundry at home, so staying at home and drinking regular coffee makes more sense. I canât make a latte at home, so maybe I get out of the house anyway because Iâd prefer it to black coffee today.
Anyway, thatâs it. Seems pretty simple, right? So what about Dogecoin?
Well, if you think about my example more, I actually have a number of commodities that Iâm using to exchange with others to achieve my goal. For example, I also ate a sandwich here at the coffee shop, so I actually spent $6, and thatâs partially because I didnât have any food at home. The coffee shop I went to has good sandwiches, so I chose it over other places that may also have decent lattes. So in my example, Iâm trading $6 USD for a latte and a sandwich, and for the right to sit here and use up a seat and some wifi. The woman working behind the counter is trading her time and labor for a wage paid by the company who owns the shop, and the company is trading some coffee beans, a bagel, and some other things with me, through the woman, in exchange for my money.
TL;DR: buying a cup of coffee is surprisingly complicated.
Okay, so now that youâve seen there are way more commodities involved in this transaction than just USD, why is USD special? If this scenario played out in Paris, I would have been using Euro instead of USD. Thereâs no inherent reason that a piece of paper has a certain amount of value. There is a subjective reason, though: namely, that a large enough number of people agree that USD is a worthwhile commodity. They believe that for a number of reasons, including that our Army will go off and fucking kill anybody who threatens to break the spell that makes everyone agree that USD are worth your time to accept.
Anyway.
But really, thatâs the issue, right? Everyone agrees that dollars are worth something, and we trade them all the time. Theyâre really easy to trade. I donât know of any coffee shop near me that takes Euros, so even though 1⏠is âworth moreâ than $1 USD, the Euro note I have in my backpack is basically useless for me to get some coffee. Economists call this property âliquidity,â and it basically means âhow easy is it for me to get what I want with this commodity.â USD is very liquid. Euro is very not liquid, unless I deposit it with my bank, which will exchange those Euro for me for USD, which I can then trade for my coffee. Most discussions around the ârealnessâ of cryptocurrency are really arguments about its liquidity. Bitcoins arenât real because I canât buy anything with them. Really, liquidity is the aspect that matters to most people when it comes to basic financial transactions.
This brings me to MtGox and CoinBase. These two companies are the biggest things to happen in cryptocurrency, and thatâs because they significantly improve the liquidity of Bitcoins. MtGox is a place where you can trade Bitcoins for USD. As soon as you have an exchange like this, your Bitcoins now become incredibly more liquid: you can always trade some BTC for USD, and then trade USD with⌠anything. Coinbase is an online wallet that allows you to store Bitcoins, but more importantly, it provides liquidity to the BTC market because it allows merchants to âaccept Bitcoinsâ without exposing themselves to the risk of Bitcoinâs price fluctuations (this is called âvolatilityâ). As a merchant, I can integrate with Coinbase, and someone can, upon checkout, pay with their Coinbase account. Itâs sort of similar, from the perspective of the buyer, as paying with your PayPal account. Anyway, hereâs the crucial bit: Coinbase then instantly converts the Bitcoins to USD, and then gives the USD to the merchant. This is incredibly important for the future of Bitcoin. By allowing merchants to not worry about the fact that their customers are paying in BTC, it means that more of them will âaccept Bitcoins,â which increases Bitcoinsâ liquidity in two ways: first, that they can buy more things in BTC âdirectly,â as well as adding a healthy amount of orders on the various marketplaces, which helps stabilize the price.
I havenât said the word âDogecoinâ in a while, so youâre probably wondering where Iâm going with this. So hereâs the thing: as long as BTC and USD can be exchanged easily, it allows for a significant opening for all other cryptocurrencies. This is because BTC is incredibly liquid when it comes to other cryptocurrencies: there are a number of exchanges that will trade whatever kind of the cambrian explosion of cryptocurrencies you want for BTC. Basically, BTC is sort of the âworld reserve currencyâ of cryptocurrencies. So as long as the link to the âreal world currenciesâ exists, they can cross the gap. Imagine a âDogecoin VISAâ, a credit card where I hold a balance in DOGE. When I go to buy something with my Dogecoin VISA, the backing bank would query the DOGE-> BTC -> USD rate, and then ship the merchant that many USD, and debit me that many DOGE. What if I want to trade EURO for DOGE? EURO -> USD -> BTC -> DOGE. Done. The weakest and most tenuous link here is the BTC <-> USD bridge. As long as itâs maintained, cryptocurrency is liquid, and therefore, âreal.â Furthermore, the entire financial system can be re-built on the cryptocurrency side of the bridge, as well. Imagine a site that allowed you to âDogecoin IPO,â listing your stock on the DSE (Dogecoin Stock Exchange). TWTR -> USD -> BTC -> DOGE -> MYCOMPANY. First step is on the NYSE, second step is on MtGox, third step is on Coinedup, fourth step is on the DSE. It all works. Hereâs the truly scary thing: we heavily regulate the finance industry, because when we donât, bad things happen. Hell, when we do, bad things happen. As long as cryptocurrency isnât taken seriously, it too, will remain unregulated, which allows for a massive extraction of wealth. The cryptocurrency community is largely made up of people who have no idea what theyâre doing, and people who do know what theyâre doing are starting to notice. Itâs all of the worst, most predatory aspects of the global capitalist system, without any consumer protection.
Regardless, thereâs an initial âbootstrappingâ phase for anything, and I think Bitcoin is past that point now. It doesnât matter if I think Bitcoin is a terrible idea, itâs going to be a thing regardless, so time to figure out what that actually means.
So the statement that Dogecoin poses to us is this: If things really are worth whatever anyone says theyâre worth, so are memes. Do we really want to live in a world where a dumb joke about dogs that canât talk has the same legitimacy as money? Because the more people that take Dogecoin seriously, the more serious it becomes⌠and the very nature of its silliness encourages us to think seriously about the nature of money and therefore value.
Before, I just laughed. Now, thanks to a joke, Iâm scared.
You can tip me in Dogecoin at this address: DEJf4pmo7a87FeZP1fZAT8jPjDHnKL9r8C or in Bitcoin at this address: 13BHd8tYA41JMuoBpLTGjyXfrnc6Xi6ma5