Friday, January 24, 2014

Why Dogecoin is Important

What’s most interesting about Dogecoin is that it created a new way for cryptocurrencies to compete: on branding, rather than on technical merit. The dozens of preexisting Bitcoin alternatives had all changed a number here, an algorithm there. Their creators proclaimed them to be more secure, user-friendly, or economically fair than Bitcoin. Instead, the main contribution of Dogecoin’s creators was to name the coin after a silly internet meme and plaster pictures of shiba inu all over the place.

Frankly, it’s brilliant. It’s not surprising that there was a marketer involved in the coin’s creation, rather than a team of all software developers. And Dogecoin has shot up the ranks — at the time of writing, it has the 7th highest market cap out of the 80 cryptocurrencies listed at coinmarketcap.com, many of which have been around for much longer. In daily exchange volume, it has recently reached as high as second place.

Among all the possible brands to build a coin on, the doge meme has several advantages. First among them is that the currency can pretend to be a joke. As one friend put it: “Dogecoin pretends to be a joke currency pretending to be serious, but it’s actually a serious currency pretending to be a joke.” This lets its fans support it enthusiastically without looking unintentionally foolish; they merely look intentionally foolish. Doge is also fun and accessible, and there’s no threat to the brand from, for example, being associated with an online drug marketplace. If anything, that would make it funnier.

What other kinds of brands could work? Two imitators, Catcoin and CoinyeWest, have already come and gone. They aren’t different enough from Dogecoin to gain traction. But they do point in two interesting directions. For the first one, cats are a more generic and broadly familiar brand than the doge meme. Perhaps more people could get behind it. In that line, you can imagine coins based on national pride (USACoin!), ideology, sports teams, etc. And what CoinyeWest points us toward is coins backed by private, commercial brands. Pizza Hut could release a pizza-backed currency — far tastier than the gold standard. A DisneyCoin would be in trouble when the Silk Road decided to start accepting it. It’s not immediately clear that companies would ever prefer a decentralized virtual currency to a centralized one, but it’s worth thinking about.

The long-term success of Dogecoin is beside the point. It doesn’t have anything close to Bitcoin’s developer backing. And basing a currency on an internet meme presents its own risks: for example, the joke might get old. Those are two of many reasons that Bitcoin will keep its lead for now. But it will be interesting to see where and how smarter branding gets incorporated into new efforts.