So there's been an unbelievable multitude of threads ranging from "Shibes, is Ð1 = $1 possible?" to "Shibes, Ð1 can never be $1, stop dreaming."
first of all, never tell a shibe not to dream.
second of all, much much more than the ratio of dogecoins to bitcoins to dollars determines the exchange rate of a currency, and that is the subject of today's shibenomics lesson.
Everyshibe has probably heard of GDP, but to define it very quickly - the gross domestic product
is the value of all goods and services produced in an economy over a period of time. Normally, GDP is calculated per year, but for the analysis in this article and dogecoin in general, i find it more constructive to think of GDP per day.
Now, how can we possibly find out what the GDP of dogecoin is? The USD has a whole bureau of economic analysis to do that and they still get it wrong half the time...
Herein lies one of the many beauties of the blockchain. The block chain is like a public ledger of every transaction in dogecoin, EVER - which means we can just find the last block with a transaction on Wednesday, January 15th, and the last block with a transaction on Thursday, January 16th, and every transaction in between is part of the GDP for Jan 16th. note: shibes already versed in economics will point out that some of these transactions may not be for goods and services, but rather conversions from USD or BTC, and some of them may be double counted because they are buying an ingredient for something they plan to sell later for more dogecoins - these objections are somewhat correct, but systematically overestimating GDP means you can still measure GDP change over time, which is what we're really concerned about, and conversions from other currencies are our equivalent of exports
So, as of now, our GDP on January 16th was a whopping 46,793,497,531 DOGE ($18,078,761 USD). Before you object about pay-it-forward threads and tipping and such, let me remind you - tips are a micro-transaction for a service (the service of making you smile :) ) and pay-it-forward threads are the shibe version of state-sanctioned lottery - which is the service of gambling. Now, gambling and entertainment an economy do not make, but 18 million dollars is a pretty big deal. Only bitcoin, litecoin, and quarkcoin have higher GDPs per day than dogecoin, and among those only dogecoin has a reasonably sustainable average transaction value (~$200 vs >$8000).
Ok, so now we know dogecoin has a GDP, and that shibes can feel pretty good about it. Even more impressive, dogecoin GDP has grown from $6.74 million on December 18th to $18 million today - 3.22% per day - at current growth rates, our GDP this time next year would be $1.78 TRILLION (11% of the US economy). Now this is probably unsustainable, but even growing at 20% of our current growth rate for a year would leave us only behind bitcoin in GDP per day.
Now let's consider market cap
- the first thing that is striking about dogecoin isn't that its 6th most valuable in terms of market cap - its that dogecoin is the only crypto who's GDP exceeds its market cap, and that too by a whopping 62%. This means that for every 1 dogecoin you spent today, 61.7% of that dogecoin was passed on, and then passed on again, and so on. The velocity of money in the doge economy is ludicrous
, and it confers a high degree of stability unto our economy, so kudos all around! A fast velocity of money not only helps fight changes in prices, it also makes it possible to post very high GDP numbers without having a large monetary base.
Apart from this, its also worthwhile to note that our market cap in USD has grown by around 3.6% per day, while the number of dogecoins added to circulation grows by around 2% per day - so despite all the mining, dogecoin has been appreciating in value quite rapidly in value.
On a more theoretical note, it is worth spending a moment to consider PPP (purchasing power parity)
. In high school economics, PPP means that a big mac in the United States should cost the same amount of real value as a big mac in China, and that the exchange rates will move to reflect that reality. In reality, PPP is more of a goal than a law - it's pretty hard to buy a big mac in China and bring it to the United States so that you get your food cheaper at lunch. In cryptoworld, however, PPP is the law - a bitcoin must cost the same amount in litecoins, dollars, and dogecoins, and the exchange rates will
change to reflect that. PPP has so far been strongly determined by the BTC, LTC, DOGE triangle, as there is still not a large volume USD/DOGE exchange to allow arbitrage between the USD/BTC/DOGE (arbitrage
is the force that makes
PPP a law). Thankfully, a DOGE/USD exchange is probably just around the corner, and so soon we should see DOGE/USD and DOGE/BTC stabilize a bit because of this.
PPP also extends to the world of mining - a kh/s mined on one currency will try to be worth as much as a kh/s mined on another currency - the best example of this is multipool. Right now, it is highly profitable to mine dogecoins because of the strong economy & exchange rate and the low block difficulty, compared to other alt coins relatively weak exchange rates and higher difficulties. Each coin has a predetermined global hash rate it will support based on its coin reward and target block time, and uses the difficulty to keep the reward & timing schedule intact.
What this means is that as more miners work on dogecoin, it becomes less profitable to mine doge unless its value relative to the other cryptos goes up - and this is the cause for the cycles of highs and lows we see in DOGE/BTC. These cycles will probably not stop after the February 14th block halving, but they will be occuring at higher and higher valuations.
It's a point of shibe pride to mention that of all the cryptos, dogecoin probably has the least wealth concentration - the top 100 transactions in dogecoin are only 3.15% of the daily transaction value, whereas for other currencies that number can reach near 50%.
In conclusion, it'll probably be disappointing to hear that I have no clue where DOGE/USD or DOGE/BTC will be in a week, much less when it will hit 1 dogecoin per 1 USD. What I can say, and what should be evident from the numbers, is that dogecoin is developing a strong economic foundation unlike any of the other altcoins, and is much less seedy than bitcoin's early economy. Some of the core difficulties of dogecoin going forward are going to be maintaining our ludicrous velocity of money, which means finding and developing new markets for tipping, diversifying our economy away from mainly tipping while keeping a focus on micro-transactions, and creating a more effective store of value besides hoarding coins in a wallet or giving them away in PIF threads and waiting for them to come back.
TL;DR - TO THE MOON!
statistics used in this article are available on: http://bitinfocharts.com/
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