Elon Musk says Dogecoin is better suited fundamentally as an everyday currency over Bitcoin thanks to its low transaction cost, higher speed, and greater incentive to spend.
The topic of Dogecoin vs. Bitcoin was raised Tuesday during a conversation on the Lex Fridman podcast, Musk was asked if crypto could be the preferred system of currency in a hypothetical Mars colony. Elon agreed crypto makes the most sense but argued synchronization back to blockchains on earth would pose a problem and thus a new currency would need to be created.
Musk noted what he believes to be fundamental flaws in Bitcoin that make it unsuitable for an everyday currency and laid his case for why the tokenomics of Dogecoin are superior:
“Part reason why I think there’s some merit to Dogecoin, even though it was obviously created as a joke, is that it it actually does have a much higher transaction volume capability than Bitcoin,” said Musk.
He compared fees and transaction times between the two, favoring higher speeds and greater transaction capacity:
“The costs of doing a transaction, the Dogecoin fee, is very low,” Musk noted. “Like right now if you want to do a Bitcoin transaction the price of doing that transaction is very high, so you could not use it effectively for most things and nor could it even scale to a high volume.”
The Tesla and Space X boss stressed that internet speeds have come along way since the creation of Bitcoin and the current block time is simply to long by today’s standards:
“When Bitcoin was started around 2008 or something like that the internet connections were much worse than they are today so having a small block size and a long synchronization time made sense in 2008 but in 2021 its comically low,” Musk explained.
One of the biggest bull cases for Bitcoin is scarcity. With a fixed supply of only 21M coins, the #1 ranking crypto by market cap is deflationary by nature. Elon Musk believes this is one fundamental flaw of Bitcoin that results in accumulation rather than circulation.
“I think there’s some value to having a linear increase in the amount of currency that is generated because if a currency is too deflationary, or is expected to increase in value over time, there’s reluctance to spend it because it’s scarcity is increasing with time,” says Musk.
An increasing supply at a responsible rate is important to a currency according to the co-founder of PayPal. Slowly decreasing value of a crypto gives an incentive to keep tokens in circulation rather than being saved as an investment.
“If I spend [Bitcoin] now then I will regret spending it, so I will just HODL it,” says Musk, “but if there’s some dilution of the currency occurring over time, that’s more of an incentive to use that as a currency.”
According to Elon, the key difference in Dogecoin comes down to an absolute number of new coins generated each year, rather than a percentage of circulating supply, which still results in a decreasing percentage of inflation over time.
“Dogecoin somewhat randomly has just a fixed a number of coins or hash strings that are generated every year so there’s there’s some inflation but it’s not a percentage base. It’s a fixed number, so the percentage of inflation will necessarily decline over time,” Musk explained.
He acknowledges that Dogecoin is merely a meme and probably not the best project suited for an official currency, but notes the fundamentals are a great example of what such a system should look like.
“I’m not saying that it’s the ideal system for a currency but I think it actually is just fundamentally better than anything else I’ve seen – just by accident.”
Elon Musk is the founder, CEO and Chief Engineer at SpaceX. He is an early-stage investor, CEO and Product Architect of Tesla, Inc. Musk also founded The Boring Company and co-founded Neuralink and OpenAI. With an estimated net worth of around US$280 billion as of December 2021, Musk is the wealthiest person in the world.
Lex Fridman is a computer scientist and AI researcher at MIT, podcaster, and online public personality. His topics of research include artificial intelligence, autonomous vehicles, human-robot interaction and machine learning at The Massachusetts Institute of Technology (MIT).