What started as a joke resulted in one of the most well-known cryptos worldwide. Let’s take a look behind the (admittedly cute) facade of Dogecoin and determine its sustainability potential.
Dogecoin was launched in 2013 as Memecoin by two American software developers. The Japanese dog in the logo was chosen not by chance but to ease the way for interested investors into the world of cryptocurrencies. Early on, DOGE supporters lived up to its reputation as a Bitcoin parody. For example, they collected donations to send the Jamaican bobsled team to Sochi for the 2014 Winter Olympics.
Today, Dogecoin is no longer a joke but one of the largest cryptocurrencies by market capitalization. It is based on the proof-of-work algorithm, just like Bitcoin. Meaning that anyone who mines DOGE solves complex mathematical equations using powerful computers. Afterward, the transactions are recorded in the Dogecoin blockchain for everyone to see.
In 2022, rumors surfaced that the Dogecoin Foundation was thinking about switching to the more environmentally friendly Proof-of-Stake algorithm. That was our cue to review the ESG rating - and lo and behold; our examination of the latest data resulted in an improvement in the rating from a former D to a C!
Environmental Score: C+
In December 2022, Michi Lumin, chief engineer of the Dogecoin Foundation, commented in a tweet on the intention to publish a proposal to switch to Proof-of-Stake (PoS). The decision is left up to the community.
There are different reports about DOGE's power consumption. According to our own calculations, Dogecoin registers the fourth worst result in power consumption after Bitcoin, Litecoin, and Ethereum Classic.
The same goes for electronic waste. Here, too, Dogecoin ranks below the middle of the pack.
For comparison, the blockchains with the highest power consumption per year:
Social Score: C+
DOGE is a meme coin with no social intentions. It was originally created as a joke version of Bitcoin to provide a lighthearted entry into the crypto world. Keep in mind that our score is a relative ranking. Compared to other cryptocurrencies, DOGE cannot claim a significant social impact and therefore does not receive any points for this metric.
On the positive side, the entry barriers are very low. DOGE is among the cryptocurrencies with low transaction costs.
However, the insufficient distribution of assets is problematic. Once you take a closer look at the Richlist, you will quickly see that the share of the largest holders amounts to almost 47 percent (as of January 2023).
Governance Score: C-
For the final category, let’s start with the positive: No security incidents were reported since DOGE’s inception in 2013. That said, there was also no status uptime explorer available at the time of our last data check.
Now… We need to talk about Elon… once again! If you have followed the ins and out of the crypto world, you know that one single five-word tweet by Elon Musk helped Dogecoin achieve the largest percentage growth among the top ten crypto assets. This is not the cryptocurrency's fault, of course. But it does show its volatility as an asset. That’s why we look for transparency in our assessments. The Dogecoin Foundation does not provide any. In other words: It doesn’t disclose information about practices or policies on how it handles potential governance issues - thus increasing the risk of pump-and-dump, insider trading, front-running, etc. Here, the lack of substantive information results in a significant reduction of the governance category.
Furthermore; the poor distribution of miners is a significant risk factor. It only takes a small number to take over the network. That said, the diversification of miners and mining pools has improved notably since our last assessment - ultimately leading to a better overall ESG rating for Dogecoin.
Bottom Line: Sustainability Issues (C rating)
What does this mean for Dogecoin in light of a potential move to Proof-of-Stake (PoS)? Well, … not at all that much.
Today, DOGE receives a score in the C range in all three ESG categories. Even if the environmental dimension is awarded the highest possible score in the event of a switch to PoS (which is unlikely anyway), Dogecoin's overall sustainability rating and potential will remain in the mid-to-low range due to its scores in the social and governance category.
Overall, we source up to 110 data points per coin to feed our quantitative estimation models. We also apply qualitative expert judgment to ensure that soft factors such as visions, roadmaps, or conflicts of interest are taken into account and included in the rating.
Our rating system is relative, i.e. we evaluate the sustainability of each coin or token in direct comparison to its peers. In other words, we ask ourselves which cryptocurrency is more sustainable considering a similar market cap and transaction volume. This is to ensure that those with higher transaction volumes and associated higher CO2 emissions are not automatically penalized.
Learn more about our methodology.