A significant event occurred recently, but it went unnoticed by much of the crypto community as most traders focused on Bitcoin’s phenomenal rally. This involved Ethereum (ETH) founder Vitalik Buterin and two Dogecoin (DOGE) developers, Ross Nicoll and Oscar Guindzberg. The trio got underway in a video conference as confirmation that the much-requested DOGE-ETH bridge is now up and running and development is progressing well.
This project was started in 2018 by DOGE developers, but shelved indefinitely during crypto winter 2019. However, since ETH founder Vitalik Buterin and Elon Musk proposed that the two influential coins work together in June of this year, the project has been restarted and has been progressing very well.
Buterin’s emergence as a form of support is important as he has influence with ETH and the crypto community. Your support for the project makes it especially legitimate and feasible.
So what is this DOGE-ETH bridge all about?
Simply put, a DOGE-ETH bridge allows DOGE to be used on all ETH-based platforms. A bridge enables DOGE holders, who currently have no smart contract capability, to use their DOGE to join the ETH metaverse, which comprises a growing list of groundbreaking innovations, from financial systems to new economic systems. This basically means that DOGE holders will be able to participate in DeFi, NFT, Gaming, DAO, among other things.
This bridge works by allowing DOGE to lock into a smart contract which then mints an equivalent amount representing it on the ETH blockchain (via the ERC-20 token standard). Basically it allows you to create an ETH version of DOGE that you can use just like ETH and from this it gives you back your DOGE in all its glory after you finish doing what you wanted to do on an ETH based platform and want to your DOGE back.
While this is certainly great news for DOGE, this could be even better news for ETH. In order not to make this article too lengthy, I won’t go into detail about how the bridging process works (you can read the flowchart below).
The key to note is that the way this bridge works, at least in its current form, requires the use of ETH as a gas tariff and also that ETH is placed as collateral for participants who wish to become the ‘gatekeeper “To aid in the smooth process of this” input and output transformation. ” Instead of having a centralized entity that oversees the blocking and unlocking of DOGE, the entire process is done through a smart contract that will be governed by a series of “gatekeepers” called Bridge Operators.
To become a bridge operator, a participant must place some ETH as collateral. This process is somewhat similar to ETH participation in ETH2.0, where validators will need to put ETH as collateral to secure the new PoS network. And just like the ETH2.0 validators, these bridge operators will receive a reward.
Therefore, this bridge could increase the use of ETH in terms of gas fee payable, but not only this, it also reduces the circulating supply of ETH, as bridge operators will have to block their ETH. While the details of the ETH lockdown are not yet available, it will invariably cause the demand for ETH to increase and the market supply of ETH to decrease. The launch of this bridge will inevitably worsen the already severe supply crisis in ETH, further increasing its price over time. This newly created price catalyst adds to the current exciting developments within the ETH ecosystem that no longer needs an introduction.
It has been widely agreed that the phenomenal rise in the price of ETH over the past year has been primarily driven by the rise in popularity in the gaming arena of DeFi, NFT, and blockchain, where ETH remains the undisputed leader. Despite this market-leading position, the number of DeFi users, which accounts for more than 90% of ETH usage, stands at only around 3 million out of a world population of more than 7 billion; there is still plenty of room for growth.
It is also a widely accepted fact that DOGE is the cryptocurrency with the highest number of unique holders, the majority of which are new entrants to the crypto space who most likely have not been exposed to ETH, let alone DeFi and NFT ecosystems.
While it is difficult to determine the number of DOGE users, we can make a rough estimate by looking at the social media numbers. There are currently more than 2.1 million subscribers on DOGE’s subreddit account, while its Twitter account has more than 1.9 million followers, both of which are the highest among all the currencies out there.
Robinhood’s recent IPO filing has also shown how important DOGE has been to its business, as DOGE’s operations accounted for 34% of its crypto asset revenue in the first quarter of 2020, a drastic increase from just the 4% from the previous quarter. Experienced crypto traders generally don’t use Robinhood to make their crypto purchases, they typically do so on crypto-only exchanges. Thus, we can fairly safely deduce that most of these DOGE buyers on Robinhood are new entrants to the cryptocurrency space in Q1 2021, and may not have been participating in DeFi or NFT.
If this large group of new users enters ETH-based platforms through the DOGE-ETH bridge, the further increase in ETH usage could be massive. DOGE’s friendly appeal has been able to continually attract more new entrants to the crypto space, as well-known consumer-focused companies like Slim-Jim and even Burger King have been incorporating the popular coin into their marketing campaigns, making it even more popular. Therefore, DOGE not only brings its current holders to the ETH ecosystem, it has the potential to attract many more new users.
The bridge will also greatly benefit DOGE as it creates an additional use case for DOGE that could increase demand and more importantly blocks part of DOGE’s supply when its replica version in ETH is used in various applications in ETH. As more DOGE is blocked for purposes of use and / or yield generation, the circulating supply of DOGE in the market will be reduced, as these blocked DOGEs will not be available for sale, which will remove the selling pressure and will be beneficial for the price.
To conclude, this bridge is great news for ETH as it can potentially bring a host of new entrants to the world of DeFi and NFT, while giving DOGE holders the ability to participate in the world of decentralized finance, games and governance and more, which is not currently available to DOGE holders.
The world’s most popular token (DOGE) working alongside the world’s most widely used token (ETH) is a formidable combination that can potentially unleash even more explosive growth in two cryptocurrencies that are already highly ranked.
Will the power of the DOGE be what ETH needs to send it beyond BTC? And will the additional ETH-enabled use case send our favorite DOGE to the moon before the Dogefather does next January? I, like many others, can’t wait for the bridge to go live. This is an exciting development worth keeping an eye on. Both to the moon, I would say.
About Kim chua, PrimeXBT Principal Market Analyst:
Kim Chua is an institutional trade specialist with a track record of success that extends to major banks including Deutsche Bank, China Merchants Bank, and more. Later, Chua launched a hedge fund that consistently achieved triple-digit returns for seven years.
Chua is also an educator at heart who developed her own proprietary trading curriculum to pass her knowledge on to a new generation of analysts. Kim Chua actively follows crypto and traditional markets and is eager to find future trading and investment opportunities as the two very different asset classes begin to converge.