1 Important Tailwind That Could Send Dogecoin Skyrocketing

The original meme token, Dogecoin (CRYPTO: DOGE), has lasted far longer than many might have guessed when it launched in 2013 as a joke with a Shiba Inu mascot. Spurred by social media and its ability to go viral, as well as endorsements from celebrity businesspeople and entrepreneurs like Mark Cuban and Tesla's CEO Elon Musk, Dogecoin is now the ninth-largest cryptocurrency in the world, with a market cap of close to $29 billion.

While the token tends to move with the broader crypto sector, it still doesn't appear to have any real-world utility. The network is not strong from a technical perspective, and can only process about 30 to 40 transactions per second (TPS).

Image source: Getty Images.

Furthermore, Dogecoin is also not considered a strong store-of-value like Bitcoin because it has nearly 151.5 billion outstanding tokens, and an additional 5 billion are issued each year.

But the potential implementation of one rumored initiative could get the token moving.

Improving the network

Because cryptocurrencies do not generate free cash flow or earnings like publicly traded stocks, at least in a traditional sense, it's hard for investors to assess which one is the best asset, or if a token is under- or over-valued. That's why many investors try to find tokens operating on a blockchain network with strong real-world utility. If the network's main use case starts to play out, that may drive demand for the token.

While Dogecoin does not seem to have a compelling use case right now, media outlets have reported that developers are considering trying to build a layer-2 blockchain solution onto the network. These have historically been layers where transactions could be validated off the main network, in order to ease congestion and speed up transactions without increasing fees. Some of these layers have even had a burning mechanism that can delete tokens from circulation.

The proposal for Dogecoin is being led by the team that created MyDoge, a popular and free crypto Dogecoin wallet. MyDoge also reportedly raised $6.9 million in funding earlier this year to embark on the effort. The upgrade, according to the developers' proposal, would essentially give Dogecoin's network smart contract functionality, so other developers could build decentralized applications (dApps) on the blockchain network, and help the network scale and become more decentralized.

It's still unclear when this upgrade could happen, but if it does get implemented, I could see Dogecoin soaring on the news. Not only can Dogecoin make large moves due to its virality, but the popularity of the token may enable the network to build a big network of dApps and users.

For now, I am still avoiding the token and don't think investors should buy it until more is known about the upgrade and its ultimate potential. But the initiative is certainly one to keep an eye on.

Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.