Tesla CEO Elon Musk has defended on social media efforts to scale the meme-inspired cryptocurrency Dogecoin (DOGE) after calling both Bitcoin and Ethereum “slow” at their base layer and suggested an alternative path for DOGE.
Responding to YouTuber Mark Wallace who expressed excitement for an upcoming DOGE update, Musk commented that both bitcoin and ether are “pursuing a multilayer transaction system,” referring to the Lightning Network and other layer-two scaling solutions, and added these coins are keeping “base layer traction” rates slow and costs high.
Musk added there is merit to Dogecoin maximizing base layer transaction rates and minimizing transactions costs while using cryptocurrency exchanges as the “de facto secondary layer.”
BTC & ETH are pursuing a multilayer transaction system, but the base layer transaction rate is slow & transaction cost is high.
There is merit IMO to Doge maximizing base layer transaction rate & minimizing transaction cost with exchanges acting as the de facto secondary layer.— Elon Musk (@elonmusk) July 9, 2021
Cryptocurrency trading platforms process a significant number of transactions internally without moving funds on the blockchain, which does help avoid clogging blockchain networks. They are, however, seen as centralized third parties that may harm a cryptocurrency’s decentralization.
An exchange may, for example, freeze a user’s funds if they have to respond to an order from law enforcement. On the Bitcoin blockchain, funds cannot be frozen. instead, what exchanges can do is reject transactions from a specific address and freeze funds if they come from it, but even then the user can move funds freely on the blockchain without using the exchange.
Musk has in the past claimed it is “important to support” a proposal brought forth by Dogecoin developer Patrick Lodder to reduce the cryptocurrency’s transaction fees in order for it to remain competitive.
According to Lodder the current recommended transaction fee of 1 DOGE has “become steep for the perceived value of transaction dogecoin” and is “disincentivizing on-chain transactions unnecessarily.” While transacting on the cryptocurrency should be cheaper than on Bitcoin or Litecoin, it can now at times be more expensive.
This, the developer added, is causing people to keep their DOGE tokens on centralized trading platforms longer instead of moving them to a wallet they control because “the perceived value loss of transferring DOGE to a secure wallet is (too) high.”
The value of Dogecoin has exploded over the past year after several celebrities started tweeting about it. Musk, Kiss singer Gene Simmons, billionaire Mark Cuban, Snoop Dogg, and others have over time tweeted jokes about DOGE, fuelling its growth.
DOGE hit a $0.74 all-time high earlier this year before it started crashing along with the rest of the cryptocurrency market. It is now trading at $0.21 after moving slightly after Musk’s recent tweet.