Dogecoin is a cryptocurrency like bitcoin or Ethereum – although it’s a very different kind than either of those popular currencies. Dogecoin was originally created at least in part as a light joke for crypto enthusiasts and took its name from a favorite meme of the past.
Cryptocurrencies are digital currencies supported by cryptographic systems – encryption algorithms and other “crypto” methods. This encryption protects online payments and other financial transactions and makes currency counterfeiting virtually impossible. It is always based on blockchain technology, which allows a distributed digital database to keep a secure and immutable record of transactions without the involvement of a third party.
In general, cryptocurrencies are not issued or controlled by a central authority such as a government. This means that the government’s monetary policy cannot manipulate them. Although not commonly used for retail transactions, cryptocurrencies such as Dogecoin have become popular trading assets.
What is Dogecoin?
Software engineers Billy Marcus and Jackson Palmer created Dogecoin in late 2013. Palmer tagged the cryptocurrency’s logo with a popular meme at the time, intentionally misspelling the word “doge” to describe a Shiba Inu dog. “Doge is starting to recognize bitcoin,” said Pat White, CEO of Bitwave.
In the early days, the hobbyist community organized promotional stunts to raise Dogecoin’s profile, raise funds to send, for example, the Jamaican bobsled team to the 2014 Olympics or sponsor NASCAR drivers. In early 2021, Dogecoin gained cult status on Reddit’s WallStreetBets board — the main culprit behind January’s GameStop scandal — where enthusiasts promised to print its value “on the moon” (this was before all crypto discussion was banned from the subreddit).
By May 2021, dogecoin had risen as high as $0.68, compared to just under a penny at the start of the year. Tesla CEO Elon Musk is at least partially responsible for the massive growth after he named Dogecoin his favorite cryptocurrency.
By mid-2021, Dogecoin was consistently ranked among the top five cryptocurrencies by total market capitalization. Since then, Dogecoin’s value has plummeted, falling to $0.11 in March 2022, although it remains among the top 20 cryptocurrencies by market capitalization.
How does it Work?
Like many other currencies, Dogecoin runs on a separate blockchain. Dogecoin’s digital ledger is constantly updated with all new transactions and the network uses cryptography to ensure the security of all transactions. The Dogecoin blockchain uses a proof of work consensus mechanism where miners use computers to solve complex mathematical equations to process transactions and record them on the blockchain.
Instead of supporting the blockchain, miners can get more dogecoins to hold or sell on the open market. Dogecoin can be used for payments and purchases but is not an efficient store of value. This is because there is no lifetime limit on the number of Dogecoins that can be mined. This means the cryptocurrency is highly inflationary. The blockchain rewards miners for their work by generating millions of new dogecoins every day, so it is very challenging for speculative dogecoin price increases to continue over time.
What Makes Dogecoin Valuable?
Like any other asset, the market provides value to DOGE based on supply and demand. With an abundant and ever-growing supply, demand must skyrocket to push prices as high as they have been recent. This happened in the first months of 2021 when prices rose by 7,000 percent – driven by small investors on Reddit (including the wall street bets subreddit, which hit the “meme stock” rage) to cooperate in the price increase, the broader crypto-boom, and months of tweets from Tesla founder Elon Musk, which included his appearance on Saturday Night Live in May 2021.
The rapid increase in DOGE prices in 2021 attracted a lot of media attention (for example, social media reports) – which in turn created a cycle that attracted many investors and price hikes. When an asset makes such extraordinary gains, FOMO (or “fear of missing out”) brings waves of new traders into the crowd. However, DOGE remains a very easily transferable cryptocurrency and as with any investment, there is no guarantee that it will go up or down in the future.
Pros and Cons of Dogecoin
Now that we understand what Dogecoin is, let’s take a look at its pros and cons.
1) No third-party review
Due to its decentralized nature, Dogecoin is generally not under central control and manipulation and is difficult to counterfeit.
2) Upside potential
Like many speculative currencies, Dogecoin has historically enjoyed sudden periods of extremely high appreciation. For example, between January 28 and 29, 2021, it increased by 219%.
3) Historical data
Considered to be the first meme coin, Dogecoin has been around for almost a decade. This means that there are historical data and trends that users should consider before purchasing a token.
4) Big supply and low price per token
Due to the ample supply of Dogecoin and the low price per token, it is much easier to buy and collect more tokens. It also earns money suitable for online betting. In general, cryptocurrencies are not issued or controlled by a central authority such as a government. This means that the government’s monetary policy cannot manipulate them. Although not commonly used for retail transactions, cryptocurrencies such as Dogecoin have become popular trading assets.
5) Dedicated community
As we mentioned above, Dogecoin has a dedicated fan base and online following. It affirms a community that welcomes the participation and fun that meme-currency implies but seriously promotes its success.
1) A potential downside to Dogecoin is its Volatility
What goes up can go down. And anything that flies fast can easily fall. Some cryptocurrencies are easy to convert and meme coins in particular have a history of succession.
2) Almost unlimited supply
With an infinite limit on the number of dogecoins that can be produced, this is an extremely inflationary cryptocurrency.
3) Limited use cases
Apart from trading, Dogecoin’s main use is for online betting. Unlike Dogecoin, many of the most popular cryptocurrencies in the world offer some or more forms of usage.
4) Influenced by the news cycle
An initial increase in the value of Dogecoin community support was followed by a huge jump based on celebrity tweets. Historically, Dogecoin’s price has fluctuated based on how prominent it has been in news cycles.
Dogecoin vs. Bitcoin
Dogecoin has some significant differences from Bitcoin. First, it is faster and easier for miners to fill in the mathematical equations that complete and record transaction records. This feature makes Dogecoin relatively more efficient at processing payments. “Where the approval process for new bitcoin blocks takes 10 minutes, dogecoin blocks take just one minute,” said Gary DeWaal, chairman of Katten’s Financial Markets and Regulation group.
Another important difference is the loss of any lifetime limit on the number of dogecoins available, as we mentioned above. There is a lifetime cap of 21 million bitcoins that limits the maximum possible number of coins that can be produced. This means that miners are forced to work harder and longer to obtain new Bitcoin, which to some extent helps ensure Bitcoin’s ability to maintain and increase its value over time.
How to Buy Dogecoin?
You can buy Dogecoin on a cryptocurrency exchange like Binance or Kraken. Exchanges require you to open and fund an account with US dollars as the cryptocurrency. You can buy and exchange cryptocurrencies including Dogecoin.
Other online brokers, including Robinhood and TradeStation, also allow you to buy Dogecoin – in addition to traditional assets such as stocks, mutual funds, and bonds. They don’t offer as many cryptocurrencies as exchanges, but Dogecoin is widely available. As with other cryptocurrencies, once you have purchased Dogecoin, it is best to transfer your coins to a cryptocurrency exchange.
Wallets come in many forms, from online services offered by exchanges like Coinbase to apps on your mobile device or even a physical hard drive. You secure the exchange with a private password. Since your coins are kept off the exchange, there is an extra layer of protection against hacks. Before Dogecoin went mainstream and its price rose, you could once get free coins for doing basic tasks online.
Is Dogecoin a Good Investment?
Since there is no lifetime limit on the number of Dogecoins that can be available, millions of new Dogecoins are released into the markets every day. There is not much incentive to hold the cryptocurrency for the long term. Bitcoin continues to grow in value due to the system’s lifetime limit on the number of coins that can be produced. “Doge is less like Bitcoin and more like DASH or Bitcoin Cash, where the obvious goal is to spend money,” White said. Historically, the value of one Dogecoin coin has been very low, hovering around $0.003 per coin for most of 2020, so people are more likely to give it away. “Users of social platforms such as Reddit, Twitter, Facebook, etc. can use Dogecoin to reward or ‘tip’ each other for posting content,” Gray said.
Dogecoin also has a uniquely welcoming community. This makes sense because the whole project is built on a meme. It will probably be surrounded by hateful and angry people. It works because it can inspire new investors to jump in. As mentioned earlier, dogecoin is often used to tip people online. Authors, video makers, and other online marketers get us out there. It’s faster and more convenient than PayPal, but other crypto projects do the same and much more. As with most projects, it is difficult to predict exactly what will happen to Dogecoin in a few years. It cannot be said that it is the best investment because there are safer and faster profits.
Dogecoin took off after SpaceX and Tesla CEO Elon Musk announced that DOGE was one of his favorite cryptocurrencies; since then, he has occasionally posted DOGE-related tweets, each of which is believed to trigger an incredibly rapid movement in the currency. Because of this pattern, many dogecoin investors and traders have taken advantage of Elon Musk’s DOGE tweets to announce the timing of their own buying and selling.
Should you Buy Dogecoin?
Those who bought Dogecoin for big profits in 2021 have been well rewarded. However, there is something cautious about buying dogecoin, especially as an investment. The constant influx of new coins into the market creates constant downward pressure on the value of the currency. Analysts also warned of an increased security risk for Dogecoin compared to other major cryptocurrencies. It doesn’t have the same code-level security and controls as Bitcoin or Ethereum.
Also, there’s not a particularly strong mining community around Doge, so it’s more exposed to a mining-level attack than anything like Bitcoin. Buying any type of cryptocurrency involves risk, including Dogecoin. It’s always worth the effort to buy a few coins and familiarize yourself with the system. But it’s probably best to avoid losing more than a token amount of your hard-earned money on a cryptocurrency that started out as a joke.
The Future of Dogecoin
The community under Dogecoin seems to be drawing a coin. It can make everyone a lot of money and the internet’s favorite altcoin will be a success. Additionally, some merchants are starting to take Dogecoin along with other cryptocurrencies. Although it may seem like a joke at first glance, there is a lot of money involved in dividing the amount. As more and more people become familiar with Dogecoin and blockchain in general, we can see Dogecoin going up.