What is Dogecoin? An Introduction to Dogecoin, the Meme Cryptocurrency.
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Dogecoin is a cryptocurrency, like Bitcoin or Ethereum, although it is a very different animal from those popular coins. Dogecoin was originally created, at least in part, as a fun joke for cryptocurrency enthusiasts, and its name comes from a once-popular meme. Despite this unusual origin story, its popularity has skyrocketed in 2021 – as of this writing, Dogecoin has become the fifth-largest cryptocurrency by market capitalization.
What is Dogecoin?
Software engineers Billy Marcus and Jackson Palmer created Dogecoin in late 2013. Palmer branded the cryptocurrency’s logo using a popular meme at the time that featured the deliberately misspelled word “doge” to describe a Shiba Inu dog.
“Doge was really started to make fun of Bitcoin,” said Pat White, CEO of Bitwage. In its early days, a community of enthusiasts staged publicity stunts to raise awareness of Dogecoin, raising money to send the Jamaican bobsled team to the 2014 Olympics, for example, or sponsoring a NASCAR driver.
In early 2021, Dogecoin gained cult status on Reddit’s WallStreetBets forum – the main instigator of the GameStop affair in January – where enthusiasts had promised to propel its value “over the moon” (this was before any discussion of cryptocurrencies was banned on the subreddit).
Today Dogecoin is no joke, it has exploded in value and gained over 5000% in 2021. Among its supporters is Tesla CEO Elon Musk who has called Dogecoin his favorite cryptocurrency. Musk also named Dogecoin the “people’s crypto,” and promised to plant a physical Dogecoin token on the moon.
How does Dogecoin work?
Dogecoin is a cryptocurrency that runs on block chain technology, like Bitcoin and Ethereum. Block chain is a distributed and secure digital ledger that stores all transactions made using a decentralized digital currency.
All holders carry an identical copy of the Dogecoin blockchain ledger, which is frequently updated with all new cryptocurrency transactions. Like other cryptocurrencies, the Dogecoin blockchain network uses cryptography to secure all transactions.
People called miners use computers to solve complex mathematical equations to process transactions and record them on the Dogecoin blockchain – a so-called “proof-of-work” system. In exchange for processing transactions and supporting the blockchain ledger, miners earn additional Dogecoins, which they can then hold or sell on the open market.
Dogecoin can be used for payments and purchases, but it is not a very effective store of value. This is mainly because there is no lifetime cap on the number of Dogecoins that can be mined, which means the cryptocurrency is highly inflationary, by design. The blockchain rewards miners for their work by creating millions of new Dogecoins every day, which makes it very difficult to sustain speculative Dogecoin gains over time.
Dogecoin vs. Bitcoin
Dogecoin has some significant differences from Bitcoin. First, it’s faster and easier for miners to complete the mathematical equations that complete and record transactions on transactions, which makes Dogecoin a bit more efficient at processing payments.
“Where it takes 10 minutes for the process of ratifying new blocks on the Bitcoin blockchain, it takes just one minute on the Dogecoin blockchain,” said Gary DeWaal, president of Katten’s Financial Markets and Regulation group.
Another important difference is the lack of a lifetime cap on the number of Dogecoins that can be created, as noted above. There is a lifetime cap of 21 million bitcoins that limits the maximum possible number of coins that can be created. This means that miners are forced to work harder and longer to earn new bitcoins, and to some extent, this helps ensure bitcoin’s ability to hold and grow in value over time.
How to buy Dogecoin
You can buy Dogecoin on a cryptocurrency exchange like Binance or Kraken. These exchanges require you to create and fund an account with US dollars or cryptocurrencies. You can then buy and trade cryptocurrencies, including Dogecoin. Notably, major cryptocurrency exchange Coinbase does not support purchases of Dogecoin.
Some online brokers, including Robinhood and TradeStation, also let you buy Dogecoin — in addition to regular assets like stocks, mutual funds, and bonds. They don’t offer as many cryptocurrencies as exchanges, but Dogecoin is generally available.
As with other cryptocurrencies, once you have purchased Dogecoin, it is best to transfer your coins to a cryptocurrency wallet. Wallets take many forms, from online services offered by exchanges like Coinbase (although you can’t buy Dogecoin on Coinbase, you can store it in your Coinbase wallet), to apps on your mobile device or even a hard drive. Physical. You secure the wallet with a private password. Since your coins are kept outside of an exchange, there is an extra layer of protection against hacks.
Before Dogecoin hit the mainstream and its price skyrocketed, it was possible to earn free coins by completing basic tasks online.
For many years, you could perform tasks on Dogecoin ‘faucets’ to earn Dogecoins instead of buying them,” said C. Neil Gray, fintech partner at Duane Morris LLP. “The tasks included things like watching an advertisement or taking a survey. More recently, it has become difficult to find ones that work. »
Is Dogecoin a good investment?
As there is no lifetime limit to the number of Dogecoins that can exist and today price of Dogecoins, and millions of new Dogecoins are released into the markets every day, there is very little incentive to hold the cryptocurrency long term. Bitcoin continues to rise in value due to the lifetime cap on the number of coins that can be created.
“Doge is less like Bitcoin than DASH or Bitcoin Cash, where the explicit goal is a spending currency,” White said.
Historically, the value per coin of Dogecoin has been very low, around $0.003 per coin for most of 2020, so people were more likely to donate them. “Users of social platforms, like Reddit, Twitter, Facebook and others, can use Dogecoins to reward themselves, or ‘tip’ themselves, for posting content,” Gray said.
The gains in Dogecoin that have been seen in 2021 may not be sustainable in the longer term. Whether the tipping and gifting culture of cryptocurrency will endure remains to be seen.
Should you buy Dogecoin?
Those who bought Dogecoin to start 2021 were well rewarded. However, Mr. White remains a little cautious about buying Dogecoin, especially as an investment. The constant stream of new coins hitting the market has put endless downward pressure on the value of the coin.
Mr. White also warned of additional security risks for Dogecoin, compared to other major cryptocurrencies. “Dogecoin has not been subject to the same security and code-level scrutiny as Bitcoin or Ethereum. Additionally, there is not a particularly robust mining community around Dogecoin, so the exposure to a mining-level attack is far greater than that of something like Bitcoin. »
