Imagine a coin with a goofy picture of a dog on it being used as a medium of exchange. Add to that the coin isn’t even available in a physical form. It is a purely digital coin. Sounds like a joke, right? It initially was a joke.
Two software engineers in the winter of 2013 created a satirical cryptocurrency taking inspiration from a viral meme. But the internet, particularly Reddit, propelled it to fame. Dogecoin.com received over a million visitors within just a month of its launch.
Now, nearly ten years later, this joke coin is serious business as it has become one of the most popular cryptocurrencies; one that even caused an outage on a trading platform’s crypto trading feature due to huge demand. Truly, there is a reason they say that reality is stranger than fiction.
What is Dogecoin?
Dogecoin is an open-source peer-to-peer cryptocurrency based on blockchain technology. It is a virtual currency that is free from the control and interference of a third party like the government or a Central Bank. It is an altcoin- a term for crypto coins that are not Bitcoin.
It is an accidental crypto movement that started as a joke but gained an ardent fan following online. Dogecoin strives to be a currency for the people that make them smile. Its goals are nicely summed up by its unofficial tagline: Do Only Good Everyday.
It is the first memecoin and references the viral meme of a Shiba Inu dog with text written in broken English. Dogecoin remained a meme for a long time before it started gaining ground as an online currency for tipping on social media platforms.
A Brief History
Dogecoin was originally a joke. It came into existence in 2013 when software engineers Billy Markus and Jackson Palmer created Dogecoin to poke fun at Bitcoin.
It is essentially the first “meme-coin.” It is based on the “doge” meme which went viral in the 2010s. The coin is stamped with a picture of a Siba Inu, a Japanese dog breed. It was made to make fun of wild speculations in cryptocurrencies at the time but surprisingly, Dogecoin.com ended up getting a million visitors in just a month of launch. The Dogecoin Foundation was founded in 2014(and re-invigorated in 2021) as a not-for-profit organization to support the development of Dogecoin.
The coin further gained publicity through activities like sending the Jamaican Bobsled Team to the 2014 Winter Olympics in Sochi and sponsoring NASCAR Sprint Cup Series driver Josh Wise.
In 2015, Dogecoin founder Jackson Palmer altogether left the cryptocurrency community and donated his proceeds to charities. He further denounced cryptocurrencies by calling them a hyper-capitalistic technology meant to make the rich richer at the cost of vulnerable investors. His co-founder Billy Markus who had also stepped away from Dogecoin years ago backed the validity of Palmer’s statements.
In 2021, Dogecoin saw a humongous 800% rise in its value over 24 hours due to attention from the social media site Reddit and the GameStop short squeeze. Tesla CEO Elon Musk, rapper Snoop Dogg and Israeli-American musician Gene Simmons batting for Dogecoin further helped in taking its price to a new high.
Unprecedented demand for Dogecoin even caused an outage on the e-trading platform Robinhood’s crypto trading feature in April 2021. However, the unexpected and sudden rise in Dogecoin prices also sparked concerns about a potential bubble in the crypto market.
The memecoin started losing value in late 2021 and 2022 and is trading at $0.07 at the end of 2022.
Fun Fact: The name Shiba Inu literally translates to “firewood dog”.
How Dogecoin Works
Dogecoin is a cryptocurrency based on blockchain technology. Blockchain is a decentralized public ledger. It is open-source and relies on a peer-to-peer network to ensure the accuracy of transactions and maintain transparency.
Blockchain can be thought to be like a long chain of interconnected blocks. Every block contains information about a particular transaction and its timestamp. A new block is added to the chain when a transaction takes place on the network. Dogecoin’s blockchain is known as Dogechain.
Dogecoin was forked from now-defunct Luckycoin which itself was a fork of Litecoin. As such, Dogecoin shares many structural similarities with Litecoin and Bitcoin.
Since there is no third party involved, it relies on a peer-to-peer network where the peers or nodes have to create a consensus to validate transactions.
Dogecoin works on a Proof-of-Work(PoW) consensus mechanism like many other early cryptocurrencies. In PoW, miners are in a competition to quickly solve complex mathematical puzzles. The one who solves the puzzle first gets to validate the transaction and add a new block to the chain. 10,000 DOGE are mined every minute like this.
However, unlike Bitcoin, Dogecoin does not use the SHA-256 cryptographic algorithm. It more closely resembles Litecoin in this case due to the use of the Scrypt algorithm. Hence, Dogecoin can be mined much faster than Bitcoin.
It is also a much faster transaction speed than Bitcoin as it takes Dogecoin only 1 minute to confirm a transaction as compared to 7-10 minutes for Bitcoin.
Dogecoin has been particularly used for online tipping. Users used to send Dogecoins to other users on Reddit and Twitch via the Dogetipbot before it was discontinued in 2017.
smallest of the spitz breed of dogs native to Japan.
How to Buy Dogecoin
Getting your hands on dogecoin is a straightforward process. All you have to do is find an exchange that offers dogecoin and then purchase. Read on to find out the detailed steps.
1. Selecting an Exchange
Dogecoin is a popular cryptocurrency so finding a crypto exchange that carries it should not be a problem. Before making your choice, you should find out about the nature of different exchanges, their security measures, and the fees charged by them.
You can choose between centralized and decentralized exchanges as per your goals and experience.
Centralized Exchanges(CEXs)
CEXs work like a traditional stock exchange. They function as a broker between crypto buyers and sellers and charge a fee for transactions.
Most CEXs are KYC-compliant and hence offer better security for investments. They are also quite beginner-friendly due to their resemblance to conventional stock exchanges.
Decentralized Exchanges(DEXs)
DEXs are known for providing users with a high level of privacy and anonymity. Here, there is no middleman between crypto buyers and sellers and they transact directly with each other. DEXs are compatible with users who value privacy above everything but they can be difficult to navigate for novices.
2. Creating an Account
The next step is to create an account for your selected exchange. You can sign up by going to their website or downloading their app.
3. Funding Your Account
You need funds in your crypto account to buy Dogecoin. You can transfer money directly from your bank account or through your debit or credit card. Remember that certain payment methods attract a higher transfer fee than others.
4. Buying and Storing Dogecoin
Now, you can buy your Dogecoin by specifying the amount, making the payment, and confirming the transaction.
Next, you need a place to store your Dogecoin. You can decide between hot and cold wallets as per your concerns for convenience and safety.
Hot software wallets are 24/7 connected to the internet. They are convenient if you do regular transactions. Since they are always connected to the internet, they are also more vulnerable to hacking attempts.
Cold hardware wallets store the crypto offline. They are better from a security point-of-view though it can be a hassle to connect a cold wallet to the internet every time you want to make a transaction.
Dogecoin Mining
Since Dogecoin is a peer-to-peer digital currency, it is dependent on the participating nodes to add new blocks to the blockchain. To do this, the nodes have to create consensus on the network. The protocols governing the consensus-creating process are known as consensus mechanisms.
Like Bitcoin, Dogecoin also uses the Proof-of-Work(PoW) consensus mechanism which involves the process of mining. The difference is that Bitcoin is based on an SHA-256 algorithm while Dogecoin is based on the Scrypt algorithm.
In PoW, users compete to solve complex mathematical problems to add new blocks to the existing chain. The node that solves the puzzle first gets to validate the transaction after which a new block is added to the Dogechain. The miner is rewarded with dogecoin for their efforts. A miner can get 10,000 DOGE for quickly confirming the transaction.
In the earlier days, Dogecoin could be easily mined by a single miner with enough disk space and gaming GPU. But these days, competition from large mining pools is so tough that it is nearly impossible to mine DOGE alone with a GPU.
Now, specialized hardware called Application-Specific Integrated Circuits(ASICs) is used for mining PoW cryptocurrencies. In fact, there are specialized ASIC miners meant specifically for PoW cryptocurrencies using the Scrypt Algorithm.
Dogecoin can be mined in the following ways:
1. Solo Mining
A lone miner individually mines DOGE with his computer. In the early days of Dogecoin, solo miners could easily reap great rewards but the increased mining hash rate of the network has made this next to impossible. Heavy competition from big mining pools has greatly reduced the chances of a single miner successfully mining Dogecoin.
2. Pool Mining
Individual miners come together and join their computing power to increase their chances of successfully mining DOGE. The reward is divided among the pool members as per their contribution. Most mining pools these days also charge a pool fee which is deducted from the mining rewards.
3. Cloud Mining
In cloud mining, miners rent a data center that further mines DOGE on their behalf. Genesis Mining, NiceHash, and ViaBTC are examples of some cloud mining platforms through which Dogecoin can be mined.
Is Dogecoin Mining Profitable?
Dogecoin is not exactly a high-valued cryptocurrency, its internet fame notwithstanding. It is far behind cryptos like Bitcoin(BTC) and Ether(ETH) in terms of price and market cap.
Though it is far easier to mine DOGE and the reward may seem high at 10,000 DOGE, high electricity hardware maintenance costs cut into the profit. Plus, nowadays, it is nearly impossible to do successful solo mining, and rewards earned are divided among the pool members.
Plus, unlike Bitcoin which is intentionally scarce, Dogecoin is inflationary by design. There is no maximum supply limit and the abundance of coins makes speculative gains harder.
While those who invested in Dogecoin before 2021 reaped high profits but it might be a long time before that kind of opportunity comes again. While the right person can make a profit from Dogecoin mining, it is probably easier to just buy it from an exchange.
Dogecoin and Elon Musk
Before Elon Musk was busy razing Twitter to the ground, he was ardently promoting Dogecoin on the bird app. The Tesla and SpaceX CEO is also a self-proclaimed “Dogefather.”
Musk posted memes about the memecoin and sang its praises on social media. Musk’s tweets to his 122 million Twitter followers would actually make the price of Dogecoin rise.
At one point in 2021, Musk’s “Doge Barking at the Moon” tweet sent Dogecoin’s prices soaring more than 100% to reach $0.29. It reached an all-time high of $0.7 before Elon Musk’s appearance on Saturday Night Live. And it dropped 30% of its value after he called Dogecoin a “hustle” on SNL.
Along with Elon Musk, other celebrities like Snoop Dogg and Gene Simmons have also backed Dogecoin though Musk seems to have had the most effect on its value. For example, the price of Dogecoin dropped more than 11% on December 19, 2022, after a Twitter Poll where a majority of the users voted that Musk should step down as Twitter CEO.
What is Dogecoin Worth?
The joke coin Dogecoin was created as a lighthearted alternative to Bitcoin. It was a meme coin with little value. Unlike other cryptocurrencies like Bitcoin which have a fixed supply, Dogecoin is intentionally abundant. There is no maximum supply and 10,000 new coins are mined every minute.
The circulating supply of Dogecoin is around 135 billion tokens. This makes the token inherently inflationary in nature. For a long time after its launch in 2013, Dogecoin was trading at a price of less than a penny.
During the crypto bull market of 2017, it saw its price rise by a whopping 1,494% to reach $0.004. Its value started falling in the latter half of 2017 but it reached $0.018 in early 2018.
But it was three years later in 2021 that Dogecoin saw the internet rallying behind it and helping it reach an all-time high of $0.74. Renewed interest from Reddit users particularly r/wallstreetbets, the GameStop short squeeze, and endorsement from public figures like Elon Musk, Gene Simmons, Snoop Dogg, and Mark Cuban were major factors responsible for this phenomenon.
Dogecoin’s value plunged in May 2021 after Elon Musk’s appearance on Saturday Night Live(SNL). It plummeted nearly 30% to $0.41 from $0.65. 2022 was a rough year for cryptocurrencies in general exacerbated by leading exchange FTX’s collapse. As of December 2022, Dogecoin’s price was hovering between $0.7 to $0.9.
The Future of Dogecoin
Dogecoin is an interesting case study. It started as a lighthearted joke coin based on a viral meme with a dog and nonsensical text in Comic Sans font. But the internet rallied behind it and catapulted Dogecoin to mainstream fame. Celebrity endorsement further helped it become a prominent cryptocurrency with its value becoming more than $85 billion in 2015.
In a way, Dogecoin became the very thing it set out to make fun of. The unprecedented spike in prices was followed by a just as sudden plunge after self-proclaimed “Dogefather” Musk called it a “hustle” on Saturday Night Live.
Dogecoin had a tough time in 2022 when prices kept going low for nearly all cryptocurrencies during a prolonged crypto winter. But with increased mainstream visibility, practical applications, and a dedicated online fandom, it is expected to regain its value in the near future.
Conclusion
Dogecoin was supposed to be something humorous but instead, it became a serious investment option for many people. Perhaps even the founders of Dogecoin did not expect their little joke to have the kind of run it had in 2021.
But like any other cryptocurrency, Dogecoin is prone to extreme price volatility. Whether you should invest in it or not depends on your financial profile, risk tolerance, and experience with cryptocurrencies. Particularly when speculating in Dogecoin brings with it some distinct risks.
Unlike Bitcoin, Dogecoin has no supply cap and is intentionally designed to be inflationary. The sheer number of new dogecoins coming into circulation every minute puts downward pressure on its value. Plus, it just does not have the robust security structure found in Bitcoin and Ethereum.
Hence, like any other cryptocurrency, Dogecoin is also a high-risk investment. If you do decide to put your money into it, make sure it is money that won’t adversely affect you if it sinks.