What is Dogecoin?
What is Dogecoin?
Dogecoin was created by software engineers Billy Markus and Jackson Palmer who created the blockchain featuring a payment network and a currency as a joke to make fun of the wild speculations on cryptocurrencies taking place at the time. To highlight the project’s satirical nature, the creators named the cryptocurrency after a popular meme, which typically shows a picture of a Shiba Inu dog accompanied by multicolored text, referencing a kind of internal monologue in broken english. The meme’s now famous name ‘Doge’ is an intentionally misspelled slang word for dog, dating back to 2005, and having been popularized by a now deleted reddit post titled: LMBO LOOK @ THIS FUKKEN DOGE.
Dogecoin’s logo, a golden coin with Shiba Inu’s face imprinted on it and a capital D overlaying it, is an homage to the eponymous meme as well. Also, the capital D on the golden coin resembles the Bitcoin logo, which can be interpreted as displaying Dogecoin’s technical relation to Bitcoin.
From the origin of Dogecoin
The story of Dogecoin has been a success from its very start. The project was launched on December 6, 2013, and quickly developed its own online community. Within the first 30 days of Dogecoin’s launch, their website was visited over a million times. On December 19, 2013, just two weeks after the launch, Dogecoin’s value jumped over 300% with a trading volume of billions of coins per day, but crashed back down 80% a few days later.
One week after, a first major hack occured and millions of Dogecoins were stolen from the online platform DogeWallet. This event brought lots of attention to Dogecoin, making it the most tweeted about altcoin at the time. To help those affected by the hack, the Doge community started an initiative to donate coins to the victims. Within weeks, enough money had been donated to cover all the coins that were stolen.
During the crypto bubble in 2017, Dogecoin’s price reached an all-time high of $0.017 per coin, giving it a market capitalization of close to $2 billion. In July 2020, in the early days of the DeFi boom, Dogecoin’s price spiked again following social media trends, especially on TikTok, aiming to get its price to $1. In January of 2021, Dogecoin’s price jumped another 800% in 24 hours, attaining a price of $0.07 per coin. This time the price movement can be attributed to the broader attention given to the currency by Reddit users, partially fueled by the Gamestop short squeeze and Elon Musk’s tweets about Dogecoin.
The first of Elons tweets in a series of tweets mentioned only one word: “Doge.” That was followed by other tweets hyping the currency, “Dogecoin is the people’s crypto” he later said. “No highs, no lows, only Doge,” he tweeted later.
Thanks to Elon Musk, Twitter, memes and Reddit, Dogecoin was now the hype of the hour. Most large crypto exchanges started listing the coin for trading, fueling the hype and FOMO and causing even greater demand, this time by the general public. In April of 2021, Dogecoin reached a daily trading volume of nearly $70 billion and its price surged to 0.45$/coin. At the beginning of May, the price surpassed $0.50 per coin, which is a price increase greater than 20,000% in just one year. The meme of the hour all over the internet was: “Dogecoin to the moon” which expressed the community’s hope for the coin price to surge even higher. Fun fact: even though the meme creators were talking about Dogecoin’s price, this is literally what is about to happen as SpaceX has announced a rideshare mission to the Moon entirely funded by Dogecoin.
What’s the end game for Elon? Is he actually serious about improving the coin or is the master of memes merely tickled by the idea that Doge could become something much greater than a meme in time.
“Arguably the most entertaining outcome, the most ironic outcome, would be that Dogecoin becomes the currency of Earth of the future,”
It’s inevitable pic.twitter.com/eBKnQm6QyF
— Elon Musk (@elonmusk) July 18, 2020
What started as a joke and meme coin was now a cryptocurrency with a market capitalization of over $50 billion. With the worldwide hype in full swing, the price of $1 per coin seemed in plain sight. Shortly after, on May 8th, Dogecoin reached its preliminary all-time high of $0.68 per coin. Since then, the price has plummeted back down as the crypto market as a whole came crashing down. The future will have to tell, whether Dogecoin is just a short-lived internet phenomena or if it can maintain its top position as the #1 internet meme currency and maybe even reach the price of $1.
How does it work?
Technically, Dogecoin is a fork (code copy) of Luckycoin, which is a fork of Litecoin, which is a fork of Bitcoin. It therefore shares many of the same characteristics with these cryptocurrencies, such as the proof-of-work consensus algorithm and the coin mining. Also, this explains how one of its creators could claim that he “made Dogecoin in like 2 hours”. Large chunks of the code base were copied from previous projects and only a few parameters were adjusted to the creators’ likings.
For Dogecoin investors, it is therefore vital to understand what parameters have been changed and where Dogecoin differs from its predecessors, especially from Bitcoin. Indeed, there are several important technical and game-theoretical differences between the two cryptocurrencies.
A first fundamental difference is the inflationary nature of the Dogecoin network. The average block time in the Dogecoin network equals one minute and a block reward of 10,000 Dogecoins is paid out. As a result, in every minute of every day 10,000 new Dogecoin are created. That cumulates to nearly 15 millions new coins per day or 5 billion new Dogecoins per year. Unlike Bitcoin, Dogecoin doesn’t have any block reward halvings anymore nor does it have a hard cap, which means that 5 billion newly created Dogecoin are entering circulation every year. With a total circulation of close to 130 billion coins so far, this leads to a yearly inflation rate of approximately 4% which is steadily decreasing over time.
Further, many of the large public blockchain projects have dedicated developer teams and even foundations with filled war chests to fix bugs, review and update the code and to further develop the projects. According to its founders, Dogecoin was “created for sillies” and the founders stitched the project together without expectation or plans. As a result, Dogecoin lacks technical development and isn’t as secure as closely monitored cryptocurrencies.
Thirdly, Dogecoin.com promotes the currency as the “fun and friendly internet currency”. While Bitcoin’s use case is shifting away from a means of payment to a store of value, Dogecoin explicitly claims to be a currency. With its low value per coin, the yearly inflation, the low transaction fees and its playful nature, it seems perfectly suitable to play the role of a fun internet currency. A currency that is used to support and donate to creators, streamers, bloggers and other online actors with any sort of entertaining or educating value. But, this doesn’t necessarily mean that Dogecoin is a good store of value or investment for the long run.
As already mentioned, Dogecoin can also be mined and it works similar to mining Litecoin. Unlike Bitcoin, but just like Luckycoin and Litecoin, Dogecoin’s protocol uses scrypt technology in their proof-of-work algorithm. Miners therefore cannot use SHA-256 Bitcoin mining equipment to mine Dogecoin, but can easily switch between mining Litecoin, Luckycoin, Dogecoin and other cryptocurrencies using the scrypt algorithm.
Memecoins: The story goes on
Dogecoin is the world’s most famous meme coin. It’s community is united mostly by the excitement for the Shiba Inu meme and the hope for a quick buck and less by the technical characteristics and achievements of Dogecoin.
Dogecoin’s success and the simplicity of its concept – copying and rebranding existing code around a viral internet theme – hasn’t gone unnoticed by other programmers. Many other similar coins and tokens have since been created by geeks around the world.
The best known copycat is another dog themed token, SHIBA INU, which not only also displays a Shiba Inu as its logo, but is even named after it. Lately, there has even been a project called Baby DogeCoin, which claims to “have learned a few tricks and lessons from his meme father [Dogecoin]”, improving “transaction speed and adorableness”. The success of such projects goes to show that the younger generation’s investment decisions are not primarily led by fundamentals and metrics, but mainly by stories and emotions. Investing in such cryptocurrencies is neither about promising business plans nor technical advancement, but about being part of a community, a movement and being able to participate therein in a playful way – and of course about the hope of getting rich quick.
Understanding this kind of narrative investing therefore helps to at least make some sense of the enormous market capitalizations of such coins and tokens. But, even though humongous returns can be earned when entering such projects early, we urge caution in doing so, as it is very difficult to predict their remaining value once the hype has died down.
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