Despite its origins as a meme, Dogecoin has emerged as a legitimate cryptocurrency. Its popularity can be attributed to the fact that it is based on a well-known internet meme. Interestingly, the humorous aspect of Dogecoin has not hindered its longevity. This cryptocurrency has a committed user base that has successfully funded numerous projects and ventures throughout the years.
The introduction of Bitcoin in 2009 paved the way for the creation of numerous cryptocurrencies. These digital currencies have varying purposes, ranging from being a form of money to powering smart contract platforms such as Ethereum. One of the earliest alternative coins, Dogecoin, has stood out among the rest due to its distinctive qualities. Since 2014, it has captured the attention of cryptocurrency enthusiasts worldwide.
A Short History of Dogecoin
Dogecoin (DOGE) is a decentralized digital currency created by Billy Markus, a programmer from Oregon, and Jackson Palmer, a marketer from Australia. It originated from a fork of the Litecoin codebase in 2013 and is based on the popular Doge meme, which features a Shiba Inu dog. Markus came up with the idea for a humorous cryptocurrency that could appeal to a wider audience than Bitcoin. Palmer expressed interest in the idea and created the dogecoin.com website, which Markus helped to bring to life. After its launch, Dogecoin quickly gained popularity on social media and achieved market capitalization in the millions within a few months.
The Dogecoin community has become known for its charitable efforts. It started as a tipping system on platforms like Reddit, where users would use Dogecoin to reward content creators. This spirit of generosity carried over to larger fundraising efforts.
- In 2014, the community raised over $30,000 worth of Dogecoin to help the Jamaican bobsled team participate in the Sochi Winter Olympics after they struggled to afford the trip.
- During the same year, Doge4Water raised more than $30,000 to build wells in Kenya, and the community sponsored NASCAR driver Josh Wise with over $50,000 worth of Dogecoin. Wise famously decorated his car with the Dogecoin logo.
Tesla CEO Elon Musk has expressed his fondness for Dogecoin and was even jokingly named the CEO of the cryptocurrency after a community poll.
The TikTok Hype
In the middle of 2020, a TikTok video went viral and caused a significant increase in the price of Dogecoin. A user encouraged others to invest in Dogecoin, promising that they would become wealthy if they purchased the coin and sold it once it reached $1. The hype quickly spread, causing the value of Dogecoin to skyrocket to more than 2.5 times its previous value in just a few weeks. Unfortunately, the pump was short-lived, and the price of Dogecoin plummeted soon after.
It's worth noting that this kind of activity is known as a "pump and dump," and it is illegal in traditional markets because it endangers investors. Promoters purchase a large amount of an asset and then create hype around it, leading other investors to fear missing out on the opportunity. As a result, the price of the asset rises significantly (the "pump"). However, the promoters then sell their holdings, leading to the "dump." This massive sell-off causes the price to crash, and later investors are left with huge losses.
It's important to note that the user who encouraged others to invest in Dogecoin, claiming that the price would reach $1, was likely being overly optimistic. While the price of a cryptocurrency can increase significantly, Dogecoin reaching $1 would require a market capitalization larger than that of the entire cryptocurrency market, which is currently valued at hundreds of billions of dollars. Investors should always be wary of promises of quick wealth and do their own research before investing in any asset.
How Does Dogecoin Work?
Initially, it was based on a fork of Litecoin called Luckycoin, but significant changes have since been made to the protocol.
Dogecoin, like Bitcoin, utilizes a blockchain that is expanded via Proof-of-Work. To act as full nodes, network participants must download open-source software onto their devices. This means that each participant has a complete copy of the database containing all transactions, making it decentralized. The absence of an administrator means that users communicate with each other directly, and cryptographic methods are utilized to confirm the honesty of their peers.
Mining and Supply
In Proof-of-Work blockchains like Bitcoin, mining is a process used to create new coins. To validate that they've done "work," participants attempt to discover an extremely large specific number. To do so, users hash information until they can produce an output that the network accepts as valid. Since it's impractical to do so by hand, users dedicate computing power and electricity to the task.
One important distinction between Bitcoin and Litecoin is the absence of SHA-256 hash function mining in the latter. This was an intentional decision. Instead, Litecoin employs Scrypt, an ASIC-resistant Proof-of-Work algorithm. As a result, machines built for mining Bitcoin would be unable to compete with ordinary computers and GPUs used to mine Litecoin. However, Application-Specific Integrated Circuits for Scrypt emerged quickly.
As a derivative of Litecoin, Dogecoin also uses the Scrypt algorithm. However, to avoid competition and reduce security risks, Dogecoin developers switched to a merged mining model, which allows Litecoin miners to earn Dogecoin at the same time.
Dogecoin mining produces a block reward of 10,000 DOGE and aims for a one-minute block time. There is no maximum unit supply, and more than 130 billion Dogecoins are in circulation. The lack of a limit incentivizes coin spending and prevents early adopters from profiting excessively, which supporters see as a positive.
What Can Dogecoin Be Used For?
Acquiring Dogecoin is possible in several ways. One option is mining, while another is accepting it as payment for goods and services. However, the easiest way is to buy it on a cryptocurrency exchange. Initially, you'll have to purchase Bitcoin or another well-known coin, and then exchange it for Dogecoin.
Once you acquire Dogecoin, you can use it in the same way you use any other cryptocurrency. You can exchange it for other coins, use it for buying goods and services, or even tip others with it.
Dogecoin, originally created as a joke based on an internet meme, has surprisingly gained a dedicated following over the years and remains one of the top cryptocurrencies by market capitalization. Despite its popularity, it is uncertain whether the market sees Dogecoin as a novelty currency, a legitimate financial asset, or something in between. Nevertheless, few cryptocurrencies have had the impact that the Shiba Inu coin has had, at least in terms of its status as a meme coin.