For something that started out in 2013 as a parody of other cryptocurrencies and features a canine as its mascot , Dogecoin has been generating a lot of buzz lately. The price of the “open source, peer-to-peer digital currency,” as Dogecoin’s website describes it, has surged by roughly 2,900 percent since January 2021, according to Coinbase, and the market value of the Dogecoin in circulation was $39.1 billion on Aug. 24, making it the eighth biggest crypto around.
Dogecoin’s rise has been championed by a pair of high profile billionaires. SpaceX founder Elon Musk attracted a lot of attention in May 2021 when he tweeted that his company would be launching a 2022 lunar mission, Doge-1, that would be paid for in Dogecoin. Musk even posted a YouTube video of this song about the crypto:
And then there’s Mark Cuban, owner of the NBA’s Dallas Mavericks, who not only accepts Dogecoin in payment for team merchandise, but even recently advertised a special sale for those who pay in Dogecoin.
“Where the organization allows people to use ANY crypto, 95 percent of sales in are DOGE,” Cuban has tweeted. He describes Dogecoin as “the people’s way to pay.” He expressed a similar sentiment in this recent CNBC interview.
Doge and the Beginnings of Dogecoin
Dogecoin reportedly began in 2013 when an Australian named Jackson Palmer got the inspiration to make fun of the growing number of “bitcoin copycats” that were coming onto the market, as he explained to National Public Radio a few years later. One day, he was looking at CoinMarketCap, a website for checking cryptocurrency valuations, in one tab of his browser, and reading an article on Doge, a popular internet meme that depicts a member of the Shiba Inu canine breed’s internal monologue of nonsensical English phrases. (From the Guardian, here’s a 2014 article explaining the peculiarities of Doge grammar.)
Palmer’s joke on Twitter about investing in a cryptocurrency called Dogecoin, which at the time didn’t actually exist — “pretty sure it’s the next big thing” — got so much attention that he soon created a website, Dogecoin.com — and posted a note inviting someone to help make the imaginary cryptocurrency a reality, as recounted in this May 2021 article from tech publication CNET. A software engineer named Billy Markus, who previously had created a cryptocurrency parody based on a video game featuring cute animals, decided to take him up on it, and wrote the code to create Dogecoin, according to CNET. (The two eventually handed off the Dogecoin project to others and neither of them is still involved with it, according to Markus’ website.)
Dogecoin caught on, in part because Reddit users began employing a bot application to jokingly tip one another in the cryptocurrency, back when it had a tiny fraction of a cent in value. (Dogecoin users also raised money for charitable causes, such as a nonprofit organization that helped children and military veterans with disabilities get service dogs to assist them.)
But since then, Dogecoin has morphed from a techie jest to a cryptocurrency with tens of billions of dollars in value. One factor was Musk’s fascination. He began tweeting about it in 2019, proclaiming that “Dogecoin might be my fav cryptocurrency. It’s pretty cool.”
How Investors Buy Dogecoin, and How It’s Mined
Like other cryptocurrencies, Dogecoin can be bought on various cryptocurrency exchanges, including Coinbase, Kraken and Gemini, among others. Basically, a cryptocurrency investor has to sign up for an account and fund it. Some exchanges will only accept cash, such as a transfer from a bank account. Others allow the use of credit cards. But buying crypto with plastic can turn out to be an expensive proposition, due to additional fees.
Once an account is set up, an investor can then place an order to buy the cryptocurrency. This involves searching for the cryptocurrency’s ticker symbol — for Dogecoin, DOGE — and entering the amount of dollars or the number of Dogecoins that the investor wants to purchase.
A crypto investor also needs a digital wallet to store cryptocurrency. Wallets can be kept on a special device about the size of a thumb drive, or by downloading and installing a wallet app, but exchanges also offer hosted wallets. An investor’s crypto can automatically be held in the hosted wallet, similar to a checking or savings account. A hosted wallet also enables an investor to retrieve a lost password or key, which otherwise might result in the person losing the investment.
In general, people who invest in cryptocurrency should be forewarned that it involves significant risk. Here’s a Federal Trade Commission primer on what to know about cryptocurrency. Securities and Exchange Commission chairman Gary Gensler, in a speech given Aug. 3, 2021, called for greater regulation of cryptocurrency trading to protect investors.
Like other cryptocurrencies, Dogecoin uses blockchain, a decentralized system of ledgers that exist on many computers at once. Processing transactions and recording them on the blockchain requires a process called mining, in which people use computers and software to solve complex math problems, a method called proof of work. In exchange for those efforts, the blockchain rewards miners with new Dogecoins, which leads to the creation of millions of new Dogecoins every day, as this recent Forbes article from April 20, 2021 explains.
According to Coindesk.com, a miner competes with other miners in trying to create a piece of code known as a “hash,” in hopes of getting one that is equal to or larger than the target value of the new block being added to the blockchain, until there’s a winner. Some miners work solo, while others join in mining pools or opt for cloud mining, in which computational power is rented from a data center.
Dogecoin miners often use a piece of electronic hardware called an ASIC — application-specific integrated circuit — to identify and download special software to use in the mining.
The Upsides and Downsides of Dogecoin
“Dogecoin is truly a ‘meme coin,'” explains James Royal via email. He’s a senior reporter on investing for personal finance website Bankrate and a former stock analyst for The Motley Fool, as well as the author of “The Zen of Thrift Conversions,” a guide to investing in bank stocks. “That is, it became really popular when Elon Musk tweeted about it and drew attention to a digital currency that was created as a joke to mock the silliness of Bitcoin. And that reveals so much about cryptocurrencies generally. Their price is driven by speculation and traders, not by some fundamental value or that they’re backed by assets.”
“Dogecoin appears to have gained cult status with the next generation of investors who are active on Reddit and Twitter,” says Jim Liew, an associate professor of finance at the Carey Business School at Johns Hopkins University and a FinTech entrepreneur with an expertise in blockchain, the system of distributed digital ledgers utilized by cryptocurrencies.
Dogecoin investors also are attracted by “the liquidity and also the low price per unit,” Liew writes in an email.
Dogecoin also has the advantage of being easier and quicker to mine than Bitcoin, with transactions taking just one minute to verify compared to 10 minutes for Bitcoin, according to this April 2021 Forbes article.
On the potential downside, Dogecoin — unlike Bitcoin — doesn’t have a cap on supply, so that as new units of the cryptocurrency are mined, the amount of it on the market steadily grows. That creates the inflationary potential for it to lose value over time, according to CNBC.
“Some have argued that currencies should grow at the rate of the user base,” Liew says. “Dogecoin with a cap or some tapered growth would be more interesting.”
Royal takes a somewhat different view. “Remember, it’s not a cap on issuance that creates value,” he explains. “Rather it is the demand that creates value. It doesn’t matter how many or how few coins are issued or could be issued; if people don’t want a coin, it has no value. But at least a cap creates the potential for scarcity value, and the fact that Dogecoin can be produced infinitely means it really should not have any scarcity value. Why not use grains of sand as a currency? So Dogecoin and digital currencies such as Bitcoin have value only insofar as people give them value, unless they’re backed by a specific asset or cashflow stream.”
The Future of Dogecoin
In addition to the Dallas Mavericks, electronics e-commerce site NewEgg announced in April that customers can pay with Dogecoin. There are about 1,600 stores, places and services that accept the cryptocurrency as payment, ranging from custom T-shirt and pet products stores to a maker of electric car chargers, according to Cyrptwerk.com.
Nevertheless, Royal is skeptical about the future of Dogecoin and other cryptocurrencies for actually buying things, given the rise of payment apps such as Venmo and PayPal, and cryptocurrencies’ tendency to have wild swings in value.
“If I thought that my $30,000 payment for a car would be worth $60,000 in a few days, why would I spend it today?” Royal asks. “That’s one of the key conundrums for cryptocurrency. To the extent that a cryptocurrency is good for traders — that is, that it’s volatile — it’s unusable as an actual payment system.” He sees cryptocurrency’s value for sending money as “effectively zero, unless you’re trying to do so secretly or rather semi-secretly, since crypto transactions are publicly trackable even if semi-anonymous.” He also warns of potential tax complications.
Will Dogecoin itself last? Liew says it’s too early to say. “All depends on if it stays within the spotlight of the crypto community,” he says. “Just as with any currency, mass adoption is key. Also, it will help if Elon keeps having fun with it! Will he bring Doge to Mars?”
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