Dogecoin is one of the hottest and one of the most, if not the most, popular cryptocurrency you can invest in right now. Although it was created in 2013, it gained a momentum lately due to mentions by Tesla’s and Space X’s CEO Elon Musk and rapper Snoop Dogg. We investigate how the coin came out to be and whether it’s worth the hype.
How it Started
Dogecoin was conceived by IBM software engineer Billy Markus and Adobe software engineer Jackson Palmer in 2013. Palmer joked about how he should combine Bitcoin with the popular Doge meme (an image of Shiba Inu combined with one/two words of text resulting in abstract jokes) to create a cryptocurrency called Dogecoin. Palmer was ridiculing the current volatility of the crypto market (mainly Bitcoin), and he shared his idea as a joke on Reddit (a discussion website with tons of doge memes), albeit to his dismay, users not only found it funny but also encouraged him to materialise it. Palmer then bought the dogecoin.com domain but didn’t actually create a digital currency users could purchase.
Only a few days later, Markus came upon the website and immediately contacted Palmer to start a legitimate business with him. Markus had been trying to get into the cryptocurrency market but didn’t want to do it with Bitcoin, perhaps because he wanted a new venture. It should be noted that the tables were already turning in 2013, and the interest towards cryptocurrency was increasing proportionally to Bitcoin’s soaring price.
After Markus tweeted at Palmer, and the latter responded, Dogecoin was officially born and launched in December 2013. Markus used Bitcoin’s source code, which was free to obtain, and turned it into the doge meme everyone swooned over. To Palmer and Markus surprise, people immediately started buying Dogecoin and used it for microtransactions on the web.
How it Works
Despite Markus using Bitcoin’s source code and a similar blockchain technology, Dogecoin operates differently than Bitcoin. Unlike Bitcoin, Dogecoin does not have a limit as to how many coins can be produced by the system. Let us first explain how this production works. Crypto miners use complex mathematical equations to record and process transactions on Dogecoin’s blockchain, thus supporting the system, which earns them Dogecoins in the process. This action can be replicated endlessly, as there is no cap on the number of coins that can be mined, which makes Dogecoin’s value highly volatile. It’s also significantly easier and quicker to mine Dogecoins in comparison to mining Bitcoins, which further decreases the value of the former. While Bitcoin’s lifetime cap of 21 million coins makes it a lucrative investment whose price steadily increases, more Dogecoins are generated daily, which scares away the more conservative players.
Dogecoin – The Phenomenon
What makes Dogecoin a popular investment if the currency is so unstable? Many commentators cite Dogecoin’s pop-cultural significance as the reason behind its surging price. People want to own Dogecoins as the joke continues to be relevant, and amateur investors want to score Internet points. The high demand consequently drives the price – the more people buy and promote Dogecoin, the higher the price becomes, and the currency’s value is thus based on people’s perception of its value.
Moreover, Dogecoin has been ridiculed by the mainstream financial world for its speculative value and high volatility, which further increased the interest in it. When you think of Dogecoin, also think of the GameStop fiasco earlier this year. Take Elon Musk for example. He called Dogecoin ‘the people’s crypto’ in a February 2021 tweet. Dogecoin succeeds because people want it to succeed; the amateur investors want to ‘stick it to’ the establishment, no matter the cost.
Companies take notice of popular internet communities and market themselves as anti-establishment by promoting Dogecoin similarly to Musk. For instance, Slim Jim, the beef jerky manufacturer, started tweeting about Dogecoin in February and has since quintupled its Twitter followers. Slim Jim’s Twitter account keeps pumping Dogecoin memes, which in their turn increase the popularity of the brand. Snickers and Milky Way also joined in during the internet’s concentrated effort to shoot Dogecoin’s price ‘to the moon’.
The Problems Arising
Although Dogecoin started off as a meme parody of Bitcoin, the coin generated $8 million in market value soon after it was launched. By 2017, the value reached the astonishing $2 billion. It’s needless to say that Markus and Palmer were puzzled. They didn’t intend to compete with other cryptocurrencies, but when Dogecoin trading briefly exceeded Bitcoin’s in 2014, the two software engineers realised the potential of their creation. Initially thought of as parody and a way to ‘tip’ internet creators, Dogecoin had become a worthy opponent of Bitcoin and Ethereum.
However, Dogecoin’s popularity and its speculative nature have their downsides. Elon Musk called Dogecoin ‘a hustle’ during his SNL performance on 8 May 2021, which chipped away one-third of Dogecoin’s price immediately. Dogecoin’s cost was $0.68 in anticipation of the show, but it steadily went down after Musk’s comments, going as low as $0.39 only five days later. Moreover, when Musk retracted his proposal to add Bitcoins as a way to purchase Tesla, it also led to the decrease of Dogecoin’s value. In another Musk-ian twist of fate, on 2 June 2021, the Tesla CEO tweeted a meme with a Shiba Inu, which increased Dogecoin’s price by 15%.
While some laugh at Musk’s tweets and their ability to influence the cryptocurrency market, others suffer from Musk’s unpredictable and often irrational bursts that see many lose a great deal of money. There are multiple subreddits dedicated to people who invested too much in Dogecoin and paid the price. However, at the same time, Glauber Contessoto became a Dogecoin millionaire after investing his life savings ($250,000) as inspired by the meme culture surrounding it. These new types of investors continue to spawn much to the dislike of Wallstreet specialists.
Our Verdict
Dogecoin has obviously proven to be a worthy player on the cryptocurrency market, based on the behaviour of its investors, so it should come as no surprise that people still buy it. However, as it is with internet crazes, it might eventually die out to pave the way for a worthy successor. While it may be a profitable short-time investment, Dogecoin’s high volatility should be taken into account before you decide to invest in it.
