What Is Dogecoin?
What is Dogecoin?
Dogecoin (DOGE) is a an altcoin launched in December 2013, possibly as a joke. But cryptocurrency investors consider Dogecoin’s blockchain, derived from Litecoin, as reliable, which is one of the many reasons for the cryptocurrency’s rise to prominence.
The “Doge” in Dogecoin comes from the Flash cartoon “Homestar Runner,” in which Homestar calls another character his “D-O-G-E,” deliberately misspelling the word “dog.” In the early 2010s, a blogger posted a picture of her dog smiling excitedly, which struck a chord on Tumblr and Reddit. Then, a Redittor called the image “Doge, “creating a meme.
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How Does Dogecoin Work?
That code for Dogecoin is based on Litecoin, and early versions of the coin incentivized block miners through a randomized reward system. But the coin would soon change to a static-reward system for miners in March 2014. Being based on Litecoin, Dogecoin uses scrypt technology. It’s a proof-of-work coin, which is the reason for its low price and virtually unlimited supply.
That scrypt technology set it apart from other kinds of cryptocurrency, including Bitcoin, which uses a different proof-of-work algorithm called SHA-256. While the differences between the two are complicated, the upshot is that Dogecoin’s scrypt allows for an unlimited supply of coins. This makes Dogecoin a so-called “inflationary coin,” whereas Bitcoin and similar cryptocurrencies are considered deflationary, because there’s a fixed limit to the number of coins miners can create.
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Who Created Dogecoin?
Jackson Palmer, an Australian project manager, created Dogecoin, which he originally thought of as a way to make fun of the media frenzy around cryptocurrencies. But he did purchase the dogecoin.com domain. At the same time, Portland, Oregon-based software developer Billy Markus looked up from his desk at IBM, and noticed the social-media attention that Dogecoin was gathering. Together, Palmer and Markus began to write the code that would underlie the first actual Dogecoin.
Two weeks after Palmer and Markus launched Dogecoin in 2013, its value rose by a staggering 300%. In those days, Dogecoin marketed itself as a “fun” version of Bitcoin. Its smiling-dog logo fit the playful atmosphere mood of the crypto community at the time, while its underlying code kept it relatively cheap to buy.
That playfulness showed up in the Dogecoin community’s 2014 donation of 27 million Dogecoins (roughly $30,000 at the time) to bankroll the Jamaican bobsled team’s expenses at the Sochi Winter Olympic games.
What Can Dogecoin Be Used for?
Once you have some Dogecoin, you can put it in a BitPay wallet, and via their partnership with Mastercard, you could put it on a prepaid crypto card, which you can spend anywhere Mastercard is accepted. That means you can use your Dogecoin to buy just about anything.
BitPay has also added Dogecoin support for Apple Wallet, which allows you to store their BitPay Card – and the Dogecoins within it – in your iPhone to make Apple Pay purchases.
How Did Dogecoin Become So Popular?
Born from a Reddit meme, Dogecoin had a ready audience of supporters ready to buy into the cryptocurrency, especially on the WallStreetBets subreddit. But it reached a far wider audience through its celebrity endorsements.
How Many Dogecoins Are There?
There were more than 129 billion Dogecoins in circulation on May 21, 2021, according to CoinMetrics. That made it the highest-circulation cryptocurrency in existence. The closest contender is Stellar (XLM), with 105 billion coins in circulation. By comparison, Bitcoin has just over 18.5 million in circulation.
Dogecoin has no limit as to how many coins miners can create. This is a stark contrast to Bitcoin, which is designed to never exceed 21 million coins in circulation, a level it should reach in the year 2140.
Why Is Dogecoin So Cheap?
Dogecoin is so cheap because there are so many of them, and because so many more are coming into existence, without limit, for the foreseeable future. The founders have decided not to cap the amount of Dogecoins in existence. And the law of supply and demand means that, without scarcity, the coins will remain inexpensive.
But that same low price is also why Dogecoin is so liquid, and can trade so quickly. While the price remains low, it has gone up substantially, increasing 12,000% from January to July, 2021. That’s an incredible return for those who managed to HODL their cryptocurrency through the volatility.
Dogecoin Price Prediction: Will It Reach $1?
Of course, it’s impossible to predict the future, but at present, it is very easy and inexpensive to mint new Dogecoins. As a result, one could reason that it is unlikely to reach $1 per coin until it becomes harder and more expensive to mint new Dogecoins.
Is Dogecoin a Good Investment?
While Dogecoin has gone up in recent years, it’s very hard to predict the future of any form of crypto. But if crypto is a big part of your investment strategy, then Dogecoin could make sense as part of a diversified crypto portfolio. It is a popular currency, and has a unique set of investors behind it.
That said, Dogecoin comes with risks. Critics say that Dogecoin, as a cryptocurrency, doesn’t have many advantages built into its code or its applications. They also point out that beyond the popularity of Dogecoin, there’s not much that differentiates it from a new crypto competitor that could emerge tomorrow next year. But boosters point to Dogecoin’s popularity and growth as the kind of first-mover advantage that new competitors may have trouble matching.
How Can I Buy and Sell Dogecoin?
You can invest in Dogecoin through a crypto exchange, like Coinbase, Binance, Kraken, or another platform. After opening an account and funding it, you can use those funds to trade Dogecoin or other cryptocurrencies.
The Takeaway
Dogecoin is an altcoin that has gained a significant following, despite its origins as a joke currency. It is just one of many types of cryptocurrencies that crypto investors might consider adding to their portfolio.
If you want to invest in Dogecoin without opening an account on a crypto exchange, you can open an account on the SoFi Invest® brokerage platform. You can use the app to purchase stocks and exchange-traded funds as well as to build a crypto portfolio.
Photo credit: iStock/Irina Vaneeva
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