An Introduction to Dogecoin, The Meme Cryptocurrency

What is Dogecoin? How it works? Forbes Consultant

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Dogecoin is a cryptocurrency, like Bitcoin or Ethereum – although it is a completely different animal than any of these popular currencies. Dogecoin was originally created at least in part as a fun joke for crypto enthusiasts, taking its name from a popular meme.

What is Dogecoin?

Dogecoin was created by software engineers Billy Marcus and Jackson Palmer in late 2013. Ballmer trademarked the cryptocurrency logo using a popular meme at the time that deliberately misspelled “doge” to describe a Shiba Inu dog.

“Doge is really starting to make fun of Bitcoin,” said Pat White, CEO of Bitwave. In its early days, a community of enthusiasts arranged publicity stunts to raise Dogecoin’s profile, raise money to send the Jamaican Bobsleigh team to the 2014 Olympics, for example, or sponsor a NASCAR driver.

In early 2021, Dogecoin gained prominence on Reddit’s WallStreetBets message board – the main instigator behind the January GameStop affair – as enthusiasts promised to push its value “to the moon” (that was before all discussions about cryptocurrency were banned on the subreddit).

By May 2021, the price of Dogecoin had risen to a high of $0.68, compared to a value of just under a penny at the beginning of the year. Tesla CEO Elon Musk was at least partially responsible for the explosive growth after calling Dogecoin his favorite cryptocurrency. By mid-2021, Dogecoin was constantly polling among the top five cryptocurrencies by total market capitalization

Since then, the value of Dogecoin has fallen sharply, reaching a low of about $0.11 in March 2022, although it is still among the top 20 cryptocurrencies by market capitalization.

How does Dogecoin work?

Like many other coins, Dogecoin runs on its own blockchain. Dogecoin’s digital ledger is constantly updated with all new transactions, and the network uses encryption to keep all transactions secure.

The Dogecoin blockchain uses a proof of work consensus mechanism, where miners use computers to solve complex mathematical equations in order to process and record transactions on the blockchain. In exchange for blockchain support, miners earn more Dogecoin, which they can then hold or sell on the open market.

Dogecoin can be used for payments and purchases, but it is not a very efficient store of value. This is mainly because there is no maximum life limit on the number of Dogecoins that can be generated by mining – which means that the cryptocurrency is significantly inflated, by design.

The blockchain rewards miners for their work by generating millions of new Dogecoin each day, which makes it very difficult to generate speculative price gains in Dogecoin over time.

Dogecoin vs Bitcoin

Dogecoin has some important differences compared to Bitcoin. First, it is faster and easier for miners to complete the mathematical equations that complete and record transactions into transactions, which makes Dogecoin somewhat more efficient at processing payments.

“Where it takes 10 minutes for new blocks to be validated on the Bitcoin blockchain, it only takes a minute on the Dogecoin blockchain,” said Gary Dewal, Head of Financial Markets and Regulation at Katten.

Another important difference is that there is no lifetime limit on the number of Dogecoins that can be created, as we noted above. There is a lifetime cap of 21 million bitcoins that limits the maximum number of coins that can be created. This means that miners are forced to work harder and for longer over time to earn new bitcoins, and to some extent this helps ensure that bitcoin can retain its value and grow over time.

How to buy Dogecoin

You can buy Dogecoin from a cryptocurrency exchange like Binance or Kraken. Exchanges require you to create an account and fund it in US dollars or cryptocurrency. You can then buy and exchange cryptocurrencies, including Dogecoin.

Some online brokers, including Robinhood and TradeStation, allow you to buy Dogecoin – in addition to traditional assets like stocks, mutual funds, and bonds. They don’t offer as many cryptocurrencies as the exchanges, but Dogecoin is generally available.

As with other cryptocurrencies, once you have purchased Dogecoin, it is best to transfer your coins to a crypto wallet. Wallets take many forms, from online services offered by exchanges like Coinbase, to applications on your mobile device or even a physical hard drive. You secure the wallet with a private password. Since your coins are held off-exchange, there is an extra layer of protection against hacks.

Before Dogecoin exploded into the mainstream and their prices skyrocketed, you used to be able to earn free coins for doing basic tasks online.

“For many years, you could perform tasks on Dogecoin ‘faucets’ to earn Dogecoin instead of buying it,” said C. Neil Gray, partner in fintech practice areas at Duane Morris LLP. “The tasks included things like watching an ad or taking a survey. Lately, it has become difficult to find anything that works.”

Is Dogecoin a good investment?

Since there is no life limit on the number of Dogecoins that can exist, and millions of new Dogecoins are released into the market every day, there is very little incentive to hold the cryptocurrency long-term. Bitcoin continues to rise due to the system’s lifetime cap on the number of coins that can be created.

“Doji is actually less like Bitcoin and more like Dash or Bitcoin Cash, where the explicit target is a spending coin,” White said.

Historically, the value of each Dogecoin was very low, around $0.003 per coin for most of 2020, so people were more likely to give it up. “Users on social platforms such as Reddit, Twitter, Facebook, and others can use Dogecoin to reward or ‘tire’ each other for posting content,” Gray said.

Should you buy Dogecoin?

Those who bought Dogecoin before the big win of 2021 got a good bonus. However, White remains somewhat cautious about buying Dogecoin, especially as an investment. The constant influx of new coins into the market has put endless downward pressure on the value of the coin.

White also warned of the additional security risks of Dogecoin, compared to other major cryptocurrencies. “It did not have the same level of security and code level auditing as Bitcoin or Ethereum. In addition, there is no particularly strong mining community around Doge, so the exposure to a mining level attack is much higher than something like Bitcoin.”

Buying any type of cryptocurrency has risks, and this includes Dogecoin. It’s always worth buying a few coins and getting familiar with the system – but it’s probably best to refrain from dumping more than a token amount of your hard-earned cash into a cryptocurrency that started life as a joke.

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