How did Dogecoin go from a joke to a cryptocurrency?
Writer at Cryptocurrencies (2014–present)
Dogecoin (DOGE) is a cryptocurrency like Bitcoin or Ethereum, although it is a quite different animal than either of these popular coins. The joke currency named after the Shiba Inu meme has risen by jaw-dropping 13444.6% during a year. Its price does not increase gradually. Usually, it is characterized by massive spikes, leading to consolidation. Not far to seek, the today’s tweet by Elon Musk, where he calls himself “The Dogefather”, has boosted its price by over 20%.
What is so funny about Dogecoin if anything? Will/should it be treated seriously someday? Let us dig into it.
The history behind a project is not what I usually write about in my articles. However, this case is exceptional and here is why.
8 amusing facts about Dogecoin’s creation
1. In 2013, seeing thousands of cryptocurrencies mushrooming every day, Jackson Palmer (Adobe software engineer) and Billy Markus (IBM software engineer) decided to create their own, not-so-serious currency.
“I found that there was a huge market with new coins coming out daily, and at times hourly, all touting how they were going to become worth zillions and take over the galaxy,” Markus said. “I thought it was silly and also thought that considering there were so many coming out, it was probably easy to make.”
2. Interestingly, Markus had already launched his own cryptocurrency by that time called Bells, following a guide he found online. It spectacularly failed.
3. It took just 3 hours to create Dogecoin. It was a find-and-replace job: Ctrl+F “Bitcoin”, replace with “Dogecoin”. Changing a few core elements in Bitcoin’s source code, Markus created 100 billion DOGE and made them easier to mine.
4. No Dogecoin was premined since only those who are serious about launching a cryptocurrency do this. It was not these guys’ story.
5. Markus even did not have a computer powerful enough to mine longer than 5 minutes. So, he split what he had mined 50/50 with Palmer (about $5,000 of DOGE), and that was it.
6. Still, the name Dogecoin echoed throughout dark corners of the internet. Reddit and its “tipping bot” drove Dogecoin into the stratosphere.
7. The Dogecoin frenzy is the reason Markus bailed on it in 2015.
“I don’t mind if someone spends $10 and gets some Dogecoin,” says Markus. “It’s like buying a movie ticket or something, that’s fun. But when someone puts $20,000 in? That makes me really, really uncomfortable.”
In his view, Dogecoin was a silly thing that should remain silly.
8. A bit later, the Moolah scandal pushed Palmer to quit Dogecoin, too. Today, a lead developer is Max Keller; others are Ross Nicoll and Patrick Lodder.
As you see, its founders do not hold back that Dogecoin was created as a lighthearted joke. However, despite this unusual origin story (or, maybe, thanks to it), Dogecoin has exploded in popularity in 2021 – as of writing, Dogecoin has become the 6th largest cryptocurrency by market cap.
For many years, Dogecoin has been just hanging around top 25-50 with zero development. It does not have any organization, venture capitalists, or DAO behind it. It is a fact that the cryptocurrency has not seen any major updates since 2015 (although it benefits from improvements to the Litecoin code).
On top of this, Dogecoin is extremely volatile and susceptible to random market movements. Those who bought Dogecoin to start 2021 have been well rewarded. Still, the constant flow of new coins onto the market put unending downward pressure on the coin’s value.
Pat White, CEO of Bitwave, also warned about additional security risks for Dogecoin, compared to other major cryptocurrencies.
“It just hasn’t had the same security and code-level scrutiny that Bitcoin or Ethereum has. Plus, there is just not a particularly robust mining community around Doge, so the exposure for a mining level attack is well above that of something like Bitcoin.”
Some traders will never be in DOGE no matter the gains because the largest Dogecoin address holds about 27% of the entire coin’s supply (34.9 billion DOGE or more than $1.2 billion), questioning its decentralization. In fact, just 5 wallets control 40% of the coin’s supply. Still, these addresses could be a cold storage for exchanges and the like.
Besides, Dogecoin does not have the speed of Ethereum or the dominance of Bitcoin. It does not have an extensive and well-funded ecosystem either. The only real catalyst behind its growth is its name and memes, which does not make for a sound “investment”.
Question: how has a joke currency overtaken Litecoin and briefly Tether? We will try to get to the bottom, but first let us define what Dogecoin is all about.
Being based on Luckycoin (which is, in turn, based on Litecoin), there are not any groundbreaking features that set Dogecoin apart from the pack. It was designed to be a friendly, more approachable form of cryptocurrency that could reach users put off by the cold complexity of Bitcoin.
The main thing that separates Dogecoin from most other cryptocurrencies is that it is inflationary rather than deflationary (meaning there is no lifetime cap on the number of Dogecoins created by mining).
However, being inflationary encourages users to spend Dogecoin, limiting its utility as a long-term store of value. Having bitcoin and Dogecoin on hand, sure thing people would not use Bitcoin as a currency as its scarcity gives it its worth.
One of the most common uses for Dogecoin today is as a tipping service. Users on social platforms like Reddit, Twitter, Facebook, and others, can use Dogecoin to reward, or “tip,” each other for posting content. Besides, Dogecoin is widely used for online payments and purchasing.
Anyway, the main asset of Dogecoin is not the technology behind it but the community that has built up around it. It has made extensive use of the currency for philanthropic purposes. For example, they helped in Kenya’s water crisis, raised money to help train assistance dogs for autistic children, sent the Jamaican Bobsled Team to the Sochi Winter Olympics, sponsored a NASCAR, etc.
You may wonder if this is enough for a cryptocurrency to become bigger than Ford Motor Co. and Kraft Heinz Co. in market value? Of course, not. There is more.
Of course, Elon Musk
Like everything else, Dogecoin’s price is heavily influenced by social media, especially if its primary PR manager is Elon Musk. Among many other tweets, he called Dogecoin his favorite cryptocurrency and promised that “SpaceX is going to put a literal Dogecoin to the literal moon”.
For example, his tweet on April 15th “Doge Barking at the moon” sent DOGE price soaring over 200% the next morning. The reason for such enthusiasm is not known. He may find this meme really hilarious, or he may have millions of DOGE in his portfolio and is doing everything he can to increase their value, or he just makes mockery of simple tweets effecting so much on the whole crypto industry. Be that as it may, the blind trust that millions of his followers have in him is noteworthy.
As mentioned previously, the true value of Dogecoin lies in the strong and vibrant community that sprung up around it. R/Dogecoin now has over 1.5 million members and bears close resemblance to R/WallStreetBets.
The Reddit communities and the assets have interlinked relationships: as Dogecoin price keeps going up, it sparks more active conversation and interest on the Reddit forum, driving more investment in the crypto, which then helps push up prices further, repeating the cycle.
Dogecoin is still relatively cheap, and people who may feel like they missed out on the upside of Bitcoin are thinking that perhaps this is their shot.
Companies actively use Dogecoin as payment
Dogecoin is now being accepted as a legitimate form of payment by many companies. The biggest ones so far are CoinFlip, NBA’s Dallas Mavericks, Post Oak Motor Cars, Kessler Collection, AirBaltic, and Newegg. This list continues with 1300+ places, stores, and services accepting Dogecoin.
Many popular exchanges and platforms have Dogecoin listed: OKEX, Huobi, Binance, Kraken, Bitfinex, Coinbase.
“Dogecoin to $1” is a meme, but as a cryptocurrency that has utility, strong branding, and is cheap enough for regular folks to afford a single unit of, Dogecoin may prove to be a force to be counted with. Moreover, if Amazon becomes DOGE friendly, then it is safe to say that the value might jump to $1.00 overnight.
Dogecoin currently has a 16.7% implied probability to be worth more than $1 at the end of 2021, according to betting aggregators US-Bookies com, a significant improvement from earlier this month, when it had just a 2.9% chance to do so.
“Dogecoin was made as a joke to make fun of cryptocurrencies, but fate loves irony. The most ironic outcome would be that Dogecoin becomes the currency of Earth in the future” (Elon Musk on Clubhouse)
Buying any sort of cryptocurrency, including Dogecoin, involves risk. Always do your own research prior to buying/selling any crypto.
Disclaimer: This is not financial advice, and I’m not an advisor. Please always do your own research.
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