How Dogecoin Became Hotter Than Bitcoin | Barita Insights | May 10, 2021

Like all cryptocurrencies, dogecoin is a digital currency that can be bought and sold like an investment and spent like money. Believe it or not, dogecoin was originally created at least in part as a lighthearted joke for crypto enthusiasts and it was named from a once popular meme. Despite this unusual origin, dogecoin has exploded in popularity, rising by approximately 20,000% over the last six months, moving from US$0.0025 to US$0.7133. Unlike bitcoin, which has a finite amount of the digital currency in rotation, set at 21 million, dogecoin has 129 billion coins in circulation and will continue to make more available to mine each year: mining is the process through which transactions between users are verified and added to the blockchain public ledger. It is also responsible for introducing new coins into the existing circulating supply and is one of the key elements that allow cryptocurrencies to work as a peer-to-peer decentralized network. The seemly unlimited supply of dogecoin is part of the reason this coin is currently only valued around US$0.514 as of May 10, 2021, compared to bitcoin which is worth around US$ 57,400. As popularity in cryptos rise and become more acceptable as a currency for purchasing goods, dogecoin doesn’t have much mainstream real-world applications. However, it has a few niche markets, including using dogecoin to tip online artists.

How did it Start?

Software engineers Billy Marcus and Jackson Palmer created Dogecoin in late 2013. Plamer branded the cryptocurrency’s logo using a meme popular at the time that featured a Shiba Inu dog. It was really started to poke fun at Bitcoin. However, in the early days, a community of enthusiasts arranged publicity stunts to raise dogecoins profile, raising funds to send the Jamaican Bobsleigh team to the 2014 Olympics and sponsoring a NASCAR driver. Today dogecoin has become increasingly popular, having exploded in value and gained more than 5,000% in 2021. Among its boosters is Telsa CEO Elon Musk, who called dogecoin his favorite cryptocurrency. Musk also named dogecoin the “people’s crypto” and promised to plant a physical dogecoin token on the moon. However, dogecoin lost more than a third of its price on Sunday, after Musk called it a ‘hustle’ during his guest-host spot.

How does it work?

Dogecoin runs on blockchain technology, similarly to Bitcoin and Ethereum. Blockchain is a distributed, secure digital ledger that stores all transactions made using decentralized digital currency. All holders carry an identical copy of the dogecoin blockchain ledger, which is updated constantly with all new transactions and like other cryptocurrencies, dogecoin’s blockchain network uses cryptography to keep all transactions secure. Note, however, that while dogecoin may be used for payments and purchases, it is not a very effective store of value. This is because there is no lifetime cap on the number of dogecoins that may be created which makes it highly inflationary, by design.

Why is dogecoin so popular?

Its popularity soared as a result of the mainstream adoption of bitcoin and other cryptocurrencies and with the support of Elon Musk and his 50 million followers, his tweets can send the crypto surging. Dogecoin has also enjoyed something of a cult status on the internet messaging board, Reddit, a social news aggregation and discussion website. Whether or not it’s a smart investment remains an active question. Since there is no limit on the number of dogecoins that can exist, and millions of new dogecoins are released onto the markets periodically, there is very little incentive to hold the cryptocurrency over long periods. Bitcoin continues to rise in value because of the system’s lifetime cap on the number of coins that can be created but is still subject to extreme volatility, as is the case with dogecoin, it could crumble without warning, but its rise this year has been nothing short of stunning. Cryptocurrencies are now giving those that may not previously have been considered by traditional banks another financing option and banks may need to consider how to utilize the technology behind cryptocurrencies if they do not want to be left behind. Investors and institutions are left asking themselves, could cryptocurrency be the future of banks? While this is a difficult question to answer, perhaps a middle ground needs to be found wherein banks are able to harness the blockchain technology in such a way that cryptos are regulated and new cryptocurrencies need to consider and appreciate the importance of traditional banking. Buying and selling cryptos is becoming increasingly mainstream and important hires are being made in the space which indicates a growing acceptance of this relatively new asset class. Investors who are in a position to take on the risk associated with cryptos will not only benefit from portfolio diversification but also increase their overall potential returns.