What is Dogecoin (DOGE)? - Dogecoin Guide
What is Dogecoin?
A beginner's guide to Dogecoin, the meme cryptocurrency created as a joke which now has very real value.
Dogecoin (DOGE) is an open-source peer-to-peer cryptocurrency designed for sending/receiving relatively small tips via the Dogecoin blockchain network and the most famous meme cryptocurrency available.
It was started in 2013 by Jackson Palmer and Billy Markus as a joke based on a popular meme featuring a Shiba Inu dog (a Japanese breed).
The Shiba Inu Dogecoin logo on a coin.
Now it has real value and a strong community that is using it as an alternative to Fiat currency.
Dogecoin has got so popular in 2021, that it even reached the top 5 coins on Coinmarketcap and created more than a few DOGE millionaires.
This Dogecoin guide will somewhat play devil’s advocate, helping you make up your own mind whether you should invest or simply sit back and enjoy the memes.
Introduction to Dogecoin
Dogecoin originally started as a hard fork of a now-defunct cryptocurrency called Luckycoin.
Luckycoin was actually a hard fork of Litecoin…
Which was actually a hard fork of Bitcoin...
So you could even say that Dogecoin is a fork, of a fork, of a fork!
But at the heart of Dogecoin is the Shiba Inu meme.
It was created as a joke and its devoted community of memers and celebrities alike, all continue to embrace this fact.
You see there’s no official leader or CEO behind Dogecoin.
Instead, the entire codebase is open-source and open for the community to drive direction.
But what really makes Dogecoin so great is that it doesn’t pretend to be something it’s not.
No multinational business is using Dogecoin to send millions of dollars across borders.
Dogecoin is being used every single day by people online wanting to tip and reward others for creating and sharing hilarious content online.
Against all odds we’ve seen Dogecoin turn into a mainstream marketing beast for the cryptocurrency industry as a whole, providing a gateway to more serious projects like Bitcoin.
So as long as you're treating Dogecoin as the joke that it has always intended to be, you won't have any problems.
Come for the memes, stay for the tech.
How does Dogecoin work?
Let’s take a closer look at how Dogecoin works.
Although Dogecoin doesn't take itself seriously, the technology used by Dogecoin is 100% serious.
When trying to discover how Dogecoin works, we must go through 4 few key pieces of technology:
The Dogecoin blockchain;
The Dogecoin mining process;
Dogecoin’s Proof of Work (PoW) consensus algorithm;
The actual Dogecoin (DOGE).
1. The Dogecoin Blockchain
Usually, a blockchain is described as a distributed ledger that stores all transactions made.
Sometimes a blockchain is described as a database that stores information about the transactions which take place on it.
Both descriptions of blockchain are true, although they may still lead to blank stares.
At its most basic level, a blockchain is a linked list of blocks and that's it.
Each block contains the following items: A transaction; An ID; and The ID of the block which came before.
A transaction could be as simple as payment made or as complex as a post on social media using multimedia elements and text.
An ID is a representation of the transaction known as a hash, and gets created when a transaction is processed.
The ID of the block which came before is known as the last hash.
It's this last hash that links all the blocks into a chain, pointing to the previous block and creating the chain.
In real life, we talk about the length of a chain.
Technically we can do that with blockchain, but the number of blocks in the chain is usually called the height of the blockchain.
At first, that sounds odd until you realize that the tool used to show this blockchain (sometimes called a blockchain explorer) shows it on screen as a 1-column table with each block above the one which was generated before.
The newest block in the blockchain is the one shown first, and the oldest block is at the bottom of the page (or at the bottom of the last page of a series of pages).
Nearly all blocks in a blockchain are generated during the course of use.
The first block, known as the genesis block, has no last hash since it has no preceding block.
But the last hash for Block number 2, points to the genesis block.
For a Dogecoin guide, this was perhaps a long explanation of what a blockchain is.
But this base will certainly help you understand what is Dogecoin, as you continue to read on.
Launching the Dogecoin Blockchain
Blockchains that came before Dogecoin, such as Bitcoin, operate as described above.
Since Bitcoin was the original, it took a long time to develop Bitcoin's blockchain.
However, as Dogecoin was based on a fork (of a fork, of a fork…) of the Bitcoin blockchain, the developers of Dogecoin are said to have taken just 3 hours to develop and launch the Dogecoin Blockchain.
But a blockchain is a blockchain, and fundamentally they all do the same thing.
What makes blockchains different from one another is how the coins are mined and how they are validated.
This is where mining comes in.
2. Dogecoin Mining
Mining is the process of verifying a transaction to make sure it takes place as expected.
It uses mathematical processes and calculations to ensure that coins aren't spent repeatedly for the same transaction.
Once verified, it takes more math to produce a new coin to be added to the blockchain.
The table below shows how long it takes some major blockchains of interest to produce a new coin:
|Minutes per Block||10||2.5||1|
Litecoin was the first blockchain to use Scrypt for its hashing algorithm, and as we’ve discussed above, Dogecoin is an eventual fork of Litecoin.
Given their places in cryptocurrency history, both claim Bitcoin as a direct ancestor.
While Bitcoin takes roughly 10 minutes to verify a transaction and produce a new coin, Litecoin's use of Scrypt cut that time down 75% to 2.5 minutes.
Dogecoin (really a modified Litecoin), cut that time further to 1 minute.
Dogecoin is an inflationary asset
Bitcoin is famous for its hard cap of 21 million coins to be mined, but Dogecoin is actually an inflationary asset.
Every 4 years Bitcoin cuts the number of new coins to be mined in half.
But at the other end, Dogecoin began with a cap of 100 billion - A cap which Dogecoin reached in 2015.
Going forward, Dogecoin remains uncapped, with 5 billion new DOGE to be added yearly to its circulating supply.
As will be discussed later in this Guide in more detail, Dogecoin proves not to be an effective store of value, but nonetheless may be used for payments of obligations owed or for purchases of goods and services.
Briefly, this is due to the fact there exists no lifetime cap on the number of Dogecoin that may be minted by mining.
The Dogecoin blockchain creates millions of new coins daily to provide compensation for mining.
This provides a challenge for any speculative gains in the price of Dogecoin to be sustainable over any long period of time.
As a result and by design, Dogecoin is actually highly inflationary.
3. Dogecoin’s Proof of Work (PoW) consensus algorithm
Like Bitcoin and Litecoin before it, Dogecoin uses the consensus algorithm known as Proof of Work (PoW).
In this P.O.W. system, miners utilize computers to solve complex mathematical equations, by guessing the result, to process transactions within the network and further record the transaction on the Dogecoin chain.
This is what ensures transactions take place as expected and each coin is used properly without double-spending.
As a reward for performing these functions, miners earn compensation in the form of additional Dogecoin.
Once earned the miners are free to hold the additional Dogecoin, or in the alternative, sell the same on the open market.
Dogecoin mining algorithm
Like Litecoin, yet unlike Bitcoin, Dogecoin uses the Scrypt hashing algorithm.
When compared to SHA-256d, Scrypt is a more intensive hashing algorithm.
This means it works better with more powerful hardware such as GPUs (graphics processor units), rather than standard CPUs.
On top of that, miners must use equipment made specifically for use with Scrypt.
SHA-256d and Scrypt are not interchangeable, so in order to mine Dogecoin, the right mining equipment is needed.
But ultimately, the combination of greater processing power and more intense processing makes Scrypt a better hashing algorithm for Dogecoin than SHA-256d.
4. The actual Dogecoin (DOGE)
As noted above, Dogecoin is a cryptocurrency that effectively has no cap or maximum number of coins.
Already hard-coded for 100 billion DOGE, it also allowed for inflation of the circulating supply.
Dogecoin was officially launched in 2013, and the 100 billion DOGE limit was already reached in 2015.
Every year since 2015 an additional 5 billion DOGE will be added to the amount already circulating.
Due to the built-in scarcity of BTC, each BTC has risen in value dramatically as demand has increased.
On the other hand, the original 100 billion DOGE limit combined with annual additions of 5 billion DOGE dampened the value of each DOGE.
Despite BTC and DOGE being about as different as two cryptocurrencies can be from each other, their combinations of coin supply and price make both cryptos top 5 by market cap.
BTC is the leading cryptocurrency, so that's expected.
DOGE on the other hand, has come out of nowhere in 2021 when it reached its (at time of writing) all-time high of USD 0.73158.
After being less than USD 1 cent as recently as January of that year, that’s a pretty impressive run.
Honestly, given Dogecoin’s history as a meme coin, cracking the top 5 in market cap is nothing short of astounding.
Despite the already 66% drop from that ATH, Dogecoin still garners much attention in the media.
Dogecoin is now just waiting to break the USD 1.00 barrier.
The table below compares the price rises of BTC with DOGE:
|Year USD 0.01 was reached||2010||2021|
|Year USD 0.10 was reached||2010||2021|
|Year USD 1.00 was reached||2011||TBD|
|Price in Year 8||1,035.53||0.73158|
It took 2 years before BTC/USD reached two-decimal places.
On the other hand, you can see that it took about 8 years before the DOGE/USD rate reached that same two-decimal places.
But on the back of celebrity endorsements and extremely bullish retail sentiment, Dogecoin could still go much higher.
Is Dogecoin real?
The short answer is, yes Dogecoin is a real cryptocurrency. Let’s explore why in more detail below.
Dogecoin is real because: It has its own blockchain. It uses a cryptographic algorithm (Scrypt). It has its currency (DOGE, XDG, Ð). It uses Proof of Work (PoW). It uses miners. It is one of the first cryptocurrencies and altcoins ever made. In crypto terms, it has a long history. It's listed on the major cryptocurrency exchanges (and they don't waste resources on things that are fake or imaginary) It's real enough for USD billionaires (plural) to hype it and not get sued.
Those are facts that no one doubts and for us, that's enough for Dogecoin to be considered real.
Why do people think that Dogecoin is not real?
Dogecoin was made as a joke.
Instead of solving a problem or presenting a use case, Dogecoin was made as a joke based on a meme.
According to Wikipedia, Dogecoin...
...is a cryptocurrency created by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system as a joke, making fun of the wild speculation in cryptocurrencies at the time.
Had the joke fizzled and Dogecoin flamed out, it would have been no big deal.
Thousands of altcoins have come and gone and most of us don't know about any of those.
Yet Dogecoin found its legs and stood the test of time.
Even good jokes need to be popular, and this one just happened to take the form of a cryptocurrency.
Dogecoin creators embrace the joke
The creators even promote the fact that Dogecoin wasn't serious.
Developers Billy Markus ("Shibetoshi Nakamoto") and Jackson Palmer state on dogecoin.com that "Dogecoin is an open source peer-to-peer digital currency, favored by Shiba Inus worldwide."
Yes, it’s literally dog money.
Preconceived notions die hard
Despite its origins as a joke and its reputation as the Godfather of Meme Coins, Dogecoin has evolved into a widely accepted cryptocurrency.
Just as the number of money professionals is small compared to the total population of money users, Bitcoin and altcoins prior to 2013 were seen as niche tools for a niche group while Dogecoin was made for the masses.
When Dogecoin shot up in popularity outside the community of fans and supporters in early 2021, it became a Top 5 Cryptocurrency.
Despite its shaky performance in 2021Q2, its market cap remains astounding.
Despite being a heavyweight in the world of cryptocurrencies, Dogecoin still has its reputation as a joke and a lightweight.
However, while most cryptocurrencies (including Bitcoin) remain terrestrial, Dogecoin is set to make its closest approach to the moon yet.
What gives Dogecoin value?
As you will see the answer is yes Dogecoin has value (to some) and no it doesn't (to others).
This subsection of the Dogecoin guide deals with the subject of whether or not DOGE possesses any actual value.
While our answer is somewhat cryptic, Dogecoin is a highly speculative asset and as a result, most of its value comes from what someone else is willing to pay.
Despite the unconventional genesis of Dogecoin, in 2021 it has experienced a 5000% growth in value.
But this begs the question, is there anything tangible to support this market valuation?
Celebrity driven speculation
Right now, the value of Dogecoin comes primarily from nothing more than celebrity-driven speculation.
This has especially been highlighted by the comprehensive endorsement of Dogecoin on Twitter by billionaire and former CEO of Tesla, Elon Musk.
Musk has repeatedly endorsed the coin by saying it is his favourite cryptocurrency, that it is the "people's crypto" and that he (through his Space-X Company) would physically take Dogecoin to the Moon.
To demonstrate Musk's influence on the value of Dogecoin, on June 2, 2021, DOGE rallied more than 20% on Musk's tweets of mere encouragement of the coins listing on Coinbase.
Furthermore, the mere anticipation of Musk's appearance on "Saturday Night Live", drove the coin to its all-time high.
More traditional value drivers
In a more traditional sense, looking at use cases for Dogecoin does not provide much in the way of adding value to the coin.
Presently, only a handful of businesses accept Dogecoin in payment for goods or services rendered.
To add value in this way, there must be a large expansion of the number of businesses accepting the coin as payment.
Its only other value use at this time is as a tipping coin on several media websites.
Doge can currently be utilized to tip for good content of posted messages, photos, charts and full articles.
Beyond these two uses, Dogecoin remains true to its origins as a joke that pokes fun at Bitcoin.
Its main value comes solely from celebrity-driven exposure in the mainstream media and narrow use-cases.
Therefore you can see why Dogecoin may lack value to some.
Dogecoin as real money
There are, however, your hardcore Dogecoin supporters that express a viewpoint contrary to the foregoing.
These Dogecoin fanatics are limited in number, so we will simply explain their position with limited details.
These fanatics, who call themselves 'dogeconomists', believe Dogecoin fits within the following traditional economic uses of money: Unit of account: Money being a unit of account means that you can measure value, for record keeping, or to compare two seemingly different items. Let's say my frying pan is worth 5000 Doge and your pillow is worth 5000 Doge. Counting the total net worth we can say my frying pan is the same value as your pillow. The 'dogeconomists' maintain that Dogecoin 'could' fit this purpose with more knowledge of the coin and a wider acceptance of the static value of the coin.
*Store of value: Money as a store of value in its simplest terms when it comes to Doge means the value of doge today will be the value of Doge tomorrow, and so on. Translated, this means the coin has the same worth on a daily basis to be a store of value. The 'dogeconomists' here believe Dogecoin has the potential to become this. It is their position that once Doge gains traction and loses its volatility as mature coin, Dogecoin will achieve the stability, liquidity, and value to meet this condition of money.
*Medium of Exchange: Money, as a medium of exchange is the 'dogeconomists' most promising area of concern. In this area, the fanatics advocate for the acceptance of businesses to trade in Dogecoin. They are hoping for the snowball effect, that with more and more businesses accepting Dogecoin for payment and a growing usage by the public to use the coin for payment, previously resisting businesses not accepting Dogecoin will have to drop their resistance and accept the coin or suffer severe business loses.
These dogeconomists believe that having met the three conditions of money set forth, demonstrates the inherent value in Dogecoin.
Despite the fact their arguments are full of assumptions concerning acceptance, widespread usage and business acceptance of Dogecoin, they continue to advance the idea that Dogecoin has value as real money.
Final thoughts on what gives Dogecoin value
At the onset it was maintained that the answer to the question of what gives Dogecoin value, or put better, does the coin have actual value, was both yes and no.
The nos believe that Dogecoin is nothing more than a joke meme coin, deriving price value as a result of media-driven endorsements.
However, the fanatics believe Dogecoin to be valuable as it fits the three conditions of money.
Where do I store my Dogecoin?
As with other cryptocurrencies, a wallet is needed to store your Dogecoin.
In order to start your cryptocurrency journey, you need a Dogecoin wallet to store your DOGE.
By getting a Dogecoin wallet, you’re able to start holding and sending Dogecoin.
Dogecoin.com offers 2 types of non-custodial wallets for download: *Multidoge: Light wallet, designed for a small number of day-to-day transactions. *Dogecoin Core: Traditional wallet, designed for a large number of transactions.
Since these are non-custodial wallets, you have direct control over their contents.
Custodial wallets, on the other hand, are wallets located within the space of a 3rd party.
This phrasing is used because the 3rd party’s degree of control varies from light (say, Hive Wallet) to great (say, Coinbase).
Should the authorities want access to your wallet which they host for you, the question becomes this: How long before the 3rd party acquiesces to the authorities?
Convenience is the major reason for using custodial wallets.
While nobody is saying don’t use custodial wallets, our advice is to be aware of what they are and to just be careful.
Other Dogecoin wallets approved by Shiba Inus worldwide
Hardware-based wallets definitely qualify as non-custodial wallets.
Unfortunately, they aren't cheap (although losing your prized DOGE will be costly in more ways than one).
Software wallets exist, and the official Dogecoin website we linked to above has them for users of Windows, Linux and macOS systems, as well as users of Android smartphones.
Wallets exist because they store money, and (usually) to get the money it needs to be authenticated before receiving it.
The authentication is done with private cryptographic keys.
Those keys can be stored in a hardware wallet, a software wallet... or a paper wallet.
Paper wallets are proof that no-tech tools can by used in a high-tech world.
Paper wallets contain lists of the private keys used for the various cryptocurrencies (including DOGE).
Paper wallets are offline, so they cannot be hacked or stolen by cybercriminals.
Just keep the paper wallet away from fire and hungry pets (including Shiba Inus!).
Which Dogecoin wallet should I choose?
If you're willing to spend good hard-earned money for a crypto wallet that connects to a blockchain only as needed, hardware wallets are the way to go.
However, if you prefer the convenience of a wallet that's just a few clicks or taps away then software wallets get the job done.
If you have sufficient experience with Dogecoin or other crypto transfers and security is paramount, a paper wallet may be the right choice for you.
Dogecoin pros and cons
We take a look at the good and bad when it comes to Dogecoin.
In this section of our guide to Dogecoin, we are going to look at some of the major pros and cons of Doge.
From there, you can then make your own decision on whether you should invest in Dogecoin in 2021, or allocate your capital elsewhere.
The Shiba Inu mascot of Dogecoin.
*Transaction Time & Fees: Dogecoin is a fork of Luckycoin which is a fork of Litecoin (a bitcoin fork). It is 10 times faster than Bitcoin and also the fees in case of DOGE is lesser when you compare the two cryptocurrencies.
*Community Support: Dogecoin is famous because of its community. Real people who use the crypto and trade on it. They are quite active on social media constantly sharing updates and news related to developments within the DOGE realm. The reason for it to be so famous is that it's based on a meme which a language that social media enthusiasts speak.
*Celebrity Support: Elon Musk is probably one of the biggest supporters of Dogecoin. He constantly tweets about it which has pushed its price upwards quite a lot in 2021, more than 14000% in one year. Apart from Elon, Mark Cuban has shown its support towards it. Dallas Mavericks (NBA team) owned by Mark also acceptance Dogecoin payments.
*Availability On Exchanges: Dogecoin being one of the most famous cryptos, is available in most of the exchanges for trading and investing purposes. One can easily purchase and start transacting with them. Due to price volatility, one can trade Doge by analyzing the charts and price trends and make serious profits as more people are showing their interest in crypto.
*Weak Fundamentals: Dogecoin was created as a joke and got famous on social media since it's a meme coin. Its price is not determined by the fundamentals or innovation of its technology.
*No Active Development: Dogecoin doesn't have any institutional support or active development team working on the changes to make the network better. In fact the founders of Dogecoin have sold their holding long back in 2015.
*Unlimited Supply: Unlike Bitcoin, Dogecoin is not capped. Hence there will be an infinite amount of Doge which can be mined or purchased by anyone. In simple terms, there will be an unlimited supply of DOGEs. Due to its inflationary nature, it's not a great choice to store value.
*Scalability Issues: Even though Dogecoin is better than bitcoin in terms of transaction speed & fees, it still poses scalability issues. Hence it cannot be used for practical purposes once the network is propagated among the masses.
*Price Manipulation: Dogecoin price is easily manipulated by pump and dump schemes, bitcoin volatility, and tweets. At the end of the day, it's just a joke backed by no real use case as such which makes it a volatile and speculative asset.
Should I buy Dogecoin in 2021?
Cryptocurrency in general has seen explosive growth in the past few years.
From the start of the year to the beginning of May, Dogecoin's price went up by 10,000% and it is expected to hit $1 by EOY as per some experts.
This year we have seen the launch of many other meme coins inspired by the success of Doge as a community coin.
It's all speculation due to the recent rise in its popularity.
The community has expanded ten folds since then.
Due to its high volatility and deflationary nature, Dogecoin is a very risky investment for now.
There are no active developments going on in its ecosystem and nothing concrete is planned in the near future.
Coming back to the main question - should you buy Dogecoin in 2021?
Well, we would suggest don't do it if you can't afford to lose your money.
If you are an experienced trader who can read and analyze charts to see patterns in its price, then you can try your luck.
Celebrity support and community is growing even though the long-term viability of Dogecoin is questionable.
How long should I keep my Dogecoin?
How long you keep your Dogecoin (DOGE) is entirely up to you but here are a few key pieces of advice.
Dogecoin is a joke!
First and foremost when you’re considering keeping or selling your Dogecoin, you have to remember that it’s literally a meme coin that was created as a joke.
While it certainly has functionality and fulfils the job of small money transfers or tips, it’s extremely unlikely that Dogecoin will overtake the market cap of coins with more functionality.
So with that in mind, this section of the Dogecoin guide will go over some considerations you need to make if you’re still holding Dogecoin and wondering when to sell.
Every HODLER is different
How long should I keep my Dogecoin?
As every Dogecoin HODLER is different, this means that there’s no right or wrong answer to this question.
There are literally a million different variables at play here and while this is in no way financial advice, if you were to take it as such then you’d need to provide your own unique story.
But seriously, this is not financial advice so don’t give it to me...
If you’ve still kept your Dogecoin, then consider the following:
When you bought your Dogecoin Whether you even bought your Dogecoin at all How much Dogecoin you bought If you bought your Dogecoin at multiple prices Whether you were trading or investing in Dogecoin
These are just a few personal considerations that need to be taken into account if you’re wondering how long you should keep your Dogecoin.
There are however a few general pieces of advice I can offer.
Always take profits
The first of which, is that on highly speculative assets such as Dogecoin, you should always be taking profit off the table.
Even if you want to keep your investment for the long term just to see how high Dogecoin will go, then you can still take profits along the way.
One trading example is to move your stop to breakeven”.
What this means, is that essentially you have given yourself a free trade.
Everyone loves free stuff :)
Depending on how risk averse you are, you don’t even have to move your entire stop to break even.
You could instead choose to just take 50% off, so you’re locking in profits and lowering your risk.
That way if you wake up to another crypto sea of red (and you know it’s going to happen), you’re only going to lose half your Dogecoin investment.
*”Nobody ever went broke taking profits!”
Diversify into other cryptocurrencies
Let’s revisit the point we made above where we spoke about Dogecoin having purpose… but just not an entirely world-changing one.
Some cryptocurrencies really do have the ability to change world.
Think what Bitcoin is doing for citizens under authoritarian governments or the decentralised global internet being run on Ethereum or our very own Hive blockchain.
It’s my opinion that we’re seeing celebrities like Elon Musk using meme coins such as Dogecoin as a gateway to the adoption of truly world changing projects.
People will come for the memes and stay for the tech.
With that in mind, maybe it is time to start thinking about selling your Dogecoin and using those profits to diversify into other cryptocurrencies?
Final thoughts on keeping your Dogecoin
As long as the Doge community continues using the coin, its value is going to hold.
Celebrities like Elon Musk and Mark Cuban having millions of followers on social media have supported Dogecoin and there is a good chance that they will do it again.
As a good rule of investment, if you are in profit then take out your initial investment and keep the rest of it intact.
You can use some of it later to grab better investment opportunities or in case of an emergency.
As always however, the decision is entirely your own.
Just be aware that Dogecoin's price can go anywhere from this point onwards.
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