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What's happening with Dogecoin and why am I hearing about it?

Dogecoin has rocketed its way to becoming one of the most popular cryptocurrencies, currently the fifth by market cap, since its price began rising at the beginning of the year.

If you’re in any way interested in cryptocurrency, or even keep an eye on what’s trending on Twitter, you might have noticed the term ‘Dogecoin’ doing the rounds, pronounced 'do-je', not 'do-ja', or even 'dodge'. 

Such a phrase would often be followed by the determiner ‘much’ and the exclamation ‘wow’, but in recent days and weeks the conversation is getting a bit more serious.

Before you correct my misspelling of ‘dog’ I should probably explain myself.

What do we meme by Dogecoin?

Dogecoin is a cryptocurrency based on the widely popularised “Doge” meme and was created at the end of 2013 after the online meme became popular.

The meme itself features the likeness of a Japanese Shiba Inu dog looking nonplussed, with brightly-coloured comic sans font supposedly representing the dog’s internalised monologue. It’s a joke, it probably shouldn’t be explained, but here we are!

Around the same time the meme was created, software engineers Billy Markus and Jackson Palmer created what we now know as Dogecoin. Created as a joke, the coin pointedly made fun of the wild speculation around crypto at the time, and still ongoing.

In its infancy the coin was primarily used for tipping gamers on the streaming platform Twitch, including on a handful of other niche platforms.

However, since the coin was created it has garnered and amassed a rather large following, including close to 2 million r/dogecoin subscribers on reddit, as well as endorsements from one of the world’s most well-known billionaires, none other than Elon Musk.

Even more crazily, the Dogecoin cryptocurrency has soared by almost 200,000% since it was first created in 2013. To put that into context, Bitcoin rose by 'only' 7,700% in the same period.

So, perhaps it’s time to take the joke coin a little more seriously?

But before we get into what sets Dogecoin apart, we should probably explain a little bit about how cryptocurrencies themselves function.

What does cryptocurrency mean?

A cryptocurrency is a digital currency that uses a decentralised system called a blockchain to verify and keep a record of financial transactions. It’s essentially a public ledger of transactions. 'Miners' then solve very complex mathematical equations to verify transactions on the chain and get rewarded for this. 

Blockchain technology is incredibly secure as it uses complex cryptography to secure records rather than relying on a centralised authority such as the Central Bank of Ireland, for example.

Cryptocurrency enthusiasts have for some time been heralding decentralised finance as the way forward, however, the 'currencies' are still incredibly volatile, partly due to being unregulated but also for a myriad of other reasons.

While consumers in Ireland can easily trade cryptocurrencies by signing up to certain trading apps such as Kraken or Robinhood, it comes with a massive financial health warning, because as mentioned, consumers are not protected in the same way they are when engaging with a bank, for example.

So where does Dogecoin fit into this multiverse?

What sets Dogecoin apart?

As mentioned above, Dogecoin was created as a joke to make fun of cryptocurrency and the coin still traded at less than a cent toward the end of 2020.

Dogecoin languished in the realm of relative obscurity for so long that in 2015 its co-creator Billy Markus was reported to have sold off his entire holdings in Dogecoin, as well as his other cryptos, so he could afford a Honda civic.

That’s in start contrast to right now when, at the time of writing, Dogecoin had a market capitalisation - the price of a coin times the total number of coins in circulation - of more than $65bn. Twitter’s market cap was €41bn at the same time.

One of the most unusual and perplexing things about Dogecoin is that there isn’t much setting it apart in the crypto space other than the simple fact that it's just a meme coin people have decided to attribute value to because they like it. In other words it's popular because it's ‘popular’.

But there seems to be more to the joke coin than meets the eye. One of the big issues detractors have with the currency is that it has an ‘unlimited’ or inflationary supply.

While this is technically true, there are positives...

Where Bitcoin is seen as the digital version of gold because there is a limit at present to the number of coins that can ever be mined (21 million), Dogecoin represents the opposite.

With Dogecoin there is no total cap on the number of coins that can be created. Therefore, because its supply can go up indefinitely, it's supply has been considered inflationary by its detractors. This is in contrast to Bitcoin which has almost always been treated like an investment vehicle and a hedge against inflation.

However, a maximum of five billion new coins can be added to the Doge network each year, which means its value is better preserved than some give it credit for. Therefore, Dogecoin has the potential to function like a traditional transactional currency.

That being said, there’s still a very limited number of outlets that actually take Dogecoin as payment, and they’re all unsurprisingly relatively small businesses located in the US. So, part of Dogecoin's continued success will depend on this uptake, which is easier said than done.

At this stage you might be wondering, why Dogecoin? Surely there are other coins out there that do the same thing but better and which might warrant more earnest speculation? And you'd be well within your rights to ask that. However, one of the big draws around Dogecoin is the seemingly unending endorsements from Elon Musk.

Celebrity endorsement

While other celebrities have jumped on the Doge train, again mainly in the US, most of the ongoing speculation around the price of the coin is emanating from the rocket tycoon.

At the beginning of the year it was clear that Musk found fun in Dogecoin's playfulness, even saying in February:

 “Fate loves irony. What would be the most ironic outcome? That the currency that was invented as a joke in fact becomes the real currency.”

However, his involvement in the progression of the crypto has become a tiny bit more clear of late. After the price of Dogecoin plummeted after his much-hyped SNL performance on May 8th (which featured the coin in a number of sketches), Musk has since come out to state that he’s ‘working with Doge developers to improve system transaction efficiency.’

The billionaire has further added to speculation by holding a Twitter poll to see if Tesla should take Dogecoin as payment. And this was after announcing Tesla was stopping taking Bitcoin as payment, despite not getting rid of its Bitcoin holdings. Make of that what you will.

And it’s of course not just Elon that’s sustaining the popularity of the coin. The now close to two million r/dogecoin reddit subscribers have created a not-so-mini international community backing the coin.

This is a point that many seem to be missing about Dogecoin’s popularity, or perhaps purposefully missing, is that it's a movement and represents a great redistribution of wealth in many cases, which perhaps some of those in the investment class rue, as was seen with GME in the stockmarket earlier in the year.

While it’s yet unclear whether Dogecoin is a bubble or whether it has yet more to offer remains to be seen. But with one of the world’s wealthiest people putting time, money, resources, and brainpower behind it, it’s certainly an entertaining story to follow, especially for those watching (safely) from the sidelines.

Tread carefully

Let’s be clear, Dogecoin, and cryptocurrency in general, is highly volatile and should be treated with great trepidation by investors.

While there’s certainly more to the Dogecoin story than meets the eye, the main thing to keep in mind is that the entire crypto space is entirely speculative and completely unregulated. For this reason it's no surprise it has gained the moniker of 'the wild west of investing'.

Consumers should think twice before investing their entire life savings, or any money in fact, in one or multiple cryptocurrencies.

In contrast to investing in real estate, gold, or putting your money in say a managed fund, trading in cryptocurrencies is gambling and is quantifiably far more risky.

That being said, there is money to be made, but chances are it’s only if you get in very early and have a sizeable sum to invest in the first place (which you’re also comfortable with losing).

And this is the crux of the matter, consumers shouldn’t invest what they can’t afford to lose, whether that’s on digital gold or on what has now become a very serious joke.