What is Dogecoin, the joke cryptocurrency that became more attractive than bitcoin?
Dogecoin is the most popular and peculiar cryptocurrency on the planet.
The total value of Dogecoin in circulation is more than $53 billion, which is not bad for a digital currency that started as a joke. Dogecoin is the fifth most valuable cryptocurrency on the market, according to CoinMarketCap, after rising more than 6000% this year.
But first, what is a cryptocurrency?
The dogecoin price doubled again after Tesla CEO Elon Musk tweeted about it for the umpteenth time. The demand for Dogecoin has skyrocketed so much that at one point, it briefly broke Robinhood's cryptocurrency trading system.
Cryptocurrencies are a digital medium of exchange that secures financial transfers using cryptographic methods. These methods are also used to create new units of each cryptocurrency, and verify the transfer of assets. They are a decentralized alternative to digital currency, a method opposed to conventional currencies that are centralized and organized by entities and banks.
The concept of this type of currency is a bit ambiguous, and to understand it you will need to understand other basic concepts. To begin with, cryptocurrencies are based on different decentralized networks of computers, which are spread all over the world with copies of all the transactions that have been made.
What is Dogecoin?
Like all cryptocurrencies, Dogecoin is a digital currency that can be bought and sold as an investment and spent as money.
While each crypto is unique, Dogecoin shares similarities with its more well-known peers (its code is based on the litecoin script, for example). But it has a couple of crucial differences.
Unlike bitcoin, which has pegged the number of coins available on the market at 21 million, Dogecoin has 129 billion coins in circulation. It will continue to make new blocks of cash available for mining every year. That's part of the reason why one Dogecoin is currently valued at just under 40 cents on the dollar, and one bitcoin is worth about US$62,000.
Although cryptocurrencies are gaining acceptance as a currency to buy goods, Dogecoin doesn't have much real-world use. However, it has some niche markets, such as tipping artists online.
And its main differentiator - its active online community - is what makes this strange currency so much fun. The group, active on Reddit, has raised money (in Dogecoin, of course) for charitable causes, and in 2014 successfully funded a sponsorship for Nascar driver Josh Wise to advertise Dogecoin on his car.
"Dogecoin is not so much an alternative deflationary numismatic instrument, but an inflationary idle exploration of building communities around a crypto asset," Usman Chohan, an economist at the University of New South Wales Business School, wrote in a February update on the digital currency.
How did it start?
Dogecoin is a type of cryptocurrency that was born as a meme-based amusement. The meme is the Doge meme, which became popular in 2013, and consists of a picture of a Shiba Inu dog with grammatically incorrect phrases added to it. Over time, the meme has evolved, but it's still a Shiba Inu dog with funny expressions. Above is a screenshot of the dog in the meme, and if you've been in the meme world for a while you've probably seen it.
The Dogecoin cryptocurrency was created in December 2013 by Billy Markus, a programmer, and former IBM engineer. At the time, Bitcoin was gaining a bad reputation for being involved in Dark Web black market transactions, and Markus wanted to create an alternative that had nothing to do with such shady dealings. The name of the cryptocurrency came from the meme, and the image of the dog is used in the images with which it is illustrated.
An IBM programmer from Portland, Oregon, Billy Markus, set out to differentiate his cryptocurrency from bitcoin, which was steeped in mystery thanks to its anonymous creator and attracted a small group of miners at the time. Instead, Markus wanted his crypto to be open to the masses, according to Chohan.
Markus sought help to make his strange dream come true and found Jackson Palmer, who worked for Adobe. Palmer bought the domain dogecoin.com, a nod to the "doge" meme that was everywhere on the Internet at the time.
The website makes a nod to its prank origins at the top: its Shiba Inu mascot is the first image on the page, mimicking the meme it was inspired by, which features the same dog surrounded by a bunch of misspelled English Comic Sans text.
On dogecoin.com, their mascot has a title, "Dogecoin is an open-source, peer-to-peer digital currency that Shiba Inus around the world favor."
Dogecoin is based on Litecoin, and its operation is similar to other cryptocurrencies. You need a program on your computer to solve the complex algorithms with which this cryptocurrency is mined. Like Litecoin, Dogecoin also uses a cryptographic program called Scrypt. It allows it to be mined faster than others, such as Bitcoin, although without using the same hardware as for the latter.
This speed is also in the transactions, which means that payments through this cryptocurrency can be faster than those you make with Bitcoins. In addition, according to its algorithm, the theoretical maximum of Dogecoins that can be mined is 100,000 million units, compared to the maximum of 21 million Bitcoin that can be mined.
Why is it suddenly so popular?
Dogecoin is no longer a joke. Its popularity has skyrocketed -- astronomically this year -- in part because of the widespread adoption of bitcoin and other cryptocurrencies.
But Elon Musk is the most notorious and prominent supporter of Dogecoin. So one of his tweets to his 50 million followers can send the cryptocurrency soaring. That's what happened on Friday when Musk tweeted "Doge barking at the moon" and shared a photo of a painting by Spanish artist Joan Miro, which is titled "Dog barking at the moon."
Dogecoin has also enjoyed something of a cult status on Reddit, where a popular group -- not unlike the WallStreetBets group behind the GameStop rally -- decided earlier this year to push its value "to the moon." Dogecoin skyrocketed more than 600% as a result.
Whether or not it is an intelligent investment remains a question. Bitcoin, which is more actively traded and widely accepted, is subject to extreme volatility, so Dogecoin could also crumble without warning. But its rise this year has been impressive.
Markus hadn't benefited from the currency's rapid growth, who sold all of his Dogecoin when he was laid off in 2015. Instead, he used the money to buy a Honda Civic.
Common sense tells us that scarce assets are more likely to hold their value than more abundant ones. "But in the world of cryptocurrencies, common sense is perhaps a poor guide to future behavior," says Plummer.
And in the world of economic experts, there is still quite a bit of skepticism about every new cryptocurrency that comes to market.
In the UK, Ethan Ilzetzki of the London School of Economics tells the BBC that "a digital unit has no intrinsic value unless it can be used in transactions." "I can't name you a single cryptocurrency that is more useful in transactions than a credit card denominated in dollars, pounds, or yen," he adds.
"There is nothing inherently wrong with privately provided digital currencies, but they need to be well designed and well thought out."
"They're worth a lot because people say they are. However, I have little confidence that they will be worth much in the long term.