What makes Dogecoin valuable?
On Dec. 6, 2013, Dogecoin (DOGE) was officially launched by Adobe engineer Jackson Palmer and IBM software developer Billy Markus. They created the DOGE cryptocurrency to blatantly mock the industry that they believed had already attracted too much money.
The cryptocurrency users recall Doge, a misspelled use of “dog,” as the internet meme representing the Shiba Inu Japanese dog breed with its multicolored text in Comic Sans font, along with questionable English grammar.
Dogecoin was formed using code from the Litecoin network, which was a fork of the Bitcoin blockchain. When a community modifies the blockchain's protocol or basic set of rules, a fork occurs. Once this happens, the chain divides, resulting in a second blockchain with the same history as the first but heading in a different direction. It was initially touted as the “fun” version of Bitcoin (BTC), but its value has since increased and has drawn a more severe interest. Dogecoin's price has risen as a result of celebrity endorsements such as Elon Musk and Snoop Dog. Dogecoin had a boost after it was reported that a well-known cryptocurrency platform would accept the coin.
The growth of the Shiba-Inu-themed crypto makes it attractive to know how it all started. It helps to understand why the DOGE coin became so popular among meme enthusiasts, who fed amusing Reddit and Tumblr comments in 2013.
The history of Shiba Inu and Dogecoin
In 2008, Japanese kindergarten teacher Atsuko Sato adopted a female Shiba Inu dog called Kabosu and rescued her from certain death, after the puppy mill that was housing her had to shut down. A few of the pedigreed dogs were adopted but those who were not, had to be killed.
When she started to share pictures of the dog over the internet, little could she imagine that the dog would become widely popular thanks to the memes that emerged as a tribute to these intelligent breeds, distinguished by a strong personality.
Shibas date back to the third century BCE and are considered to be a primitive breed, making them a very peculiar and sought-after type of dog. Before fame, Sato had created a blog to raise awareness about the dangers of puppy mills and adopted dogs, which quickly found a vast audience and soon became one of the most popular blogs in Japan.
The path to global fame was set and soon Reddit and Tumblr Shiba Confessions gave the ultimate recognition to the world’s most famous and photogenic dog, depicting it in various humorous caricatures that were promptly utilized by adverts and gadgets, and consecrated by the creation of the DOGE cryptocurrency in 2013.
The two IT professionals who created Doge were also experienced engineers. They did not leave any technological innovation behind and actually built good software. The blockchain, proof-of-work (PoW) mechanism and mining procedures used by them were stable, efficient and secure.
The early days in the life of Dogecoin were rather dramatic though. On Dec. 25, 2013 — only a few days after the launch — several Dogecoin wallets were hacked and an estimated 21 million coins were lost. The community behind the DOGE cryptocurrency gathered together to raise funds and compensate the affected users.
This was a turning point for the DOGE cryptocurrency, which started to be seen as a charity and tipping tool in the years to come. While standing out for its beneficial merits, Dogecoin detached itself from the negative outlook of other altcoins that were being identified with a get-rich-quick scheme.
Dogecoin suffered a major blow in 2015 when Jackson Palmer and Billy Markus decided to leave the project to their disapproval of the opportunistic and toxic condition the crypto industry had turned into.
The coin went into oblivion for most of 2015 through 2017. Still, it resurrected during the 2017 bull market, hitting an all-time high of $0.0188 in January 2018, to the surprise of the creators who thought it was rather unbelievable that a dog-themed coin that had not released a software update for about two years, was gaining so much success.
Technical and fundamental features
Dogecoin is a peer-to-peer (P2P), open-source, decentralized and anonymous cryptocurrency based on blockchain technology. Indirectly, it derives from Bitcoin since it originally forked from LuckyCoin, a fork of Litecoin which uses the same codebase as Bitcoin.
The creators used the Litecoin scrypt algorithm, which allows speedy and safe transactions due to the lower hash rate (the measure of computational power per second) required to function. This encouraged early users to employ Dogecoin as a means of payment for transacting small amounts such as for tipping, for example.
It is mined through an auxiliary proof-of-work mechanism (AuxPoW), slightly different from PoW per se, as it can be mined in combination with other cryptocurrencies that share the scrypt algorithm.
Scrypt is relatively easier to use than Bitcoin’s SHA-256 (the cryptographic hash, or signature, used to confirm a file or text authenticity), mainly because it does not require specific mining equipment like application-specific integrated circuits, or ASICs, used in Bitcoin. Instead, both Litecoin and Dogecoin can be mined with simpler systems like Central Processing Units (CPUs) or Graphic Processing Units (GPUs) which were used for mining Bitcoin in the early days. The more accessible equipment makes Dogecoin mining available to the everyday user who wants to participate in the network as a miner. Scrypt has a slow and memory-intensive key derivation process, making it harder for engineers to create specialized hardware, i.e., ASICs, to mine the coin.
As Litecoin and Dogecoin share the same hashing algorithm, it’s possible to mine both cryptocurrencies simultaneously in a process called merged mining which helps secure the network, allows miners to receive a higher reward from two streams of revenue and makes the mining process less energy-intensive.
Like Bitcoin, Dogecoin blocks’ size is 1MB. Due to the Scrypt nature which allows faster and cheaper transactions, however, Dogecoin’s blocks are produced every minute instead of Bitcoin’s 10 minute time, making it possible to handle a higher number of transactions per second.
Initially, Dogecoin block rewards were designed to provide a random number of coins between zero and one million to discourage miners to start competing with massive amounts of hash rate, as was happening with Bitcoin.
This system continued until mid-2015 when the supply reached 100 billion coins in circulation. Since then, the structure was switched to provide an uncapped supply while limiting a reward of 10,000 Dogecoins per block to keep Dogecoin’s inflationary system under control, enabling the price to remain more stable over the long term. A less volatile currency would likely meet the favor of those long-term investors who’d rather take no exponential risks.
Factors driving Dogecoin’s value
In the words of its creator, Jackson Palmer, Doge brought a friendly face to the crypto space. While Bitcoin had to deal with the stigma that saw it originally linked to criminal activities like money laundering, drug purchases and other shady pursuits, Dogecoin was offering a new and cleaner image of a cryptocurrency. From the start, it was the currency of “generosity” due to several charitable initiatives that soon entered the Reddit space in 2014.
Charity and the “good” case for the cryptocurrency
The Dogecoin Foundation is a non-profit corporation registered in Colorado and established in 2014, after legitimate fundraising requests started to appear on the r/Dogecoin Reddit channel.
One of the first initiatives was a fundraising event that secured $30,000 in Dogecoin value to sponsor the Jamaican bobsled team so that they could compete at the Sochi Winter Olympics.
In March of the same year, the community donated $50,000 in Dogecoin to Charity: water to support a project that would bring clean water to Kenya. The donation allowed the organization to build two water wells in the region.
By then, the acronym DOGE had started to mean “Do Only Good Everyday” for the Reddit following. Another successful charitable story was that of Josh Wise, a NASCAR driver who did not have enough funds to enter the Talladega Superspeedway race. Over 67 million Dogecoin — about $55,000 at the time — were raised in total to allow him to participate in the race. The Shiba Inu meme was displayed on the car named “#98 Moonrocket” and, for the first time, the cryptocurrency appeared as an advert at a major sporting event.
Tipping tool, Reddit and Twitter
In 2014, tech entrepreneur Josh Mohland created DogeTipBot, a micro tipping service linked with Reddit that allows users to send Dogecoin to each other for posting appreciated content. Consequently, tipping each other for good content picked up in social media environments like Patreon and even YouTube.
DogeTipBot significantly contributed to the early adoption of DOGE and other cryptocurrencies’ exposure for the first time. DOGE soon became the leading cryptocurrency used for tipping with over 70,000 sign-ups.
Unfortunately, in 2017, DogeTipBot creator infamously announced he had gone bankrupt on Reddit, that he had to close down the service and had taken all Dogecoin held on the platform to cover operating costs and his personal debts. Users of the third-party tipping tool were all of a sudden deprived of their own money and there was nothing they could do about it.
TikTok Doge community
Dogecoin’s success was sealed in 2020 when a new craze emerged on TikTok.
Before the Reddit community-driven GameStop pump, DOGE followers on TikTok had already experienced the ability of a community to pump a price after a TikToker had championed a challenge by inviting all TikTok users to invest only $25 each to move the coin’s price up.
The TikTok user’s message went viral quickly and the price of the cryptocurrency indeed went up by 20% in a matter of hours. Other TikTokers followed the same example and adopted similar challenges to pump the price on different occasions.
The rise of meme coins
Following the incredible success of Dogecoin, the cryptocurrency market has become fertile ground for the proliferation of meme coins. Not only in the crypto sphere but also in the stock market, memes appear to be identified with a new investment concept that goes beyond corporations’ and big institutions' appetite for money-making assets.
Retail trading and investments have remarkably increased thanks to the arrival of simple trading platforms like Robinhood, and the ability for even non-tech-savvy small investors to finally access stock and cryptocurrency investment plans.
Dogecoin and GameStop (GME) best represent the concept of “assets of the people” in the crypto and stock market spaces since they identify with “goodness” and the ability of small investors to defeat the big powers, whales and speculators when they join forces together.
Shiba Inu, Floki and Safemoon are only a few examples of the meme coins that compete with Dogecoin. While these coins have yet to find a good use case, however, Dogecoin is the longstanding established coin that already provides fast and safe transactions with a purpose, making it the most desirable investment of all.
The success of meme coins, including that of Dogecoin, is largely and undoubtedly linked to fruitful marketing campaigns, and their connection with social media influencers and celebrities.
Celebrities, media, and engagement — The Elon Musk effect
Dogecoin has become a major investment tool that is widely accepted by exchanges and is often part of institutional investment portfolios. One of the main reasons is the engagement of celebrities like Snoop Dogg, Kiss frontman Gene Simmons and Elon Musk who has consistently tweeted about the coin since 2019, leading the cryptocurrency’s price to move up every single time.
Elon Musk went from joking that he was the Dogecoin CEO to taking it more seriously in a sequence of tweets that suggested he owns the cryptocurrency, even suggesting that he is working with its developers to help improve the system’s transaction efficiency.
DOGE development resumed
Elon Musk’s DOGE development tweet coincided with a revival of the software programming process which, until then, had been brought forward in fits and starts all along.
With the increasing use of the cryptocurrency, either for trading or tipping purposes, a scaling issue became concerning for existing DOGE developers like Ross Nicolls, who’s been on the project for some years.
The DOGE cryptocurrency is tightly linked to Bitcoin Core development, not only because it’s an indirect fork of it, but also because since 2014, Dogecoin software has been based on Bitcoin code, yet adapted to Dogecoin. The decision to bind Dogecoin to Bitcoin Core was taken to secure more stability to the network, and, therefore, DOGE Developers also had to catch up on several Bitcoin Core releases that occurred since DOGE’s last update of 2014.
Dogecoin also includes a community-donated developer fund that the developers share access to through a multisignature wallet. When two or more private keys are required to sign and send a transaction, a multisignature wallet can be employed to add extra security to the device.
Bitcoin vs Dogecoin
Despite being inherently linked to Bitcoin, Dogecoin founders wanted to differentiate their creation from BTC, both from a conceptual and technological perspective.
Below are the major differences between these two cryptocurrencies.
Furthermore, Bitcoin goes through a block reward halving approximately every four years. The feature is set in stone in the protocol, and it makes the cryptocurrency system deflationary, very predictable and transparent. Dogecoin’s last halving event was in April 2014, when the payout was reduced from 250,000 to 125,000 coins per block. Later on, the protocol was changed to provide an unlimited supply so the halving was no longer necessary and reinforced the concept of DOGE being an inflationary asset.
Elon Musk has praised Dogecoin’s fast transaction times and better scalability than Bitcoin. Therefore, how do they compare?
A network can be built on top of a blockchain underlying protocol to improve scalability and efficiency, thus creating a second-layer network, also called a third-party solution. Since Bitcoin’s blocks are generated every 10 minutes, the cryptocurrency is rather slow and requires a layer two, for example, the Lightning network, to allow faster and more efficient transactions. Dogecoin, on the other hand, is more scalable via its layer-one protocol without the need for an extra network. The latter is perceived as better blockchain technology which typically should not rely on a third-party solution. The term layer one is used to define the primary blockchain architecture. On the other side, layer-two is an overlaying network that sits on top of the blockchain.
Dogecoin will probably never be the new Bitcoin, but it surely has the necessary support to become a relevant means of payment, against all initial odds.
The future of Dogecoin
The network effect ultimately decides if and when new technologies become mainstream, as happened in the past with the telephone, the Internet and other innovations.
While the cryptocurrency industry keeps growing steadily, there’s no doubt Dogecoin remains appealing to small and big investors alike, mainly due to its status and popularity on social media and among celebrities.
One of the main criticisms of Dogecoin within the crypto community, and even highlighted by Elon Musk, is the high concentration of coins in the hands of just a few big investors. It is indeed believed that over 50% of Dogecoin’s total circulating supply is owned by only approximately 20 Dogecoin wallet addresses, which may become concerning if any of these big investors suddenly decide to sell their assets at once, thereby causing a major price shock.
In July 2020, Elon Musk tweeted a picture of a Dogecoin standard taking over the global financial system. Whether it was a prediction, wishful thinking, or simply a joyful and harmless meme, remains to be seen.