Dogecoin is a cryptocurrency that has earned a cult-like status among the crypto community. The coin was initially created as a joke among a small group of friends before catching the world’s attention and skyrocketing in value in early 2021. Keep reading to learn more about what is Dogecoin, how it works and if it makes sense for your crypto portfolio.
What Is Dogecoin?
Dogecoin is a digital currency or cryptocurrency, that was started in 2013 by two friends as a lighthearted joke based on a popular Shiba Inu dog meme on the web. For most of its existence, dogecoin was worth less than a penny and hardly registered as significant to most of the crypto community.
But that all changed in 2020 and 2021 when the meme trading frenzy took off. At its peak in May 2021, dogecoin was briefly worth $0.73, with a market capitalization of around $96 billion.
The price is highly volatile. It’s worth $0.23 with a $30 billion market cap as of July 6, 2021.
How Does Dogecoin Work?
Dogecoin is a cryptocurrency that uses blockchain technology. It was created with a fork of the software behind litecoin. That makes it a much faster and lower-cost currency than dominant cryptocurrencies bitcoin and ethereum.
Dogecoin transfers take place with near-instant trade times and extremely low costs. That makes it a favorite of celebrity crypto “experts” like Tesla CEO Elon Musk and entrepreneur Mark Cuban.
As a blockchain-based cryptocurrency, you can buy, sell and hold dogecoin somewhat anonymously. The system is run by computers that track every transaction in the history of Dogecoin through a single public database, the Dogecoin blockchain. You can view any transaction or wallet’s history using a public Dogecoin blockchain explorer like DogeChain.
Dogecoin vs. Other Cryptocurrencies
Dogecoin isn’t a cryptocurrency operating in a vacuum. It’s closely related to many other currencies that trade through fully digital systems. To grasp how similar dogecoin is to other currencies, here’s a look at dogecoin vs. bitcoin over the last year.
As you can see, the price of dogecoin very closely mimics the price of bitcoin. Although the price of bitcoin is higher than dogecoin, the movement of the two are similar, although not exact. And while dogecoin had a bit of a breakout in May 2021, the overall dogecoin pattern is similar to other major cryptocurrencies.
While it started as a joke, many traders have made a fortune thanks to dogecoin and take it very seriously today, similar to other currencies. It is currently the sixth-largest cryptocurrency by market cap.
What Does Elon Musk Have to Do With Dogecoin?
Elon Musk has an outsized influence on cryptocurrency prices, with a single tweet causing bitcoin or dogecoin to skyrocket or tumble in value. Musk is an outspoken fan of cryptocurrencies, especially dogecoin, and regularly speaks and writes about it like a fan talks about their favorite sports team.
One word: Doge
— Elon Musk (@elonmusk) December 20, 2020
While I’m not as famous as Elon Musk, I have to admit that I jumped on the bandwagon too.
Musk is far from an official representative of dogecoin but has become a de facto spokesperson and cheerleader of the Doge community. He went as far as to discuss his fandom for the coin in an appearance on Saturday Night Live. But outside of however much dogecoin he owns, Musk is not an official part of Dogecoin.
How to Buy Dogecoin
You can buy dogecoin through any major cryptocurrency exchange that supports the DOGE currency. These include Coinbase, Gemini and eToro. You will need a funded cryptocurrency account to make the purchase.
You can hold dogecoin in your cryptocurrency exchange account or transfer it to an outside cryptocurrency wallet. For example, the Trezor and Ledger wallets allow you to securely store your dogecoin offline, where there is virtually zero chance of losing your currency to hackers, which has happened at some cryptocurrency exchanges in the past. Some exchanges, like Gemini, also offer wallets.
Dogecoin vs. Bitcoin Comparison
Dogecoin works using the same fundamental technology as with bitcoin. As briefly discussed above, blockchain technology allows for somewhat anonymous financial transactions through a public system.
Dogecoin is based on litecoin, which is based on bitcoin. So in many ways, Dogecoin is sort of bitcoin’s younger sibling. However, with a market cap of $655 billion, bitcoin is worth about 20 times as much as dogecoin as a whole.
The two currencies are highly correlated. This shows that many crypto traders view them similarly. However, it’s possible for one to go “to the moon” while the other drops to zero. Only time will tell the future of these two popular digital coins.
Risks vs. Benefits of Trading Dogecoin
With dogecoin, there’s a good chance your investment will become worth 10 times as much in a short period. But it could also drop to zero in the blink of an eye. It is extremely risky and extremely volatile. It is arguably riskier than Bitcoin and certainly riskier than a traditional investment in the stock market.
Dogecoin is a lot of fun, but it’s important to be careful and avoid putting in more money than you can afford to lose.
Is Dogecoin a Good Investment?
For most people, Dogecoin is not a good investment. If you decide to go in on Dogecoin, proceed with caution and investment only a small amount of money to minimize your risk. While I have some dogecoin myself, it’s an extremely small part of my portfolio and I wouldn’t be too upset if it became worthless.
If you buy dogecoin as an investment, be ready to HODL (crypto slang for, “Hold on for dear life”), as you could have a wild ride ahead.