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Dogecoin is a cryptocurrency based on one of the most famous internet memes. Her humorous nature did not become an obstacle to success. It has amassed a dedicated community of users who have invested in funding a number of initiatives over the years.
Introduction
The creation of Bitcoin in 2009 was the first step towards the development of the digital currency market. Since then, thousands of alternative cryptocurrencies (or altcoins) have emerged for various purposes. Some aim to become money, while others are used on smart contract platforms such as Ethereum.
Being one of the early coins, Dogecoin is a truly unique project that has been attracting the attention of crypto enthusiasts since 2014. In this article we will talk about the reasons for its success.
A Brief History of Dogecoin
Founding and launch
Dogecoin (DOGE) is an open-source peer-to-peer cryptocurrency created from a fork of Litecoin. As the name suggests, it is based on the Internet meme Doge, which was quite popular in 2013. It is dedicated to a Shiba Inu dog whose funny lines are written in Comic Sans.
Billy Marcus, a programmer from Oregon, originally planned to create a joke cryptocurrency. He suggested that a less serious project would have a better chance of attracting attention than Bitcoin. Around the same time, Adobe's Jackson Palmer posted a tweet (which has since been deleted) saying he was looking to invest in Dogecoin and believed in the cryptocurrency's potential.
After receiving public support, Palmer created the website dogecoin.com. Stumbling upon it shortly after its launch, Marcus contacted Palmer to bring the idea to life and begin work on the Dogecoin project.
After its launch, the cryptocurrency gained immense popularity on social networks. Within a few months, the project reached a multi-million dollar market capitalization.
Community Initiatives
The Dogecoin community has developed a reputation for philanthropy. Dogecoin was originally used for tipping on sites like Reddit, where users would send small amounts to each other as a thank you for creating content.
The charitable nature of the project also manifested itself in more ambitious actions: in 2014, the community raised more than $30,000 in Dogecoin so that the Jamaican bobsled team could participate in the Winter Olympic Games in Sochi. The team was approved, but did not have the funds to travel to Russia.
That same year, the community launched two other initiatives. The Doge4Water project raised more than $30,000 for drilling in Kenya, and Dogecoin enthusiasts later sponsored NASCAR driver Josh Wise, giving him more than $50,000 in cryptocurrency. As a result, Wise became famous for decorating his car with the Dogecoin logo.
Tesla CEO Elon Musk previously tweeted that Dogecoin “might be” one of his favorite cryptocurrencies. As a result of the survey, the community jokingly proclaimed him the CEO of this coin.
Pump on TikTok
In mid-2020, a viral TikTok video caused a chain reaction and led to a significant increase in the value of DOGE. The user encouraged others to buy Dogecoin, claiming that they would “all get rich” once the price reached $1. The excitement around the project grew, causing the price of Dogecoin to increase 2.5 times compared to previous weeks. However, this growth was short-lived, and subsequently the price began to fall sharply.
This phenomenon is usually called a pump and dump scheme. It is considered illegal in traditional markets because it poses risks to investors. Its essence is as follows: promoters purchase large amounts of an asset and create hype around it, causing fear of missing out (FOMO) among other investors. As a result, the price of the asset increases significantly (pump). The promoters then sell their assets, leading to a dump: due to selling pressure, the price falls and late investors suffer huge losses.
As always, we recommend conducting your own research on projects before investing. Binance Academy has a variety of educational materials on trading and economics to help you better understand the cryptocurrency markets.
How Dogecoin works
Dogecoin was created as a result of a fork of Litecoin (LTC) called Luckycoin. However, significant changes have been made to the protocol since then. Let's take a closer look at them.
Blockchain
Similar to Bitcoin, Dogecoin uses the blockchain, adding blocks using the Proof of Work algorithm. Network participants install open source software on their devices to act as full nodes. This means that each network participant maintains a complete copy of the database, which contains all transactions.
Such a system is decentralized, that is, there is no single governing body. Instead, users exchange information directly with each other and rely on cryptography to keep network participants honest.
To get a complete understanding of this system, check out the article Blockchain Technologies. Beginner's Guide.
Mining and proposal
In Proof of Work blockchains such as Bitcoin, the mining process is used to create new coins. Participants must prove to the network that they have done their job, that is, they have found the answer to a complex puzzle.
This puzzle is solved by hashing information until the user can provide the correct result to the network. It cannot be found manually, so users spend electricity and computing power to calculate it.
One of the main differences between Bitcoin and Litecoin is that the latter does not use the SHA-256 hash function for mining. This decision was intentional: Litecoin relies on Scrypt, an ASIC-resistant Proof of Work algorithm.
In other words, machines specifically designed for Bitcoin will not be able to compete with the regular computers and GPUs that were used to mine Litecoin. In theory, this could increase the decentralization of the mining space. However, soon after this, application-specific integrated circuits (ASICs) for Scrypt appeared.
Since Dogecoin is based on the Litecoin project, the meme coin inherited the Scrypt algorithm. To avoid competition and reduce security risks, Dogecoin developers switched to a merged mining model, allowing Litecoin miners to earn Dogecoin at the same time. For a more in-depth analysis, check out Binance Research's study on merged mining on Dogecoin and Litecoin.
The block creation time in Dogecoin is one minute, and the block reward is 10,000 DOGE. This cryptocurrency has no maximum supply and already has over 130 billion DOGE in circulation. According to many enthusiasts, the lack of restrictions is an advantage of the project, as it encourages spending the coin and prevents early investors from making disproportionate profits.
How can you use Dogecoin?
Dogecoin, like many other cryptocurrencies, can be purchased in several ways. Users can mine this coin themselves or receive it as payment for goods and services. However, the easiest way is to purchase it through a cryptocurrency exchange. Typically, to do this, you first need to buy Bitcoin or another popular coin, and then exchange it for DOGE.
The resulting Dogecoin can be used just like any other cryptocurrency: stored in a hardware wallet, exchanged for other coins and goods, or sent to users as tips.
Summary
Although the Dogecoin project is based on an internet meme, it has developed a dedicated community of users. Many years later, Dogecoin remains one of the leading cryptocurrencies by market capitalization.
It is impossible to say exactly how the market views Dogecoin: as an unusual currency, a promising financial asset, or something in between. But few cryptocurrencies have managed to make such an impact as this one, even if it has become famous for its status as a meme coin.