What is Dogecoin? How it works? – Forbes Advisor

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Dogecoin is a cryptocurrency, like Bitcoin or Ethereum, although it is a very different animal to either of these popular coins. Dogecoin was originally created at least in part as a lighthearted joke for crypto enthusiasts, and takes its name from a once-popular meme.

What is Dogecoin?

Software engineers Billy Marcus and Jackson Palmer created Dogecoin in late 2013. Palmer branded the cryptocurrency’s logo using a popular meme at the time that featured the deliberately misspelled word “doge” to describe a Shiba Inu dog.

“Doge really started making fun of Bitcoin,” said Pat White, CEO of Bitwave. In its early days, a community of enthusiasts staged publicity stunts to raise the profile of Dogecoin, raising money to send the Jamaican bobsled team to the 2014 Olympics, for example, or sponsoring a NASCAR driver.

In early 2021, Dogecoin achieved cult status on Reddit’s WallStreetBets message board – the main instigator of the GameStop affair in January – where enthusiasts had promised to propel its value “over the moon” (this was before any discussion on crypto is banned on the subreddit).

In May 2021, Dogecoin hit a high of $0.68, down from a value of just under a penny at the start of the year. Tesla CEO Elon Musk was at least partially responsible for the massive growth after calling Dogecoin his favorite cryptocurrency. In mid-2021, Dogecoin was regularly polling among the top five cryptos by total market capitalization

Since then, Dogecoin’s value has fallen precipitously, reaching a low of around $0.11 in March 2022, although it remains among the top 20 cryptocurrencies by market capitalization.

How does Dogecoin work?

Like many other coins, Dogecoin runs on its own dedicated blockchain. Dogecoin’s digital ledger is constantly updated with all new transactions, and the network uses cryptography to secure all transactions.

The Dogecoin blockchain uses a proof-of-work consensus mechanism, where miners use computers to solve complex mathematical equations to process transactions and record them on the blockchain. In exchange for supporting the blockchain, miners earn additional Dogecoins, which they can then hold or sell on the open market.

Dogecoin can be used for payments and purchases, but it’s not a very effective store of value. This is mainly because there is no lifetime cap on the number of Dogecoins that can be mined, meaning the cryptocurrency is highly inflationary, by design.

The blockchain rewards miners for their work by creating millions of new Dogecoins every day, making it very difficult to hold speculative Dogecoin price gains over time.

Dogecoin versus Bitcoin

Dogecoin has some significant differences from Bitcoin. First, it’s faster and easier for miners to complete the mathematical equations that complete and record transactions on transactions, which makes Dogecoin a bit more efficient at processing payments.

“Where it takes 10 minutes for the process to ratify new blocks on the Bitcoin blockchain, it only takes a minute on the Dogecoin blockchain,” said Gary DeWaal, president of Katten’s Financial Markets and Regulation group.

Another significant difference is the lack of a lifetime limit on the number of Dogecoins that can be created, as noted above. There is a lifetime cap of 21 million Bitcoins which limits the maximum possible number of coins that can be created. This means that miners are forced to work harder and longer over time to earn new bitcoins, and to some extent it helps ensure bitcoin’s ability to hold and grow in value over time.

How to buy Dogecoin

You can buy Dogecoin on a cryptocurrency exchange like Binance or Kraken. Exchanges require you to create and fund an account with US dollars or cryptocurrency. You can then buy and trade cryptocurrencies, including Dogecoin.

Some online brokers, including Robinhood and TradeStation, also allow you to buy Dogecoin, in addition to conventional assets like stocks, mutual funds, and bonds. They don’t offer as many cryptocurrencies as exchanges, but Dogecoin is generally available.

As with other cryptocurrencies, once you’ve purchased Dogecoin, it’s best to move your coins to a crypto wallet. Wallets take many forms, from online services offered by exchanges like Coinbase, to apps on your mobile device or even a physical hard drive. You secure the wallet with a private password. Since your coins are held outside of an exchange, there is an extra layer of protection against hacks.

Before Dogecoin burst into the mainstream and its price skyrocketed, you could earn free coins for doing basic tasks online.

“For many years, you could perform Dogecoin ‘faucets’ tasks to earn Dogecoin instead of buying it,” said C. Neil Gray, partner in fintech practice areas at Duane Morris LLP. “The tasks included things like watching an advertisement or taking a survey. More recently, it has become difficult to find ones that work.

Is Dogecoin a good investment?

Since there is no lifetime limit to the number of Dogecoins that can exist and millions of new Dogecoins are released to the markets every day, there is very little incentive to hold the cryptocurrency long. term. Bitcoin continues to rise in value due to the system’s lifetime cap on the number of coins that can be created.

“Doge is really less like Bitcoin than DASH or Bitcoin Cash, where the explicit goal is a spending currency,” White said.

Historically, the value per coin of Dogecoin has been very low, around $0.003 per coin for most of 2020, so people were more likely to donate them. “Users of social platforms, like Reddit, Twitter, Facebook and others, can use Dogecoin to reward or ‘tip’ themselves for posting content,” Gray said.

Should you buy Dogecoin?

Those who bought Dogecoin before the big payouts of 2021 were well rewarded. Still, White is a little wary of buying Dogecoin, especially as an investment. The constant stream of new coins hitting the market puts endless downward pressure on the value of the coin.

White also warned of additional security risks for Dogecoin, compared to other major cryptocurrencies. “It just hasn’t had the same code-level security and control as Bitcoin or Ethereum. Plus, there just isn’t a particularly robust mining community around Doge, so exposure to a mining-level attack is far superior to something like Bitcoin.

Buying any kind of cryptocurrency comes with risk, and that includes Dogecoin. It’s always worth buying a few coins and getting to grips with the system, but it’s probably best to refrain from sinking more than a token amount of your hard-earned money into a cryptocurrency that’s started its life. like a joke.

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