What Is Dogecoin (DOGE) and How Does It Work?

Dogecoin is one of the most mentioned cryptocurrencies on social media, rising spectacularly in value and taking the crypto market by storm. Starting out as a meme coin in 2013, it’s become one of the most profitable cryptocurrencies of 2022 so far.

With Elon Musk completing his purchase of Twitter, there’s speculation he’ll integrate Dogecoin into Twitter, which is creating considerable hype. Not surprising, then, that Doge has shot into the top 10 cryptocurrencies by market cap. However, due to its uncertain nature, there’s plenty to consider before deciding to invest in it. You need to know a little about the coin itself, the people who run it — and its upcoming plans.

What Is Dogecoin?

Dogecoin, whose name comes from an internet meme of a Shiba Inu dog, is a decentralized cryptocurrency with a large and active community. Since it’s a decentralized crypto, people can conduct peer-to-peer (P2P) transactions with it. Like all cryptos, it runs on blockchain technology.

Cryptocurrencies such as Bitcoin (BTC) have a limited supply, but Dogecoin doesn’t. As of November 2022, around 132 billion DOGE are in circulation. Approximately 5 billion DOGE will enter the circulating supply each year, with an annual foreseeable inflation rate of around 4%.

How Does Dogecoin Work?

Since there’s no central authority in a blockchain to regulate transactions, nodes are in charge. They confirm transactions and then update the information in a virtual ledger called a blockchain. Nodes require computational power, in addition to tremendous amounts of electricity, in order to solve complex mathematical problems that lead to confirmation of the transaction. 

In the case of the DOGE network, it rewardsthese nodes with Dogecoin to compensate for their efforts in a process called mining. The nodes who verify transactions on the Dogecoin blockchain are Dogecoinminers. Once thetransaction is verified, the information “block” is shared with the Dogecoin blockchain, and other nodes check the information it contains. This shared consensus mechanism, proof of work (PoW), is used by many other cryptocurrencies, most notably Bitcoin.

To illustrate, if someone wishes to send you funds worth 50 Dogecoin, nodes on the DOGE blockchain “compete” to solve the mathematical problem in order to verify the transaction. After a node ormining pool verifies the transaction, other nodes will check its validity. If more than 50% of the nodes agree that the transaction is valid, then the payee in the transaction receives the 50 DOGE. This entire process is “decentralized,” meaning that there are no third parties that require additional fees to complete the transaction.

DOGE transactions are verified on a new block approximately every minute or so, which makes Dogecoin one of the most efficient cryptocurrencies in the world as compared to other large-cap cryptocurrencies, which may take hours to process transactions.

As with every other asset (whether fiat or virtual), Dogecoin needs to be properly stored somewhere safe. When it comes to cryptocurrencies, crypto wallets are responsible for the security of your virtual funds. Let’s look at some options for storing cryptocurrency, such as Dogecoin.

Cold Wallets: Dogecoin can be stored in offlinehardware cold wallets such as Ledger, Trezor or KeepKey.

Hot Wallets: Dogecoin can also be stored in online hot wallets, such as those of Binance, Kraken, Dogecoin Core (software that makes your PC a node) or MultiDoge.

Nonetheless, crypto wallets don’t ensure the safety of an entire blockchain. Technically speaking, the Dogecoin blockchain or any other crypto blockchain can be hacked if one entity controls more than 51% of all the nodes in a blockchain. However, while this is theoretically possible, in order for it to occur, one miner or mining group would need to obtain enough hash power to take command of 51% or more of a blockchain network — which would require an almost incomprehensible amount of hashing power. 

While this type of attack has never occurred on Dogecoin’s network, in 2014 an individual named Ryan Kennedy used an alias (“Alex Green”) to create an exchange called “Moolah,” absconding with a large amount of Dogecoin in October of that year. He wascharged with multiple cases of fraud by U.K. police in 2017. 

How to Buy Dogecoin

Before buying any cryptocurrency, ensure you’re using a safe crypto exchange. Every exchange is different, with various security protocols, transaction fees and numbers of cryptocurrencies supported. Some of the safest and most reputable crypto exchanges currently supporting Dogecoin include Bybit, FTX, Kraken, and Binance. 

Learn how to Buy Dogecoin (DOGE) on Bybit

Trade DOGE/USDT on Bybit here.

History of Dogecoin

The term “doge” originates from an internet meme representing a Shiba Inu dog. Ever since Bitcoin was launched, every other cryptocurrency that’s followed has either tried to be “as good as” Bitcoin — or better, by trying to resolve Bitcoin’s issues of scalability and accessibility. 

Dogecoin’s creators, Jackson Palmer and Billy Markus, wanted to create a lighthearted cryptocurrency with a “fun” approach, basing their cryptocurrency on the internet meme of a Shiba Inu dog and launching it on December 6, 2013. Although the Dogecoin community embraced the coin as a “fun” investment, Dogecoin quickly acquired serious uses, including donations for animal shelters, supporting the Jamaican Olympic bobsled team, building water wells in Kenya and promoting NASCAR racers.

Thus, a cryptocurrency that began as a joke quickly morphed into something much more substantial. 

Elon Musk and Dogecoin

Ultimately, the biggest factor in Dogecoin’s growth has been its backing by Tesla CEO Elon Musk, who has actively posted on social media for the past decade. Considered a whale investor, Musk can heavily influence crypto prices by transacting large amounts of coins at one time and through his social media reach (most notably through his recent purchase, Twitter). Followers’ knee-jerk reactions to his posts can create FOMO that causes rapid spikes or valleys in the price of DOGE. (And no, Musk was never the CEO of Dogecoin.)

Elon Musk’s Twitter. Source: Fortune

Intriguingly, just days earlier, Musk had run a poll on his Twitter account asking if Tesla should accept Dogecoin, with an overwhelming number of respondents voting “yes” — which prompted Musk to accept Dogecoin as a payment option for Tesla merchandise a month later, hinting at future purchasing power (using DOGE) for SpaceX merchandise.

In addition to its reputation as a “fun” crypto, Dogecoin is one of the most environmentally friendly cryptocurrencies, adding to its cachet and popularity in an age of anthropogenic global warming. Musk has dropped hints that Twitter could function as a “super app” and a competitor for China’s WeChat. For instance, Dogecoin could potentially be used as a currency for transactions, though this is speculative — and yet one more source of price volatility while the Dogecoin community waits for Musk’s larger plans involving Dogecoin to materialize.

Dogecoin Price History

In December 2013, the initial price of Dogecoin was $0.0002. Although it experienced brief spikes, its price remained in this range through 2016, and then began to experience peaks during the bull runs that began in 2017.

By May 5, 2021, DOGE had reached a remarkable all-time high of $0.73, with a market cap of $56 billion, pushing it to the top five cryptocurrencies by market cap.

At the time of this writing (November 1, 2022), DOGE is trading at around $0.14 after pumping 100% in the past two weeks, which began with Musk’s official acquisition of Twitter. DOGE has a current market cap of almost $19 billion, ranking it above other Layer 1 blockchains such as Solana, Cardano and Polkadot.

The Future of Dogecoin

Dogecoin Price Predictions

DigitalCoinPrice predicts that Dogecoin may keep increasing in value, both in the short and long term. Its price could reach $0.28 in 2024, and $0.36 by 2026.

On the other hand, WalletInvestor predicts a decrease in the price of DOGE in the long run, and at a much slower rate, with a high of only $0.02 by 2025.

The same goes for TradingBeasts, who predict a relatively small decrease, both short- and long-term, with DOGE’s price potentially reaching $0.15 by the end of 2025.

Other services, such as the Economy Forecast Agency, foresee a much larger increase, predicting DOGE could increase to $0.27 by 2026. However, in order to grasp where Dogecoin may head, let’s look at some factors which can determine its price. 

Dogecoin Price Factors

• Popularity

• Whale Investors

• Legitimacy

• Supply

• Utility

Is It Worth Investing in Dogecoin (DOGE)?

The low value of Dogecoin makes it an ideal asset for new investors to buy, experiment and familiarize themselves with the crypto world. Therefore, the use of Dogecoin for low-value transactions, or for tipping creators on social media, may continue to grow. However, the volatile nature of the currency and its constant supply make it a weak contender as an investment asset. 

Simply put, experts opine that Dogecoin is safe as a transactional currency but not as a speculative asset, or as a store of value. It might lack the cutting-edge technology of Bitcoin or Ethereum, but its utility is indisputable. 

The Bottom Line

To conclude, Dogecoin has become one of the most popular cryptocurrencies in the crypto market. While it may seem to investors that Dogecoin has “missed the boat” in terms of making large gains, there’s still the potential to grow. However, only time will reveal Dogecoin’s true potential.

While Dogecoin may not be a “serious” cryptocurrency, investing in it can indeed still be very profitable, as has proven the case for many investors in early 2021. With investment in any asset (crypto or not), there are risks involved. As the old mantra goes: Only invest what you can afford to lose. And as always, do your own research before you invest.