Should you invest in Dogecoin? Expert suggests staying away from the controversial cryptocurrency market – CBS Detroit
(CBS Detroit) – Dogecoin that started out as a joke is now real money. At least it’s worth real money. Exactly how much real money varies widely from day to day or even within a day. The cryptocurrency started at a cent in 2021 and peaked at $ 0.74 a few weeks ago. Currently the sixth largest cryptocurrency in terms of market capitalization (the market value of all Dogecoin available), it closed at $ 0.31 on Sunday. Trading on most days is quite volatile.
What is Dogecoin?
Dogecoin is a type of cryptocurrency. David Kirsch, Associate Professor of Management and Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, explains, “Cryptocurrencies are essentially pieces of software that are algorithmically controlled or algorithmically defined. And the way the algorithm works determines the value for the owner of the code. There is fiat currency and then math currency. With the fiat currency, a state defines something and says that this symbol, this shell or this piece of paper has value because we say it. And cryptocurrency is basically a different way of establishing an item of value that can be electronically exchanged. “
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“The value goes up,” continues Kirsch, “because people trust that they can use the little software that makes up their kind of property to exchange it with someone else for something of value. It’s kind of like that [a] standardized way of exchanging this code, which is exclusive and difficult to replicate and secure. “
Dogecoin is referred to as “Open Source Peer-to-Peer Digital Currency” on the website. Like Bitcoin or Etherium and many other cryptocurrencies, Dogecoin is supported by an online community of people who can use it to pay for things in the online world. Most physical stores don’t accept this as payment. But in March, the Dallas Mavericks started accepting it for tickets and goods. It was recently used to purchase property in Rhode Island. And Geometric Energy Corporation is paying Elon Musk’s own SpaceX company in cryptocurrency to launch a satellite to the moon.
Of course, Dogecoin holders can exchange it for dollars on the open market, which they can then use to buy things. And a wider community of investors (or speculators) has seen this as a way to build wealth. That seems to be the main purpose as a speculative tool.
“As an exchange currency, most cryptocurrencies are relatively limited,” said Kirsch. “Some people saw them as a store of value, a kind of investment vehicle to hold value.”
The volatility makes any cryptocurrency a risky place to store money. A sharp drop in the value of Dogecoin leads to a sharp drop in the dollars it can be exchanged for. Of course, this formula works the other way around, making it an attractive option for speculation, at least for some. To make this a little more tangible, let’s say someone spent $ 1,000 on Dogecoin when it costs a dime each. Those 100,000 Dogecoins would be worth $ 31,000 as of Sunday. Suppose instead someone spent $ 1,000 on Dogecoin in early May when it was worth $ 0.74 each. Those 1,351 Dogecoins would be worth about $ 419 as of Sunday.
Dogecoin suffers from another problem that many other cryptocurrencies do not. There is no upper limit to the number of Dogecoins that can exist. A potentially infinite supply means that as the total number of coins increases, each individual coin can lose value.
How does Dogecoin work?
The cryptocurrency runs on what is known as blockchain technology. This is essentially a digital transaction book that is used to log every currency exchange. The ledger is distributed among the various users’ computers, with each user having a complete, exact copy. Due to the decentralized and synchronized network, no single entity controls the data. That makes the digital transaction book secure.
Updates are frequent and require a lot of processing power to maintain. This is where miners come in. A miner processes the transactions and logs them on the Dogecoin blockchain known as the Dogechain. More specifically, your computer uses special software to confirm the transactions by solving mathematical equations. The miners who process the transactions the fastest, i.e. the miners with the highest computing power, receive Dogecoin as payment for their efforts.
Dogecoin can also be bought through trading apps like Robinhood.
Dogecoin is kept in a digital wallet. This wallet could be offered through a digital exchange such as Coinbase. It can also be an app on a mobile device or even a separate hard drive. The coins are protected by a password.
How did Dogecoin get so popular?
Dogecoin originated in 2013 as a prank that everyone took seriously. According to the story, Jackson Palmer, a marketing professional for a tech company, tweeted about an invented cryptocurrency called “Dogecoin.” The name he created used a popular internet meme of the time (an image of a Shiba Inu that people pasted the dog’s inner monologue on) to poke fun at the spread of counterfeit Bitcoin. Given the cryptocurrency craze, the tweet attracted many eyeballs.
A software developer named Billy Markus used the source code of Bitcoin to compose the code for the Dogecoin cryptocurrency. And when he put it live, Dogecoin started. It jumped through various internet threads and became increasingly popular on Reddit as a tip for people to say thank you. A community grew around the cryptocurrency, which it used as a non-profit method to do a little more good in the world. They supported the Jamaican bobsleigh team in 2014 as well as several NASCAR drivers. But soon, the monetary value of Dogecoin became the main concern of the community.
The price never really exceeded a penny until the beginning of this year. In late January, when Reddit’s popularity took off, the meme-based cryptocurrency jumped into the top 10 in terms of market cap. Elon Musk showed his support for Dogecoin with a Vogue-inspired tweet.
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– Elon Musk (@elonmusk) January 28, 2021
Snoop Dogg also took part in the conversation.
– Snoop Dogg (@SnoopDogg) February 6, 2021
Supporters of Reddit’s WallStreetBets forum, which brought GameStop shares into the stratosphere, tried to drive Dogecoin “to the moon” as well. Robinhood, a popular trading app among young investors, has already allowed users to buy Dogecoin and other cryptocurrencies. However, trade picked up speed in the first half of the year. Approximately 9.5 million customers traded cryptocurrencies using the app in the first quarter, up from 1.7 million in the fourth quarter of 2020. The ongoing COVID pandemic is likely one of the main reasons for this. With fewer outlets and two stimulus checks since January, many Americans had more money to spend. The personal savings rate in March 2021 was 27.6 percent.
With the internet via Dogecoin the price went up. Trading the cryptocurrency reached such madness that trading the app crashed again in mid-April and early May. Later that week, it hit a market cap of over $ 88 billion. (For reference, oil company BP also has a market cap of around $ 88 billion.)
Dogecoin and other cryptocurrencies fell significantly in May. Musk, who called it “hectic” on Saturday night, didn’t help. But the billionaire remains a strong proponent, and even suggests that Tesla accept this as a payment rather than Bitcoin. That raised the price a bit.
“Elon Musk is only a visible whale,” said Kirsch. “We know that there are a lot of invisible whales in these markets who are actively manipulating price movements. This tells me that these are not yet mature financial markets and instead are places where little people get screwed.”
Is the cryptocurrency bubble bursting?
Cryptocurrencies lost around $ 1 billion in market capitalization last Wednesday alone. It happened shortly after China, home to the world’s second largest economy, warned banks and corporations not to transact in digital currencies. Federal Reserve chairman Jerome Powel recently warned about the risks of cryptocurrencies. Transactions worth $ 10,000 or more must be notified to the IRS shortly.
Does that mean the bubble is bursting?
There is plenty of evidence to suggest that the answer is yes. As mentioned above, Bitcoin, Dogecoin and other cryptocurrencies are only of limited use as currency, at least in a legal sense. The major cryptocurrencies process a very small fraction of the number of transactions that Mastercard and Visa process. However, the market value is higher than that of the two largest credit card companies. Anyone with a little coding knowledge can develop their own cryptocurrency. And anyone with a large enough Twitter megaphone can create or destroy billions of dollars in value with a few tweets. The list goes on.
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But at least one bladder expert is not so sure. “It is difficult to conclusively conclude that this is a bubble,” says Kirsch, who is also co-author of Bubbles and Crashes: The Boom and Bust of Technological Innovations. “Because I have the feeling that the entire cryptocurrency market was part speculation, part alternative currency narrative from the start. My theory of bubbles is about narratives, speculative objects, uncertainty and inexperienced investors. And cryptocurrency has all four of my necessary elements for a bubble. Part of it is that I have this theory of a bubble in mind because I wrote a book about it. I’ve looked at a number of technologies that have had financial speculation and found these elements to act as common predictors of a financial bubble. In a way, cryptocurrency is just that. The nature of the underlying purpose has yet to be determined outside of illegal use. So we know that cryptocurrencies, especially Bitcoin, are very popular for ransom or cyberattacks, drug trafficking, and various activities that people want to do without being regulated for these activities by a government agency. It seems far more likely than what we are currently seeing in crypto markets to be a reflection of the mania we see elsewhere in society as we emerge from the pandemic. “