What is Dogecoin and how does it work? – Forbes advisor

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Dogecoin is a cryptocurrency like Bitcoin or Ethereum – although it’s a very different animal than any of these popular coins. Originally developed, at least in part, as a light-hearted joke for crypto enthusiasts, Dogecoin got its name from a once popular meme. Despite this unusual origin story, it gained popularity in 2021 – at the time of writing, Dogecoin is the fifth largest cryptocurrency by market cap.

What is Dogecoin?

Software engineers Billy Marcus and Jackson Palmer created Dogecoin in late 2013. Palmer added a meme, popular at the time, to the logo of the cryptocurrency that contained the intentionally misspelled word “doge” to describe a Shiba Inu dog.

“Doge really started making fun of Bitcoin,” said Pat White, Bitwave CEO. In the early days, a community of enthusiasts organized publicity stunts to raise Dogecoin’s profile, raised funds to send the Jamaican bobsleigh team to the 2014 Olympics, or sponsored a NASCAR driver.

In early 2021, Dogecoin gained cult status on Reddit’s WallStreetBets forum – the main initiator of the GameStop affair in January – where enthusiasts promised to increase its value “to the moon” (before all discussions of crypto were banned from the subreddit).

Today, Dogecoin is no joke as it has appreciated in value and gained more than 5,000% in 2021. His boosters include Elon Musk, CEO of Tesla, who named Dogecoin as his favorite cryptocurrency. Musk also called Dogecoin the “folk crypto” and promised to plant a physical Dogecoin marker on the moon.

Dogecoin could be my favorite cryptocurrency. It’s pretty cool.

– Elon Musk (@elonmusk) April 2, 2019

How does Dogecoin work?

Dogecoin is a cryptocurrency that runs using blockchain technology, similar to Bitcoin and Ethereum. Blockchain is a distributed, secure digital ledger that stores all transactions made with a decentralized digital currency.

All owners keep an identical copy of the Dogecoin blockchain ledger, which is frequently updated with all new transactions in the cryptocurrency. Like other cryptocurrencies, Dogecoin’s blockchain network uses cryptography to keep all transactions secure.

Miners use computers to solve complex mathematical equations to process transactions and record them on the Dogecoin blockchain – a so-called “proof of work” system. In return for processing transactions and helping the blockchain ledger, miners earn additional Dogecoin, which they can then hold or sell in the open market.

Dogecoin can be used for payments and purchases, but it is not a very effective store of value. This is mainly because the number of Dogecoins that can be generated through mining is not limited for life. This means that the cryptocurrency is inherently very inflationary. The blockchain rewards miners for their work by creating millions of new Dogecoins every day, which makes it very difficult for speculative price hikes in Dogecoin to persist over time.

Dogecoin versus Bitcoin

Dogecoin has some significant differences from Bitcoin. First, it is faster and easier for miners to complete the math equations that are used to complete and record transactions for the transactions, which makes Dogecoin a little more efficient for processing payments.

“If the process of ratifying new blocks on the Bitcoin blockchain takes 10 minutes, it will only take a minute on the Dogecoin blockchain,” said Gary DeWaal, chairman of the Katten Group for Financial Markets and Regulation.

Another key difference is the lack of a lifetime limit on the number of Dogecoins that can be created, as mentioned above. There is a lifetime limit of 21 million Bitcoin 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 Bitcoin, and to some extent it helps ensure Bitcoin’s ability to hold and maintain its value over time increase.

How do I buy Dogecoin

You can buy Dogecoin on a cryptocurrency exchange like Binance or Kraken. To exchange, you need to set up and top up an account with US dollars or cryptocurrency. You can then buy and exchange cryptocurrencies, including Dogecoin. In particular, the leading crypto exchange Coinbase does not support the purchase of Dogecoin.

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

As with other cryptocurrencies, it is best if you move your coins to a crypto wallet after purchasing Dogecoin. Wallets come in many forms, from online services offered by exchanges like Coinbase (while you can’t buy Dogecoin on Coinbase, you can store it in your Coinbase wallet) to apps on your mobile device or even a physical hard drive. You secure the wallet with a private password. Since your coins are kept outside of an exchange, there is an extra layer of protection against hacks.

Before Dogecoin hit the mainstream and skyrocketed in price, you used to be able to earn free coins for doing basic online chores.

“For many years, Dogecoin has been able to do ‘faucets’ to earn Dogecoin instead of buying it,” said C. Neil Gray, partner in fintech operations at Duane Morris LLP. “Tasks included things like watching an ad or taking a survey. In recent times it has become difficult to find this job. “

Is Dogecoin a Good Investment?

Since there is no lifelong limit on the number of Dogecoins that can exist, and millions of new Dogecoins are brought onto the market every day, there is little incentive to hold the cryptocurrency for the long term. Bitcoin continues to appreciate in value as the system limits the number of coins that can be created for life.

“Doge is really less like Bitcoin and more like DASH or Bitcoin Cash, where the explicit target is spending currency,” White said.

In the past, the value of Dogecoin per coin has been very low, hovering around $ 0.003 per coin for most of 2020. “Users on social platforms like Reddit, Twitter, Facebook, and others can use Dogecoin to reward or ‘tap’ one another for posting content,” said Gray.

The increases in Dogecoin seen in 2021 may not be sustainable in the longer term. It remains to be seen whether the tip and donation culture of crypto will continue.

Should You Buy Dogecoin?

Those who bought Dogecoin to start 2021 have been well rewarded. Still, white is somewhat cautious when buying Dogecoin, especially as an investment. The constant influx of new coins into the market put endless pressure on the value of the coin.

White also warned of additional security risks for Dogecoin compared to other major cryptocurrencies. “It just doesn’t have the same security and code checking at the Bitcoin level as Bitcoin or Ethereum. In addition, there isn’t a particularly robust mining community near Doge, so the exposure to a mining-level attack is far higher than that of Bitcoin. “

There are risks associated with purchasing any type of cryptocurrency, including Dogecoin. It’s always worth buying a few coins and familiarizing yourself with the system – but it’s probably best to stick no more than a token of your hard-earned cash into a cryptocurrency that started out as a joke.

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