May 26, 2024

Dogecoin is a cryptocurrency launched in 2013 as a light-hearted and more approachable alternative to established digital currencies like Bitcoin (BTC), Ethereum (ETH), and Tether (USDT). The memecoin aimed to build a positive and supportive community around an open-source peer-to-peer digital currency that could be used for good.

The friendly and humorous underpinnings of Dogecoin explain why the project chose the Shiba Inu dog from a popular internet meme as Dogecoin’s mascot.

What started as a joke has evolved into a project with a serious following — and demonstrable utility. Now, Dogecoin — also identified by its ticker symbol DOGE — has established itself among the top 10 cryptocurrencies by market cap in 2024.

Read on to learn all about Dogecoin’s origins, growth, technical foundation, and more.

DOGE: more than a meme

When Billy Markus and Jackson Palmer let Dogecoin off the leash in 2013, they surely couldn’t have predicted the popularity that’d follow. Markus, a programmer, and Jackson, a tech marketer, shared a vision to demystify crypto and make the space more accessible to the layperson.

Dogecoin was built to be fun and approachable — reflected in the use of the Shiba Inu meme — but also to help spread positivity among those who interacted with and supported the project. Where Bitcoin sought to be an alternative to fiat currency, Dogecoin set out to create a social movement.

Such is the unpredictable and often organic nature of memes and their viral growth, Dogecoin soon took off running. Markus and Palmer stepped away from the project just a couple of years after its launch, but by then, Dogecoin’s community was thriving.

A comprehensive timeline of DOGE

2013 and 2014: Dogecoin becomes popular on Reddit

Dogecoin is, by all accounts, the first memecoin in the cryptocurrency space. The coin initially started as a joke between IBM software engineer Markus and Adobe software engineer Palmer. Both founders had never met when they created DOGE as a combination of two hot internet topics: cryptocurrencies and doge memes.

Featuring an image of a Shiba Inu, DOGE gained immediate traction among the internet community. The memecoin’s website, dogecoin.com, gathered over a million unique visitors in the first month after its launch. DOGE also garnered interest from the Reddit community following the creation of the subreddit r/Dogecoin in December 2013. The cryptocurrency quickly became the second-most tipped currency on Reddit.

Dogecoin increased in popularity in 2014, when the Jamaican bobsleigh team received $25,000 in DOGE from their supporters to fund their attendance at that year’s Winter Olympics in Sochi. The Dogecoin community on Reddit also raised 67 million DOGE — approximately $55,000 at the time — to sponsor Josh Wise, a driver who needed financial assistance to attend the iconic Nascar race at Talladega Superspeedway. Wise’s “#98 Moonrocket” car was covered in images of Dogecoin and the Reddit logo.

Despite Dogecoin’s early publicity, the pioneering memecoin failed to thrive — due, in large part, to a lack of technical development. Dogecoin is a fork of LucKYCoin, which is a fork of Litecoin, which is a source-code fork of the Bitcoin Core client. As an internet meme, the community didn’t seriously consider developing the cryptocurrency. Dogecoin co-founder Jackson Palmer stepped down from the project in 2015, citing the toxic Dogecoin community as his primary motivation for leaving.

2017 and 2018: Memecoins and the ICO bubble

Dogecoin regained the attention of the crypto community during the initial coin offering boom in early 2018. The cryptocurrency reached the milestone of $1 billion market cap over Christmas 2017 before doubling that figure in early January 2018.

The ICO mania also led to the rise of other memecoins, such as the Dogwifhat (WIF), Pepe (PEPE), and Bonk (BONK). These memecoins drew significant capital from investors, despite their apparent lack of fundamental value. Such irrational investment activity has invited regulatory scrutiny, with the United States Commodity Futures Trading Commission warning the general public about digital currency pump-and-dump schemes.

2021 until present: memecoins go mainstream

The cryptocurrency community witnessed a memecoin renaissance in the first half of 2021. The renaissance began when Wall Street hedge funds such as Melvin Capital took short-selling positions on GME — the stock of GameStop Inc. — to reflect its bearish outlook on the company. Led by retail traders, members of the subreddit r/WallStreetBets bet against the Wall Street giants by pouring their capital into GME. This led to an explosive rally for the stock and caused heavy losses for the short-sellers. After this, the subreddit r/SatoshiStreetBets decided to pump DOGE to replicate the GME stock price rally.

Dogecoin also gained mainstream attention after Elon Musk’s repeated tweets about DOGE. The Tesla CEO made his first comment on Dogecoin in 2019, after the Dogecoin community had first elected him to be the project’s CEO via a poll on X. Musk’s response was that DOGE might be his favorite cryptocurrency, and he then updated his X bio to “former CEO of Dogecoin.” The SpaceX founder reiterated his support for DOGE in February 2021 and, as of May, was considering accepting DOGE in the sale of Tesla electric vehicles.

Musk’s Dogecoin endorsements created a ripple effect. Billionaire and Dallas Mavericks owner Mark Cuban accepted DOGE for ticket sales. The growing community interest saw DOGE temporarily surpass BTC as the most searched cryptocurrency on Google.

Dogecoin’s surging popularity also led to the rise of various dog-themed memecoins, such as Shiba Inu (SHIB), Akita Inu (AKITA), and Dogwifhat (WIF). Despite the market hype, dog-themed memecoins remained volatile as market movements heavily influenced their price. For instance, the price of DOGE once plunged over 30% after Musk called DOGE a “hustle” during his Saturday Night Live performance. Since then, DOGE has faced the same fluctuations as most other tokens during the bear market and so-called crypto winter, which showed signs of thawing in late 2023. As of January 2024, Dogecoin is the top memecoin with a market cap of 11.1 billion at the time of writing.

Does Dogecoin serve a utility purpose?

Although Dogecoin was born from a joke, it emerged as an asset with real-world utility — still aligned to the project’s original desire to bring good into the world. In fact, according to the project’s website, Dogecoin’s unofficial tagline is Do Only Good Every day.

Towards this goal, community members are encouraged to use the token for charitable donations, tipping, and other positive means, helped by Dogecoin’s low fees and fast processing times. Meanwhile, the token’s relatively small price per unit means a large number of Dogecoin can be shared for a small amount in fiat terms.

There are various examples of the Dogecoin community coming together to use the token for good:

Funding the Jamaican bobsled team

Possibly inspired by the now-legendary story of Jamaica’s bobsled debut at the 1988 Winter Olympic games in Calgary, Canada, the Dogecoin community joined forces to help raise $50,000 to send the modern-day team to the 2014 Winter Olympics.

The initiative brought fresh exposure to the project and spotlighted how cryptocurrencies could be used to address a shortfall in funding for sports teams.

Building clean water wells in Kenya

2014 saw the community raise 40 million Dogecoin, equivalent to $30,000 at the time, to build clean water wells in Kenya’s Tana River Basin. The funds were raised in partnership with the non-profit organization Charity:Water which focuses on providing safe and clean drinking water to communities in developing nations.

India’s COVID-19 relief

In 2021, Dogecoin followers used their collective strength to help bring aid to communities in India that’d faced particular hardships as a consequence of the coronavirus pandemic. The community, alongside Ethereum co-founder Vitalik Buterin, contributed significant funds — including DOGE — to relief efforts in the country.

DOGE’s technical foundation

Like other cryptocurrencies, Dogecoin is built on blockchain technology. It operates on an open-source, permissionless, decentralized, and peer-to-peer network. This network is controlled by a series of nodes to allow it to operate.

By using a decentralized consensus mechanism, Dogecoin is protected from malicious actors attempting to gain control of the network. Meanwhile, decentralized control also brings greater security to Dogecoin transaction processing, as it removes the need for a controlling centralized party.

Compared to other assets, Dogecoin’s transaction speed is high. Blocks on the token’s blockchain can be processed and ratified in one minute, on average, compared to 10 minutes for Bitcoin blocks. Many believe this speed is a key part of Dogecoin’s appeal and an important contributor to its evolution from just another memecoin to a vehicle for social good.

Meanwhile, a major contributor to Dogecoin’s security is its use of the Proof of Work (PoW) consensus method. Many believe that, due to the computational power required, PoW makes a network too costly to attack. However, the drawbacks of PoW include its relatively high energy consumption and challenges with scaling.

These factors and others have led the Dogecoin community to debate a switch from PoW to Proof of Stake (PoS). As the Dogecoin community grows, the disadvantages of PoW are only emphasized. Switching to PoS would, in theory, lower the barriers to entry for miners by reducing costs, improve the project’s energy efficiency, and strengthen decentralization through an increasing number of nodes.

Looking at supply, Dogecoin is technically a capped asset — meaning its supply is limited. The token has an absolute limit of issuance per block, per day, per year, as other cryptocurrencies do. However, because the asset’s issuance doesn’t have an end date, its supply is only as finite as time itself.

Possible challenges for DOGE

While memecoins are now almost unavoidable when it comes to crypto discussions, and with many crediting them for onboarding new users to the space due to their low price barriers and massive hype, their entry into the mainstream isn’t without pitfalls.

New traders are unlikely to understand the risks

Active promotions by social media influencers have drawn new traders to the memecoin sphere. The most notable example is Elon Musk. According to a survey by Piplsay, 37% of Americans have made or considered trades as a result of Musk’s tweets. Musk’s active Dogecoin push has reignited some popularized hype-train claims such as “DOGE to $1” and “DOGE to the moon.”This hype and surging demand for DOGE have drawn massive interest from traders outside the crypto sphere. Most new DOGE buyers came from the popular but not crypto-native trading app Robinhood — and during the sharp DOGE price spikes in mid-April 2023 and early May 2023, we saw service outages on Robinhood and Indian cryptocurrency exchange WazirX, respectively.

Even though DOGE appears to be a decentralized digital currency, its ownership is, in fact, very centralized. The largest DOGE address alone holds 28% of the current DOGE supply, and the top 20% of DOGE addresses control over 99% of the current DOGE supply. While the identity of those in control of the top DOGE holding addresses remains unknown, any material DOGE transfer from these wallets is likely to significantly move the price.

Moreover, with memecoins like DOGE, new traders are seeking quick gains, but aren’t always familiar with fundamentals such as market cap. ETH, the second-largest cryptocurrency — and one of the most widely used — currently has a market cap of around $300 billion. In contrast, for DOGE to reach the much-chanted $1 milestone, its market cap will have to exceed $130 billion. Even if that happens during a bull run, it’s far from a feasible valuation with DOGE’s current state of development and utility.

Bobby Ong, a co-founder of cryptocurrency data provider CoinGecko, highlighted this in his comments to OKX Insights:

“Many speculators buy into these memecoins expecting a quick return without understanding the utility and valuation of these tokens. Thus, they may stand to get burned from sudden price movements like what happened recently.”

Putting this further into perspective is the fact that since the last major software update — that is, v1.14 — in June 2019, Dogecoin hasn’t released a significant update until March 2021. Even the latest version involved minor updates such as improving synchronization speed.

All that being said, memecoins can give traders significant gains, especially in a speculative market. However, the potential for massive price volatility means traders are also exposed to significant downside risks. Additionally, unlike tokens with strong fundamentals and use cases, such as those related to decentralized finance, memecoins have little more than hype and speculation backing them. This in itself is a major risk factor that new traders may not readily understand.

Sharing these sentiments, Eloisa Marchesoni, an angel investor in blockchain businesses, told OKX Insights that:

“During the market correction, the losses of memecoins are more significant, and the chances of their recovery seem particularly slim. Compared to Bitcoin, there is no intrinsic value for DOGE’s copycat coins. These coins are created to capitalize on a temporary trend that is inevitably destined to die out.”

Increased volatility invites regulatory scrutiny for the entire space

Given how memecoins typically attract new people to the space, and they’re inherently risky (as discussed above), any dramatic moves they make run the risk of inviting regulatory criticism and scrutiny for the entire space.

Regulatory bodies, understandably, aim to protect traders, and memecoins pop up on their radars when their market caps run into billions of dollars with weak or no underlying fundamentals.

Unfortunately, any measures taken against these kinds of risky positions are likely to affect the entire space, not just memecoins.

Kristi Swartz, the managing partner at law firm Swartz, Binnersley & Associates, told OKX Insights that regulators are less likely to devise a specific framework for memecoins. She elaborated:

“As can be seen from the recent price action of DOGE (and various virtual assets with canine-related names), a major risk attached to memecoins is retail investors being adversely affected by price swings that are seemingly driven by public comments of social media influencers with a large following. However, established virtual assets can also be subject to sudden price movements following public comments from key opinion leaders, albeit to a lesser degree.

Consequently, we do not expect that regulators will devise a framework specifically for memecoins. Instead, we expect that the approach will be to devise a comprehensive regime that adequately regulates all types of virtual assets.”

The final word

Led by the rise of DOGE and now WIF, memecoins are one of the most rapidly growing sectors in the cryptocurrency sphere. The popularity of memecoins seems like a double-edged sword for the entire space. While memecoins draw new traders to the cryptocurrency sphere, they also expose them to significant risks.

While most media coverage has focused on the market hype of memecoins, their fundamentals remain weak and aren’t often highlighted or understood. Compared to major cryptocurrencies like ETH, memecoins like DOGE have limited technical development, as shown in the infrequency of software updates and lack of fully synced nodes. In addition, the community is doubtful of the ambitions of memecoin projects because of their questionable tokenomics.

Currently, there’s a lack of consensus on the fundamental value of memecoins. Some believe that the rise of internet memes and meme monetization fuel the growth of coins like DOGE and SHIB. Others believe that growing network fundamentals, such as transaction metrics and mining profitability, play an important role in these ecosystems.

Despite their trendy appeal and potential to rally communities, memecoins fall short of being valuable long-term investments in the absence of fundamentals and unique use cases.

Henri Arslanian, the global crypto leader at Big Four accounting firm PwC, shared his concerns in his comments to OKX Insights while summing up this phenomenon perfectly:

“I actually think that the rapid rise of DOGE is a risk to the crypto community, as it amplifies all the wrong stereotypes that many associate with crypto. My worry is that many people who are investing in DOGE have basic or no understanding of cryptocurrencies. And that never ends well.

Still, many would point to Dogecoin as one of crypto’s most unique memecoin projects — the joke that wouldn’t disappear. What started as a humorous, well-intentioned alternative to the market’s serious players quickly transformed into a powerful force for good. As Arslanian put it:

However, I really think that the DOGE phenomenon is captivating, as it shows the intrinsic value in a community and a movement. If I was a PH.D. student in economics now, I would definitely do my thesis on the DOGE phenomenon.

I think that the DOGE and the WallStreetBets movements are to this generation what the Rolling Stones and the Beatles were to the previous generation.”

Source: OKX.com

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