Dogecoin: A “meme” that has become a real thing!

Introduction

In the midst of a pandemic, civil war, and natural calamities the most valuable stocks around the world are struggling and in recent months all the cryptos have seen an electrifying upsurge in their prices and we all know that. But, a new currency is on the headlines of the mainstream media for some unthinkable reasons.

Although there are many cryptocurrencies in the market, one, in particular, is grabbing the headlines as the super-intellect and multi-billionaire Elon Musk is supporting what started as a sarcastic “joke” and is now the 4th largest crypto by market cap - the “Dogecoin”. Its prices have increased around 10000% since the start of this year from 0.005685 to a dollar on January first to the highest of 0.6847 at the start of May.

These numbers are so staggering that if you invested, let's say; 10 lakhs rupees in Doge, you would have become a millionaire in less than 100 days.

In this story, we will talk about dogecoin, why everyone is talking about it, and what's behind the massive surge in its prices.

What is dogecoin and how does it work?

Dogecoin which is pronounced as “dojjjcoin” was created by software engineers Billy Markus and Jackson Palmar as a parody of the number of cryptos present and how easy it is to create one. The currency features the face of the Japanese breed of dog Shiba Inu which went viral as a “meme” of a baffled and confused dog. But after some time the crypto gained popularity solely because of its meme connection and achieved noticeable market share.

In the simplest of terms, Dogecoin is a decentralized digital currency that works on blockchain technology. You can buy and sell on exchanges like Shapeshift, Bitterrex, poloniex etc. and it can be mined with the help of some supercomputers.

It works like bitcoin however there are two key differences; first is that it is relatively easier to mine a doge than bitcoin and when I say it's easy, it does not mean that you can start mining it using your laptop it still needs powerful computers to mine one. The second is that there are a limited number of bitcoins that can be mined and experts say that 90% of them are already mined, and the last bitcoin will be mined in the year 2140 whereas there are an unlimited number of dogecoin that can be mined.

What is mining?

Crypto mining works the same as mining gold and other metals but instead of using dynamites, crypto miners use hardware and software to mine one. How?

In the case of cryptos, there is no central authority like banks to verify the transactions. Instead, the miners across the world compete with each other to verify every transaction, this involves solving a Hash code which is solved using a common algorithm, and the more powerful computers you have, the more is your probability of success.

Miners are rewarded with some dogecoins for their support in the verification of the transaction and in this way the digital currency runs smoothly.

What's behind its current upsurge?

Dogecoin is not a new currency that suddenly gained popularity, it has had its cult following before, but now its prices have exploded because of continuous support from Tesla CEO Elon Musk. Musk started tweeting about it at the start of this year as people’s currency.

Dogecoin’s price increased by ⅓ when Musk tweeted that he is going to launch a rocket to the moon with the help of dogecoin, some took it as a joke because it was tweeted on first April but later SpaceX announced that they will start working on the mission next year. And a few days back he ran a poll asking whether to accept dogecoin as payments for his Tesla cars. At this point, you cannot roll out the possibility that one day someone can buy a “Supercar” with a “meme currency”.

This is just one example, some of his other tweets are “No highs, no lows, only Doge”, “Why are you so dogmatic, they ask”. When he was asked what dogecoin is and why he supports it so much, he replied - “It's the future of currency. It's an unstoppable financial vehicle that's going to take over the world.”

Many are calling Elon the “Dogefather” and adoring him for his support for the crypto, one such example is when musk tweeted “Who let the Doge out” the famous NFT digital artist Beeple replied with an image of musk walking with Shiba Inu dog.

Many celebrities are openly supporting dogecoin like Mark Cuban, he tweeted “If I had to choose between buying a lottery ticket and #Dogecoin .....I would buy #Dogecoin. But please don't ask me to choose between it and anything else ???” and when Snoop Dogg in a tweet, replaced his face with dogecoin’s Shiba Inu dog.

But all that is no match to Musk’s influence on the price of doge, recently Elon called the crypto as “Hustle” on a TV comedy show “Saturday Night Live” and as a result of that dogecoin fell over by 28%.

Most of Musk’s statements on cryptocurrencies have been positive apart from his “Hustle” comment, his concerns over the carbon emissions in the use of such technology, and when he “warned” people to invest with caution.

Risks involved in dogecoin investment

Legality in India

Investing in cryptocurrency is not an act of crime in India but the asset class is currently unregulated, this means SEBI/RBI are not yet involved in this and that makes it risky for investors. Also, there is ambiguity regarding taxes and other charges.

Investment Risk

Considering the words of musk “Invest with Caution”, the crypto market is very sensitive and prices fluctuate very fast, this is because unlike other assets; equity, real estate value is derived from underlying factors such as sales and growth rate. But, the prices of cryptocurrencies are solely based on “demand and supply”, hence, the price goes up when there are more buyers than sellers and after a point when these buyers look to cash in on hiked prices the crypto starts falling quickly.

Prices can also be manipulated by a “pump and dump” scheme where big players jack up the prices and when retail investors join to grab the opportunity, the big players cash out and suddenly the small investors find themselves in dire straits.

Finally, the positive and negative statements from celebrities like Elon Musk can move the prices in both directions, therefore, making this asset very risky. And even now if you are intrigued by the enormous potential of profit from dogecoin, then also you should only invest what you can afford to lose.