What is Dogecoin and how to buy it?
Dogecoin is a kind of cryptocurrency that started as a parody on Bitcoin – yes, a joke! It’s now one of the most beloved cryptocurrencies, thanks in part to a take from Tesla CEO Elon Musk that propelled the digital currency into popular consciousness and then into the stratosphere.
Here’s what Dogecoin is, what it does, where it comes from, and how to buy it.
What is Dogecoin?
Dogecoin is one of thousands of cryptocurrencies that have recently emerged. But unlike many other digital currencies that were created to solve a problem, Dogecoin was created to literally poke fun at Bitcoin and the stupidity of buying a digital asset that was not backed by any asset or cash flow. Now the tables have turned and Dogecoin is worth the money.
Everything about the origins of the piece indicates its pleasant nature:
- Dogecoin was created by software engineers Jackson Palmer and Billy Markus in 2013 following the rapid rise in Bitcoin prices.
- The “altcoin” was designed in about two hours in 2013.
- The creators based it on the Doge meme, a Shiba Inu dog who speaks broken English.
- There is no limit to the number of coins that can be issued, which shows the absurdity of “scarce” digital assets.
Despite its origins as an attempt to poke fun at the crypto arena, Dogecoin has captivated the investing or speculating public. It is extremely popular with Robinhood traders, and the total reported value of all existing Dogecoins is approximately $19 billion, as of February 2022.
As Doge himself might say, “Much wow.”
What can Dogecoin be used for?
Like other cryptocurrencies, such as Bitcoin, Dogecoin can serve as a way to transfer money between people, either as payment for goods or services or simply to send money. Users can also transact semi-anonymously, even if a record is publicly available on the blockchain. And they can do it without going through a traditional intermediary like a bank.
Dogecoin operates on a decentralized network of computers that uses a distributed ledger called blockchain. Think of a blockchain as a long-standing receipt of currency transactions. The computer network verifies transactions and ensures data integrity, then records this data (almost) indelibly on the blockchain.
Where do Dogecoins come from?
Like other cryptocurrencies, Dogecoin is “mined” by the decentralized network of computers that runs the currency. Networked computers perform complex mathematical calculations that effectively unlock coins or fractions of coins as a reward for processing transactions.
As of February 2022, approximately 132.7 billion Dogecoins exist, although new coins are being created literally every minute. And unlike Bitcoin – which has a strict cap on its total issuance – Dogecoin has no cap on the number of coins that can be mined. Literally an unlimited number of rooms can be created. However, the annual issuance of new coins is limited to 5 billion and this issuance can continue indefinitely.
How to buy Dogecoins
You can buy Dogecoin from many different sites, and your choice of which one to use may depend on your goal:
- If you are looking to buy Dogecoin just to speculate, you can opt for an online brokerage such as Robinhood that allows cryptocurrency trading. Webull and eToro also allow you to trade the coin, but many other brokers do not support crypto trading at all. The broker will own any stake you have in the coin.
- If you are looking to buy Dogecoin for speculation or for actual use, you can opt for an exchange such as Coinbase or US. Exchanges can allow you to take custody of the asset yourself, allowing you to send or spend it.
If you’re looking to put your crypto holdings to use, it’s helpful to have a crypto wallet that can add an extra layer of protection beyond what’s typically offered through an exchange. (Here are some of the best cryptocurrency wallets and what they can offer you.)
Is Dogecoin a good investment?
Like most cryptocurrencies (excluding stablecoins, for example), Dogecoin is not backed by any assets or cash flows. This means that its price is determined solely by what others are willing to pay for it. This contrasts sharply with a stock, where long-term price appreciation is driven by the performance of the underlying company. Dogecoin’s appreciation is based on speculators being even more optimistic, or the so-called “biggest fool’s investment theory”.
It is for these reasons that leading investors such as Warren Buffett and Charlie Munger of Berkshire Hathaway avoid cryptocurrencies and advise investors to do the same.
None of this means you can’t make money trading Dogecoin, rather it’s unlikely to have lasting value over time.
At the end of the line
Speculators can trade Dogecoin directly on various sites or they can invest in the companies that are making it and other cryptocurrencies a reality, which is akin to investing in the “pick and shovel” companies that have served infrastructure to the gold rush. This way, traders could win regardless of which individual cryptocurrency won, without having to pick a winner.
If you choose to buy cryptocurrency or any other investment, it is essential to know the risks and the opportunities. And with many cryptos being backed by nothing at all, traders run the risk of total loss. So, those in the crypto business should proceed with caution and not add money to a position they cannot afford to lose.