New Delhi: Dogecoin, created in 2013 as a joke for crypto enthusiasts, has emerged as the fourth-largest cryptocurrency by market cap, according to CoinMarketCap data. The top three coins now include Bitcoin (worth over $1 trillion), Ethereum (worth $388 billion) and Binance coin (worth $99 billion).
The meme-inspired cryptocurrency, backed by Tesla CEO Elon Musk, now has a market value of more than $85 billion after hitting an all-time high price of $0.69 (69 cents) a coin Wednesday.
From the beginning of this financial year to the current date, the cryptocurrency has made gains of over 14,000 per cent. On 31 December 2020, it was trading at $0.00468, but in the past week, its price shot up 128 per cent.
ThePrint explains how Dogecoin was created, its current status and how Musk was integral to its meteoric rise.
What is Dogecoin?
Like Bitcoin and Ethereum, Dogecoin runs on blockchain technology which is a decentralised, secure digital ledger that stores all transactions made using the digital currency.
Created in 2013 by software engineers Billy Markus and Jackson Palmer as a joke, it was named after the ‘doge’ meme which features a Shiba Inu, a Japanese dog breed, that has the word ‘dog’ deliberately misspelt as ‘doge’.
The cryptocurrency was meant to be a satirical alternative to the hype around Bitcoin. To raise Dogecoin’s profile, a group of enthusiasts on Reddit would gather funds for publicity stunts like sponsoring a NASCAR driver. “Doge was really started to poke fun at Bitcoin,” Pat White, CEO of Bitwave, told Forbes.
Dogecoin is mainly used as a tipping system on Reddit and Twitter to reward quality content. You can be tipped Dogecoin by being part of an online community that uses the digital currency or you can get Dogecoins from a Dogecoin faucet.
A Dogecoin faucet is a website that offers a small amount of Dogecoin for free as an introduction to the currency, after which you can begin interacting in Dogecoin communities. The website collects dogecoins from contributors, then redistributes those to users who ask for a share.
What role has Elon Musk played?
In March, Musk made waves when he tweeted that Tesla vehicles can be bought using Bitcoin. Now, his recent enthusiastic backing of Dogecoin has been linked to the currency’s steady rise. On 4 February, Dogecoin surged more than 50 per cent after Musk tweeted his support for it. Around the same time, Musk had a similar effect on GameStop, Etsy and CD Projekt whose shares jumped following comments on Musk’s Twitter account about them.
In the past, Musk has expressed his wish to make Dogecoin the “currency of the internet” and called it one of his favourite cryptocurrencies. He has gone as far as to referring to himself as the ‘Dogefather’.
Dogecoin might be my fav cryptocurrency. It’s pretty cool.
— Elon Musk (@elonmusk) April 2, 2019
The recent surge, which comes at a time Musk will feature in a Saturday Night Live (SNL) show, is viewed as another example of how external factors play a bigger role in the coin’s rally than other factors.
Speaking to ThePrint, Deepanshu Mohan, Associate Professor of Economics at O.P. Jindal University, explained how Dogecoin is inflationary by design. “The value of Dogecoin can change 10-20 per cent over night. It’s too volatile and seasonal. It’s the same reason we don’t use oil or gold for day to day currency transactions,” he said.
He added that most of the surge in valuation of cryptocurrency can be explained by exogenous events, such as the role of Musk.
Similarly, Usman Chohan, economist at the University of New South Wales Business School, describes Dogecoin as an “inflationary leisured exploration of community-building around a cryptoasset”.
Why has the price vaulted now?
According to Sathvik Vishwanath, co-founder & CEO, Unocoin, a digital currency trader, Dogecoin’s price has rocketed due to its fast and free transactions “even for the smallest of transfers along with confirmation times as little as one minute”. However, other experts say the surge is owed to Musk’s upcoming appearance on SNL (on 8 May), where he is expected to talk about the coin.
According to sceptics, Dogecoin may be on the verge of a crash similar to XRP’s in 2017-18. XRP is the native cryptocurrency for products developed by Ripple Labs, which was the fourth-largest cryptocurrency until it was leapfrogged by Dogecoin in recent days.
Lowstrife, a crypto trader and popular Twitter account, pointed out how XRP hit record highs of $3.84 in January 2018 only for prices to steeply decline one month later.
Two charts. Ripple in 2017, Doge today. pic.twitter.com/TmMoUqV6JL
— lowstrife (@lowstrife) May 5, 2021
Crypto writer Connor Stephen also observes: “Dogecoin’s most recent gains might seem impressive in monetary terms, but earlier rallies were much more significant from a percentage point of view.” This essentially means that as Dogecoin’s rallies become smaller and less aggressive, its value could be headed for a crash.
(Edited by Manasa Mohan)