I have been fascinated by crypto for a long time now, and I enjoy sharing what I have learned about it on ToughNickel.
What is Dogecoin?
Dogecoin is an altcoin that was founded, in 2013, with the intent to reach a broader demographic than Bitcoin. In addition, the founders, Billy Markus and Jackson Palmer, wanted to distance the currency from other controversial crypto. So, they based their coin on the popular Doge Meme. This draw a lot of attention to Dogecoin and it quickly became famous.
Doge is secured with proof-of-work and is built as a fork to Litecoin, meaning it is based on Litecoin technology but has a few differences. In the beginning, there were only 100 Billion Doge, and all of them were mined in just two years. After that the code was updated so that the code was updated so that every year another 5 billion Doge could be mined. This means that there is now an infinite supply of Dogecoin. Most members of the Doge community were against this decision because it meant that their investment would lose all its value over time.
The funny thing is that this inflation makes Dogecoin a better currency than Bitcoin, because due to Bitcoins fixed supply its value will keep going up since demand will increase but supply won't. This means that people will not want to spend it like they should with a currency, this makes Bitcoin more to digital gold instead of digital cash. Doge on the other hand doesn't work as a store of value and encourages its users to spend it.
5 Billion new Dogecoins per year do sound like a lot but it makes perfect sense in the long run. For example, if you have 100 coins and add 100 more the next year your inflation rate would be 100% but as time passes that percentage will decrease due to the increase in supply. In 100 years, your inflation rate is only 1% and still decreasing. To put it simply, Bitcoin is an asset that is expected to have an increase in demand within the next few years or decades while Dogecoin is a currency that aims to provide fast, easy, and cheap value transfers in everyday transactions. If Bitcoin is used to store value, Dogecoin is a tool to transfer that value quickly and cheaply.
Why did it rise so high recently?
Dogecoin has gained a lot popularity recently because the recent Gamestop and AMC stock fiasco has drawn a lot new investors to the stock market and other investment opportunities. Since many online brokers also work as crypto exchanges many new crypto investors have emerged.
A lot of them likely invested in Doge because they believed that they have already missed out on Bitcoin and that it's too late to invest in that while Dogecoins are only a few cent worth right now. They think that they cannot afford Bitcoin because they don't realize that you do not need to purchase an entire BTC. So, they invest in it believing it will moon like Bitcoin did since 2010.
That Elon Musk makes jokes about Dogecoin also encouraged his online cult to buy some coins. With higher demand there is now a higher price for Doge.
Why will Doge lose value in the long run?
Like I said, there are more than 100 billion Doge in circulation and 5 billion new ones are created every year. Bitcoin has a fixed and rather limited supply, so it will go up if the demand keeps rising but Doge has an infinite supply. This makes Dogecoin a bad long-term investment because with higher supplier the price will go down.
For Dogecoin to even reach just $1 per coin the entire market cap would have to rise about 1700%. Bitcoin did more than that in the past, but we don't endlessly make 5 billion new Bitcoins per year.
Dogecoin is not a long-term investment but a currency. Some internet sites allow payments in Doge and they are sometimes cheaper that way. It makes sense to use Doge for this.
But if you plan to buy and hold it because you think it will become the next Bitcoin than you aren't using Doge for what it is intended and will likely lose money.
If you want to buy crypto as an investment than you have better alternatives. You can still jump on the Bitcoin train. Most people think it's too expansive to invest in Bitcoin because one BTC has a price $45K, but you don't have to buy an entire BTC. You could buy 0,0011 BTC for $50 too. I am not saying that BTC will keep growing like it did in the past, but it is more likely to grow than Doge.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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