Demystifying Dogecoin: The meme cryptocurrency on the rise
Welcome to the doge house
By now, you may have heard of Dogecoin, a cryptocurrency with the face of a dog. Just like what happened with Gamestop last month, this small currency is trying to rocket itself to financial power. Here, we’re going to try to answer all your questions about the budding cryptocurrency.
First off, a quick explanation of what a cryptocurrency is.
A cryptocurrency is a digital form of money that rides the line between a debit card and cash — entirely on the internet. In its most basic form, you exchange cryptocurrencies with participating entities just like any other purchase online, but instead of involving a bank, the money goes to the other person, more or less directly.
Most cryptocurrencies, such as Dogecoin, are built on a technology called the blockchain. Concordia professor and holder of the Industrial Research Chair in Blockchain Technologies at Concordia, Jeremy Clark says “The blockchain is about building something that’s like a database where’s there’s just one copy of the data and everyone agrees on what that copy of the data is, but it’s not held in a single location.”
It’s easiest to think of cryptocurrencies as a universal, digital version of cash.
The most popular cryptocurrency is Bitcoin (BTC), which you probably have heard of since it recently reached the value of $50,000 USD for one single Bitcoin after automaker Tesla announced it would accept Bitcoin as payment for cars.
Here in the explanation is where it gets meta.
Currencies in the world such as the Canadian dollar (CAD) and the US dollar (USD) are backed by the governments that print the bills. Faith in the monetary system the bills represent gives the currency its value.
Cryptocurrencies are backed by nothing but faith in their value. A Bitcoin has value because we all believe it has value. Just like stocks, cryptocurrencies are volatile and change value rapidly, and are influenced by developments around them.
The U.S. classifies Bitcoin and other cryptocurrencies as commodities. That’s the same classification as gold.
Think of people who collect vintage coins. They may have a value printed on them, but they can fetch prices much higher. You wouldn’t spend a rare misprinted 1919 quarter on a pack of gum – even though the coin itself would work – because you can sell it for much higher than its printed value.
“Currency isn’t meant to be something that gives you a tremendous return on value,” said Clark, “You want people to use it and not hoard it for the possibility that it doubles its price in a month, it’s meant to be a currency.”
Cryptocurrencies currently work much like that rare misprinted 1919 coin. You can use them to purchase things now or hold onto them in the hopes that they can fetch a higher value later. They both only have value because someone out there says so, and both can technically work like cash.
Cryptocurrencies do offer reasons to be used as currency. They are decentralized so no one agency controls the currency, they are easier to manage and send to individuals being a digital native currency, and cryptocurrencies at large are secure with publicly accessible transaction records.
That being said, a currency should only be valuable in what you can trade it for, and a currency that’s worth more than what you’re spending it on isn’t much of a currency is it?
If circulation never occurs because everyone holds onto their crypto-coins, they’re not really coins anymore. Coins are currency to be traded. You’re holding onto ones and zeros that at one point might have been cash should people have used them as such, but now are just code.
Everyone okay? Existential crisis under control for now? Okay good.
Now onto Dogecoin.
Dogecoin is part of a smaller class of cryptocurrencies called altcoins, short for alternate coins.
Basically, Dogecoin is just like other cryptocurrencies except it was created as a joke with a picture of a dog — the doge meme — as its mascot. Well, that and being quoted on the project’s website as the digital currency “Favoured by Shiba Inus worldwide.”
“I always thought that there would be a sort of winner that would be chosen by the market,” said Clark when referring to the hundreds of smaller coins on the market. Currently, there’s value in many of them and no clear winner.
So, why should I care?
Dogecoin has had quite the boom as of late.
Just like what happened with Gamestop and other meme stocks, an organized group of Reddit traders all decided to buy into Dogecoin, leading it to achieve a peak value of just under $0.085 USD per Doge on Feb 8.
Eight cents doesn’t sound like much, but this is a massive jump from below one cent per Doge just over a week before.
On top of that, Dogecoin has had lots of support.
ATM company CoinFlip announced in a tweet on March 1 that it would begin trading Dogecoin at its ATMs across the country.
The Dallas Mavericks basketball team announced on March 4 that they would accept Dogecoin for tickets and merchandise.
“It’s hard to say what the longevity of these things will be if people will continue to prefer having dozens of [currencies] around,” said Clark, “or if eventually, the market will coalesce behind one or two winners.”
For now, all that can be said for the joke-turned cryptocurrency is much coin, such wow.
Graphic by Taylor Reddam