Despite often being seen as a joke, Dogecoin has gained a lot of traction from millions of crypto enthusiasts. How could that happen?

Dogecoin illustration

A 33-year-old investor from Los Angeles, Glauber Contessoto, appeared on YouTube on April 15, 2021, saying that he had invested at least $180,000 in Dogecoin (DOGE) and now became a Dogecoin millionaire. He said he had bought the coin in February 2021 when the price was about $0.45.

Despite being popular and discussed everywhere, it seems that not everyone is super enthusiastic about the coin. Some even treat it as just an online joke rather than a great investment opportunity. Why is that? Well, let's find out below.

 

Introduction to Dogecoin

Dogecoin is a widely known crypto coin that's based on Luckycoin, which in turn is based on Litecoin. Dogecoin was originally designed to be an altcoin to other popular cryptocurrencies such as Bitcoin, Litecoin, and more. Thus, there's not much groundbreaking innovation that sets Dogecoin apart from the group. Moreover, one of the most unique features of Dogecoin is the fact that it is inflationary rather than deflationary like most crypto coins.

Bitcoin, Ethereum, and many others are designed with a maximum amount of supply cap. As the quantity decreases, the demand will increase, thus resulting in the increase of value over time. The potential issue with this system is that once the cap is reached, it may no longer be profitable for miners to support the system. This might lead to extremely high fees to process the transaction and potentially a much longer duration.

To prevent such issues from happening, Dogecoin creators made sure that miners will always be rewarded in the form of new Dogecoins. Therefore, there would always be an incentive to mine new coins. Apart from that, this approach was also designed to replace lost coins and keep the crypto at a stable 100 billion coins.

It's also worth mentioning that Dogecoin uses the "scrypt" algorithm, which makes the coin more efficient in several notable ways. Compared to 10 minutes of Bitcoin, it takes only about a minute to verify a Dogecoin transaction and add a new block to the blockchain.

 

It Started Out as a Joke

If you want to understand what's happening with Dogecoin and why everyone's so into it these days, we must go back to the time before Dogecoin was born. The story started with a meme of a dog Shiba Inu, which was extremely popular between 2010 and 2013. At the same time, cryptocurrencies began to come into existence, but they were seen as a laughable innovation that wouldn't go anywhere.

In November 2013, an Australian software engineer Jackson Palmer made a joke about cryptocurrency, saying how Dogecoin could be the next big thing in the financial world. Funny enough, the joke got viral and caught the interest of a programmer named Billy Markus. He then immediately contacted Palmer to discuss the possibility of turning his joke into reality.

The goal of the project was to make it "as ridiculous as possible", so they put Shiba Inu's face on the coin to merge the two trends of the time. Not only that, but the coin also used familiar meme-related catchphrases such as "much wow" and "such tired". This is why many like to refer to Dogecoin as a "meme coin".

Only a little over a week later, Dogecoin went live and is available to be mined. At first, no one took Dogecoin seriously. This is why Dogecoin was commonly used as a tipping service. People typically used Dogecoin on platforms like Reddit to tip other users whom they believed deserved recognition as a form of respect. Put simply, you could think of it as a "like" button with a slightly more value.

But in contrast to what everybody was expecting, Dogecoin managed to attract millions of investors and crypto enthusiasts in no time. The coin that had started as a joke, turned out to be a serious project. In the span of only two weeks from its release day, the Reddit channel r/Dogecoin had 19,000 users. As a result, the coin's price went up by 300%. Dogecoin hit an all-time high market capitalization of $88 billion in May 2021 and ended up inspiring several other meme coins to enter the crypto market.

See also: Top 10 Cryptocurrencies by Market Cap

 

Building a Dogecoin Community

Even though it was created as a joke, Dogecoin turned out to be a great and more approachable alternative to the famous Bitcoin and other giant cryptocurrencies. For this reason, many people invested in the project and even managed to build a strong community on the internet. In fact, Dogecoin now has one of the largest and most active online communities in the world.

We can easily say that the main asset of Dogecoin is not the technology behind the crypto, but instead, it's the people that surround it and keep the hype going.

If we take a closer look, the Dogecoin community is the key to the coin's success and takes the marketing aspect to a whole different level. In between all the memes and jokes surrounding Dogecoin, its community has come together and organized serious, charitable events such as fundraising campaigns to promote the crypto.

One of them was when the Dogecoin community on Reddit managed to raise more than $25 million and used the money to help the Jamaican bobsleigh team attending the 2014 Winter Olympics. In 2021, they also successfully advertised Dogecoin on numerous billboards in the United States. Doing such positive acts will then attract media attention, which will likely result in a positive rise in Dogecoin's price.

 

How Dogecoin Met the Dogefather

Apart from having a strong community, the success of Dogecoin is apparently influenced by public figures like Elon Musk, who now refers to himself as "the dogefather".

Since 2018, he has shown huge interest in cryptocurrency. A year later, Musk finally mentioned Dogecoin in one of his tweets. He simply called it "my fav cryptocurrency".

Being one of the richest men in the world, Musk certainly has the power to influence people and even the financial market. His electric car company, Tesla, also became a major actor in the crypto world, especially after it announced that it would accept Bitcoin as payment for its products.

The power that Musk has is now often referred to as the "Musk Effect" or the "Elon Effect" for it caused the DOGE price to rise significantly on December 20, 2020. All he had to do was tweet a simple sentence: "One word: Doge". It turned out that such an event did not just happen once, but multiple times.

For instance, during the GameStop stock market frenzy in January 2021, Musk tweeted a picture of a dog on a magazine cover. This had caused the DOGE prices to rise over 800%. In the next few months, Musk along with other celebrities like Snoop Dogg kept tweeting and referencing Dogecoin, driving the crypto's price even higher.

On April 28, 2021, Musk again teased his followers on Twitter, hinting that Dogecoin was going to appear in his hosting debut of Saturday Night Live on May 8, 2021. It was the first time he called himself "the dogefather", successfully causing DOGE to surge 20% to $0.31. During the show, he appeared as a fictional crypto expert and stated a bunch of crypto analyses.

In one sketch, he said that Dogecoin is "the future of cryptocurrency" and "an unstoppable financial vehicle that's going to take over the world". However, at one point he also mentioned that the whole thing is a "hustle", which caused the crypto price to fall after the show aired.

 

The Future of Dogecoin: Is Dogecoin a Good Investment?

Just like any other cryptocurrency, the price of Dogecoin is also largely influenced by the market's demand. It is highly volatile, so it can easily rise and fall following the market trends.

Recently, the price of DOGE dropped rather significantly following the sharp fall of the crypto market in general. Some of the factors include hawkish commentaries from the US Federal Reserve and the proposed ban from the Central Bank of Russia. Other than that, the regulators from the United Kingdom, Singapore, and Spain are also tightening rules on crypto-asset promotion.

On top of that, Dogecoin also has another problem to think about. When it comes to meme coins like Dogecoin and Shiba Inu, it's important to understand that the performance and value of these coins are strongly related to social media and hype.

The lack of euphoria in the crypto community can certainly affect the growth of these coins, so when mainstream cryptocurrencies are experiencing a bad run, meme coins will get a much worse result due to the lack of market sentiments. Therefore, the future of these coins pretty much depends on the ability to maintain a strong community and stay relevant.

With that being said, there is no guarantee that Dogecoin will have a bright or dark future. There is a possibility that it might find momentum and rise again, but there's also a chance that people will simply abandon it and let the price keeps falling.

Many people still think of it as a joke, including the creators themselves. For the record, Dogecoin hasn't received a software update since 2019. If you want to try it out, go ahead but don't go too far and don't forget to do your research beforehand.

Should you invest in Dogecoin in 2022? Its insanely skyrocketing price last year may tempt you. However, now that the price has actually fallen down almost 70%,  there are many great options out there besides Dogecoin and Bitcoin to consider, like Ethereum or Litecoin.