Dogecoin, the ‘coin-meme’: know what it is and the risks of investing | Economy

“Elon Musk thinks we’re really cool.” This is how Dogecoin is introduced, a cryptocurrency that started as a joke and ended up becoming the 7th largest asset of its type in market value, according to the Coinmarketcap website.

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In 2021, Dogecoin gained new prominence precisely at the hands of Elon Musk. The Tesla founder’s Twitter posts are mainly responsible for the jump in appreciation that the “cryptocurrency-meme” took in 2021.

It was the billionaire’s enthusiasm that made Dogecoin rise 1,100% in one month between April 7th and May 7th. Musk said he bought the currency, believed in his project and, days after the peak of appreciation, even said he started working with developers to improve it.

Elon Musk: Working with Doge developers to improve transaction system efficiency. Potentially promising.

Still, Dogecoin is surrounded by mistrust. A less robust system, the possibility of infinite emission and concentration in the hands of large owners are the main problems.

Next, the G1 answers the most common questions about the meme coin – including whether it’s possible to take it seriously.

Dogecoin was born in 2013 to honor Kabosu, a dog of the Japanese Shiba Inu breed, which gave rise to the meme “Doge”. The animal’s “impressed” feature went viral on the Tumblr social network, to show surprise at something in a sarcastic way.

Developers Jackson Palmer and Billy Markus decided to honor the meme with a cryptocurrency – which, deep down, made fun of the explosion of a lot of digital coins at the time. Both recognize that it was all a joke.

The coin, therefore, could stop there. But, like the original meme, it spread on the internet and gained adherence.

The photo of Kabosu, dog of the Japanese Shiba Inu breed, which gave rise to the meme “Doge” — Photo: Reproduction

What are Dogecoin’s risks?

Dogecoin has an open source and not very complex. There is also no backing and the tokens are unlimited, which makes it inflationary and harder to pin a fair price on.

Unlike bitcoin, which has a limited number of coins on the market, Dogecoin can be mined infinitely. With all of this in mind, the quote depends only on adoption, allows for speculative attacks, and makes its value highly volatile.

“There isn’t a development team committed to improving the interface, as in bitcoin. It’s a fragile thesis to think about serious assets to compose an investment portfolio”, says Bruno Diniz, specialist in fintechs and co-founder of innovation consultancy Spiralem.

Another important point is concentration. The 10 richest Dogecoin users hold 45% of the total in circulation, according to Bitinfocharts. In the case of bitcoin, the richest 100 have only 6% of the pie.

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This is a basic vulnerability for speculation, as a sizeable sale of one of these large holders can bring the price to the ground and turn the small investor’s initial contribution to dust. And so mentions of the role of someone like Elon Musk are not trivial.

“Dogecoin can give a lot of return, but purely speculative. There are no fundamentals that support the appreciation. Today, it is just a meme with a high volume of transactions”, says Diniz.

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Hackers steal the equivalent of BRL 3 billion from cryptocurrency platform

What can I use Dogecoin for?

Dogecoin does not have widespread practical use, a stage that some cryptocurrencies have already reached. There are few cataloged examples and, in general, users only add to the wallet and exchange among themselves (peer-to-peer, or P2P).

The source code is open, which allows access to any programmer. The blockchain that supports it is decentralized, so there is no mediating body in its dynamics.

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For now, the currency serves only as an asset for some investors. But the membership success has created a strong community around Dogecoin, which tries to value it and broaden acceptance.

This community gave curious displays of strength. In 2014, they raised about $25,000 in Dogecoin to sponsor the Jamaica team at the Winter Olympics in Sochi, Russia. In the same year, they raised US$ 55,000 to sponsor Josh Wise, a Nascar driver.

Without the robustness of other cryptocurrencies, there is a resistance from the Brazilian market to listing Dogecoin in cryptoactive brokers. A few make special sales to higher-ticket customers without offering it to the general public because of the risks involved.

“We are concerned with offering projects that we believe in and Dogecoin is very subject to speculation. You can lose a lot of money with this. How can I explain an unfounded loss to my client?”, says Ricardo Dantas, co-CEO of brokerage Foxbit.

“They promise improvements to be a viable means of payment. If that happens, we would certainly list with the broker. Today, we don’t trust,” he says.

Those who still want access to Dogecoin have three alternatives.

It is necessary to open an account with brokers abroad and see the best way to exchange values ​​for digital currency (either converting dollars or other cryptoactives). Most brokers, however, only trade between digital currencies, which may require you to open an account here and make a purchase of bitcoins, ethereuns or otherwise.

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It is also possible to go into mining. For this, in addition to installing software for computational calculations, some equipment upgrades may be needed, such as good video cards. In addition to being a complex process, it is quite costly. The challenge is to make the procedure profitable.

Finally, it is possible to join the digital wallet and exchange between users, the P2P. There is a trust game there with the person who chooses to negotiate. As there is no intermediation of the business, the sender of Dogecoins may simply not make the transfer.

Why is Elon Musk important?

‘There are much easier places to work, but no one has ever changed the world with 40 hours a week,’ Elon Musk tweeted in 2018 — Photo: Alamy

To be successful, cryptocurrencies have some battles to win. It is necessary to gain traction with the adhesion of the public, with the entry of investors who trust in its viability and insertion of practical uses.

Dogecoin only surpassed the first hurdle. And Elon Musk introduces himself as a “patron” of this second step. He is the first big name to put a kind of “credibility stamp” on Dogecoin.

It turns out that many cryptoactive experts are suspicious of the billionaire’s good intentions. With high purchasing power and influence, Musk captures the market for himself. A tweet is enough to move the market and shake the price of the digital currency, which can give you financial gains.

The billionaire’s pronouncements have moved Dogecoin’s market value this year and there is no market regulator that can say if its performance is within legal standards.

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The year 2021 has marked a rise in cryptocurrencies around the world.

The economic stimulus packages put in place to combat the crisis caused by the coronavirus pandemic have raised the alarm against a surge in global inflation.

Investors who rely on “independence from the traditional system” understand that good cryptocurrencies can become a store of value and a good defense against a runaway price.

The bitcoin case is the most emblematic. In 2020, the largest of the cryptocurrencies had registered gains of 300%, while the Ibovespa closed the year up 3%. And this year, the main cryptocurrency in circulation has renewed records, peaking at $63,000 (although it took a tumble shortly thereafter).

Bitcoin gained a lot of strength with the entry of institutional investors into the game and with the expansion of usage options. These are two important factors that Dogecoin has never achieved.

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But as bitcoin tried to expand its membership, two strong shocks impacted the currency’s price in 2021. One of a more speculative nature again involves Tesla founder Elon Musk.

After saying he would accept bitcoin payments for the company’s cars, the billionaire backtracked. It justified the decision by the lack of sustainability in the cryptocurrency mining process.

To manufacture bitcoins requires a lot of calculations made on computers and, as a result, there is a lot of energy consumption. After Musk’s “discovery”, the price curve, which had risen, began to fall sharply.

The second shock faced by bitcoin was triggered by the Chinese government, which restricted currency mining. The market entered a new dip because the country feeds almost 80% of the world trade in cryptocurrencies.

The asset currently circulates around US$ 50,000, still well above the beginning of 2020.