What is Dogecoin?
Dogecoin was created in 2013 by Jackson Palmer and Billy Markus, software developers who created the cryptocurrency as a light-hearted way to poke fun at the cryptocurrency industry. The name Dogecoin comes from a popular internet meme of a picture of a Shiba Inu dog and text written in comic sans, and it soon started to be known with an intentional typo, ‘doge’. A subreddit dedicated to doge memes, all featuring images of Shiba Inus, was created and the meme took off. The picture of Kabosu remains the most commonly used image for these memes, and her likeness was used for Dogecoin itself.
The coin itself is a variant of a long line of Bitcoin spinoffs. It’s actually a fork of Luckycoin, a coin that’s a fork of Junkcoin, a fork of Litecoin, which is a payments cryptocurrency forked from Bitcoin. From there, it has grown into something far larger than the side project Palmer envisioned.
In 2017, Dogecoin had its first spike, mirroring Bitcoin’s first major bull run. The price of Dogecoin rose from $0.001 in October 2017 to highs of $0.016 in January 2018. Then, along with Bitcoin, the price of Dogecoin crashed. It hit lows of $0.00279 in April and stayed down for a couple years.
In October 2020, the price of Bitcoin started to rise. There are several reasons. First, the pandemic caused interest rates to scrape the floor, moving money into speculative investments. Then investors were stuck at home and bored, and crypto was certainly more interesting than Netflix. And over the summer, the Ethereum network had just facilitated its own mini-boom in the form of decentralized finance—non-custodial financial protocols. NFTs were next, and turned public attention to crypto.
All of these factors converged and sent Bitcoin’s price skyward; Bitcoin rose to highs of $60,000 by the spring. This huge rise took the rest of the market along for the ride, and almost every cryptocurrency had its own bull market. Dogecoin came along for the ride. At its peak in May, Dogecoin hit a market cap of $90 billion, according to data from CoinMarketCap.
Dogecoin has also gained a significant amount of attention from Elon Musk, the CEO of Tesla and SpaceX. Musk tweeted about DOGE for months, and each time he did, the price rose significantly. Musk then announced that he would mention the coin on Saturday Night Live, NBC’s hit comedy show. Investors jumped on the news, hoping that he’d introduce millions of new fans to Dogecoin and drive up demand for the coin. He did mention it — called the coin a “hustle”. The coin’s price tanked, wiping $20 billion from its market cap. Then Musk wiped a further $10 billion when he tweeted that he frowned upon Bitcoin’s environmentally-damaging mining process. (Dogecoin uses the same process, as do most of the top cryptocurrencies).
How does Dogecoin work?
Dogecoin functions much like Bitcoin—a decentralized cryptocurrency payments network that’s useful for peer-to-peer transactions. Similar to Bitcoin, Dogecoin uses a proof-of-work consensus mechanism to mint new Dogecoin and validate transactions.
To process transactions, the Dogecoin network neatly separated them into batches, known as blocks. Each block records the details of every transaction between different accounts on the Dogecoin network within a given timeframe—in the case of Dogecoin, one minute. The network links these blocks together as part of a ledger, and uses this ledger as a record of individual user’s balances.
Proof-of-work is how the individual blocks on the blockchain are validated. To do this, computers use a lot of computing power to solve complicated mathematical puzzles. The puzzles attempt to find a number which, when added to the end of a block, validates the block. As a reward, miners earn newly-minted Dogecoin.
How is Dogecoin different from Bitcoin?
While Dogecoin is, for the most part, very similar to Bitcoin, there are some differences.
One of the larger ones is that Bitcoin has a capped supply of around 21 million. When all these Bitcoins are mined—predicted to in about 120 years—it’s impossible to create new Bitcoin. By contrast, there’s no limit to how many Dogecoin can be created through mining.
The other, glaringly obvious difference is that Bitcoin is a robust, serious project, that very smart people develop upon principles of decentralization and censorship-resistance and libertarianism. Dogecoin is a joke, and its creators never intended to be taken seriously.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Dogecoin, including an opinion that DOGE is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of Dogecoin prior to making it available on Wealthsimple Crypto and has concluded that Dogecoin is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated Dogecoin based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Dogecoin, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Dogecoin;
- The supply, demand, maturity, utility and liquidity of Dogecoin;
- Material technical risks associated with Dogecoin, including any code defects, security breaches and other threats concerning Dogecoin and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with Dogecoin, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of DOGE.
Like all other crypto assets, there are some general risks to investing in DOGE. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. Dogecoin presents unique risks, notably the risks of having an unlimited supply and having less decentralization than Bitcoin (fewer node operators.) Dogecoin has also demonstrated significant volatility given its vulnerability to public sentiment, celebrity whims, and negative press. Further, the Dogecoin community is not under any legal or regulatory obligation to disclose material information to the public regarding community activities. Holders of DOGE have no recourse to the Dogecoin community or Wealthsimple if the cryptocurrency declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading Dogecoin. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: July 26, 2021