There are few stories in finance more strange than the story of Dogecoin.
Started in 2013 by software engineers Billy Marcus and Jackson Palmer, Dogecoin’s original inception was literally a joke.
The creators of the cryptocurrency were motivated by a desire to “poke fun” at Bitcoin. Back in 2013 Bitcoin was not nearly the cryptocurrency powerhouse that it is today. There were many people pointing out that Bitcoin did not physically exist and decided that this meant it had no real world value.
So certain were these critics that many of them paid enthusiastic attention to the rise of Dogecoin. But little did they know that they were validating the exact logic Bitcoin was founded upon: That if enough people believe that a currency exists, no matter how ridiculous, then its value becomes real.
Table of Contents:
How Does Dogecoin Work ➡️
Before we get too excited though, let’s talk about how Dogecoin works. If you do not understand Dogecoin, then you will be far easier to scam while you are trying to buy the cryptocurrency.
To begin with, Dogecoin is a “proof of work” currency. What this means is that it gets its value from a “blockchain” program. This is a program that tracks where every Dogecoin in the world is at any time.
In the real world, currency is tracked by two methods: The first is by the physical component. We know that there is money in your safe because you can open it and show us. There is no and no less than what is there. But most transactions are done without seeing the money involved. Does that money exist?
It does exist, but how do we know it exists? Well, because the banks who hold it tell us it exists. You buy a candy bar from a grocery store. You swipe your card, and a bank tells the grocery store that they have made £3. That money goes from your bank account to their bank account.
They spend that money, and it goes from their bank account to someone else’s bank account. And the cycle goes on and on. But all of this is reliant on the banks, and banks are famously bad with money.
A Currency Without Banks
Instead of a few voices being elevated to have complete control over finance, what if every voice that participated in the banking system controlled finance instead? That is what Dogecoin accomplishes.
By being based in the blockchain, rather than tied up in the currency market or banking system, Dogecoin gets its value from the people who use it saying it has value. But of course, not everyone says it has value. This is part of the reason its value is limited compared to a currency like Bitcoin.
This is why the blockchain is important. Since Dogecoin is reliant on the blockchain to prove it exists, the transfer of someone else’ Dogecoin into your possession has to take place on the blockchain.
Otherwise, the transaction may as well have never happened. Someone could say that they will sell you Dogecoin, and then take your money and run without ever actually transferring it. So, how do you prevent this? How do you buy Dogecoin and ensure that you do not get scammed out of your money?
To Buy Dogecoin You Need a Platform 🖥️
Trading platforms have been around for as long as the internet. Generally, they are used to trade more traditional securities. That means stocks. That means foreign currency. But only in the last few years has that also meant cryptocurrency. But what do these platforms provide that you can’t get elsewhere?
The main thing that you get from using a platform is security. Platforms have trade infrastructure. That means that they have ways of finding people to buy Dogecoin from, they have tools for communicating and negotiating with those people, and then of course they also have ways of securing those trades.
“Securing” trades means making sure that you get what you pay for at the same time that you pay for what you get. This keeps people from taking the money and running without giving anything back.
So, which particular trading platforms are the best for buying Dogecoin?
If we are talking about platforms for buying cryptocurrency, then we have to talk about Coinbase. Bar none, Coinbase is probably the most reliable place to find a cryptocurrency. It is one of the first crypto marketplaces to exist, meaning that it has had the most time to build up a strong community.
Its community is not its only draw, as it also has great teaching tools for learning about cryptocurrency. You can use these to learn how to trade crypto in unique ways, as well as mining crypto that allows it.
eToro is not a trading platform designed around cryptocurrency. All the same, it has one of the biggest crypto markets of any trading platform, particularly given its lack of crypto focus.
This means you can get many currencies, as well as Dogecoin, but that is not the core appeal of eToro.
The best part about eToro is that you can then trade your Dogecoin (or any other cryptocurrency you buy) for traditional securities. This means you can buy Dogecoin, let it grow, then buy stocks with it.
Another platform you should look at when trying to buy doge is Binance. This is a trading platform designed for cryptocurrency, meaning that it services even niche currencies like Dogecoin.
It does this by using its own cryptocurrency, also called Binance (although sometimes called Binance Coin to differentiate the currency from the platform). The purpose of this currency is to translate incompatible currencies. For instance: Say you have a seller who will sell Dogecoin, but not for pounds.
Binance Coin cannot be used for anything other than trading currency on Binance. That means that its price is basically constant. So, instead of paying in pounds, you can buy Binance Coin and pay with that.
This will come up much more frequently when you are trying to buy anything else with Dogecoin. Dogecoin is accepted in most circumstances, but when trading crypto there will be many people who will prefer to have Binance Coin rather than Dogecoin if they can choose between one or the other.
The Other Method of Getting Dogecoin: Mining ⛏️
Buying Dogecoin is not hard, but it is also not the only way that people make Dogecoin. You see, the blockchain that tracks all Dogecoin in the world is a complicated system. And because it is so complicated, it can run a little slow. However, its speed can also be boosted with your help.
Here is how mining works: You dedicate a device to helping solve complex math problems that the blockchain faces when processing transactions.
By dedicating even a small amount of computing power, you help the blockchain speed up, adding value to it in the process. This nets you Dogecoin.
The mining process requires a blockchain app, as well as connection to a “wallet” where the Dogecoin will go as your device processes the blockchain’s queries. Dogecoin will be added to that wallet slowly over time. As long as the device is on and “mining”, the file will grow in size.
What Do You Need to Mine?
The biggest barrier to entry for the mining of any cryptocurrency (Dogecoin is far from the only one that allows this) is the hardware. You can mine on practically anything—tablets, phones, laptops—but you will usually see people mine cryptocurrency on extremely high-end computers with good processors.
The highest end mining hardware will cost you around £10,000. This is for hardware that allows you to mine multiple Dogecoins an hour. You can sell that Dogecoin and make back your money over time.
What are the Risks of Dogecoin? 🚩️
While we are talking about mining, there is an important note to mention about the way Dogecoin works. You see, with most cryptocurrencies there is a deliberate artificial scarcity to them. The inventor of Bitcoin has said that there are 21 million Bitcoins to be mined. After that, the programs shut down.
So, how many Dogecoins are there to be mined? Well… There is no limit. And that worries some people.
Part of the value of Bitcoin is in the fact that it is scarce. This makes having it, spending it, and even mining it worthwhile. Once there is no more Bitcoin to be mined, the Bitcoin will lose an amount of value (though its scarcity will allow it to retain some of that value).
Dogecoin has no such limit. This means that someone could mine Dogecoin equal to all the existing Dogecoin in the world. That would result in a hyperinflation of the currency. How much are your 5 Dogecoins really worth when someone is giving away bundles of 1 million as a joke?
Not that this will ever happen. It benefits no one to do that, and the effort it would require would be enormous. So, take comfort in the fact that Dogecoin’s value has been steadily rising, and do not sweat the theory of where it might go. Unless, of course, you are trying to speculate on the market.
Let’s go over what we learned: First, Dogecoin is a “proof of work” cryptocurrency that uses a blockchain technology to validate its existence, and therefore its value.
You need a trading platform in order to safely trade while ensuring that your trades happen in both real life and the blockchain reliably.
Dogecoin is a joke currency with serious value. It has no limit on how much there can be, but there is a limit to how much there is. This, in combination with the blockchain technology, keeps it from getting too inflated.
All the same, trade and mine it with caution. You never know how the market will turn.