The story of Dogecoin seems to be something of an allegory for the absurdity of our times. Initially created as a satirical representation of the world of cryptocurrency, it skyrocketed in value during 2021. On top of that, billionaire and meme-lord Elon Musk has had a lot to do with Dogecoin's meteoric rise, recently claiming that the only cryptocurrencies in his wallet are Bitcoin, Ether, and Dogecoin.
The world of cryptocurrency is already cloaked in lore and intrigue. The tale of Dogecoin is a strange one indeed, and many crypto investors and newbies might be wondering whether or not it's worth jumping on the bandwagon.
What is the difference between Bitcoin and Dogecoin, though? Is investing in crypto even a good idea?
Let's take a look at what you need to know.
What Is Bitcoin?
Bitcoin is the original decentralized cryptocurrency. It can be purchased as an investment or it can be used as a currency. Instant payments in the form of bitcoin can be made between people or businesses using peer-to-peer technology.
This infamous cryptocurrency has been around since 2009. The all-time high of Bitcoin was reached on April 13, 2021, where the cost of one bitcoin was $64,863.10.
This is a digital currency rather than a paper currency. Paper money such as dollars, yen, or euros are controlled by monetary authorities or central banks. Bitcoin, on the other hand, is created electronically and held electronically.
There are a number of differences between Bitcoin and traditional currencies. As mentioned above, the first is that bitcoin isn't controlled by monetary authorities or central banks and is instead decentralized. This type of currency is also somewhat anonymous, allowing people all over the world to receive or transfer bitcoins without using personal information.
Opinions on Bitcoin and other cryptocurrencies vary widely depending on who you talk to. However, it's hard to deny how intriguing it is for people to take financial transactions into their own hands without relying on financial institutions. If you're interested in using crypto rather than traditional banking, check out this nationwide Bitcoin ATM.
What Is Dogecoin?
This is a form of cryptocurrency that was created in 2013 by two software engineers. In 2021, this type of currency experienced incredible price increases in spite of the fact that it was originally created as a joke.
This is also a peer-to-peer cryptocurrency similar to bitcoin. Created by software engineers Jackson Palmer and Billy Markus, this open source cryptocurrency runs on blockchain technology like other cryptocurrencies do.
For many years, there was little to no public attention on this type of cryptocurrency. Inspired by a popular internet meme, this digital currency is named after "Doge," the image of a Shiba Inu dog that many memes center around. In fact, this is the image that appears on Dogecoins.
During the pandemic, Dogecoin grew in popularity alongside the increase in retail investing. It also received a lot of attention from Elon Musk on Twitter, which increased its reach.
Amazingly, Dogecoin increased more than 15,700% as of May 8, 2021 from its start of year levels.
The Commonalities Between All Cryptocurrencies
It's worth understanding that, as of September 2021, there are more than 6,500 cryptocurrencies in existence. This means that the world of crypto is vast and complex, and investing in crypto is something that warrants quite a bit of research before jumping in.
That being said, there are certain things that all cryptocurrencies have in common.
Blockchain technology is what is used to build cryptocurrencies. This type of technology uses a distributed ledger in order to create, track, and manage any type of digital currency. It's kind of like an ongoing digital receipt of all of the different transactions that are made using the currency, which includes a list of the owners of each currency and how much they own.
A decentralized network of computers is constantly verifying this "receipt." This helps to ensure that the currency is property functioning and accounted for, as well as helping to prevent fraud.
Powerful computers "mine" for cryptocurrency. These computers are known as miners and they create coins by performing complex math calculations. Procession currency transactions is also a way to earn coins.
There has been a growing movement around cryptocurrency since the inception of bitcoin. It's worth understanding that, though people can move money somewhat anonymously, this might not be true forever. Both the IRS and the FBI are becoming better at freezing accounts and tracking transactions.
What Is the Difference Between Bitcoin and Dogecoin?
There are a number of key differences between Bitcoin and Dogecoin. Let's explore some of the major factors that set them apart.
Bitcoin and Dogecoin were created for entirely different purposes. Bitcoin was created with the goal of being used as a store of value or a currency. On the other hand, Dogecoin was actually created as a satire of Bitcoin's rising popularity.
The market capitalization of both Bitcoin and Dogecoin consists of the current trading price multiplied by the total number of existing coins.
Bitcoin is much larger than Dogecoin when you look at market capitalization. Its market cap is approximately $1.02 trillion, while Dogecoin's market cap is $41.4 billion.
While both Bitcoin and Dogecoin are popular these days, it really is Bitcoin that is breaking into the mainstream. Accessing Bitcoin has been getting easier and easier as time has gone on.
How many coins can be issued by both Bitcoin and Dogecoin also differ. One of the reasons that Bitcoin has gained in popularity is because there is a hard limit on how many coins can be issued (21 million). This means that if demand rises and money continues to flow into Bitcoin, then it makes it seem clear that the price will increase over time.
However, the same thing that makes Bitcoin great for traders also makes it more difficult to use as a currency.
On the other hand, there is no limit to coin production for Dogecoin. That was initially supposed to be a part of the joke. However, having an unlimited issuance of the coin didn't hold the currency back from "going to the moon" in 2021.
Crypto for Beginners: Important Points Worth Considering
Cryptocurrencies have gained popularity for a number of reasons. Some people support cryptocurrencies because they believe that they are the currency of the future. The idea here is that they will get more valuable in the future, so the time to buy them (in this theory) is now.
Others support the notion of removing central banks from the role of managing transactions. Some people like the blockchain technology due to its ability to be more secure than standard payment systems. And then, of course, some people simply like cryptocurrencies because they have been going up in value.
Whether or not cryptocurrency is a good investment is another question entirely. You will definitely find arguments on both sides if you look for them. For example, Elon Musk is obviously an owner of various cryptocurrencies, but the famous investor Warren Buffet has advised staying clear of these digital currencies.
How to buy cryptocurrencies depends on which currencies you're interested in. You will need a "wallet," which is an app that holds your digital currency.
Some currencies, such as Bitcoin, can be bought using U.S. dollars. For other types of currencies, you have to use another cryptocurrency to purchase them.
One of the popular cryptocurrency trading exchanges is known as Coinbase. However, there are a number of different options in this regard. Increasingly, online brokers are also offering cryptocurrencies such as Robinhood, eToro, Sofi Active Investing, and Tradestation.
At the end of the day, only you can decide if investing in crypto is the right call. It's an interesting proposition because the potential for the rewards are great, but so is the potential for risk.
Investing in Crypto: The Pros and Cons
As both retail investing and cryptocurrencies have been gaining in popularity, it's worth taking a look at both the advantages and the drawbacks of investing in cryptocurrencies. Anytime you invest there is a risk involved, and it's worth understanding the risk that you are taking on and what potential rewards you might reap.
Pro: Potential for High Returns
One of the reasons that investors are intrigued by Bitcoin and other cryptocurrencies is because of the vase growth it has seen in the last several years. Since Bitcoin began in 2009, the average yearly returns have been 180% according to a report from Bank of America.
However, it's important to understand that there is no such thing as a promised return when it comes to investing in crypto.
Pro: Offers Diversification
Another way that cryptocurrency could be a positive for your portfolio is through diversification. It doesn't seem that the returns on crypto are directly related to equities and other asset classes. This means that modestly investing in crypto could help to stave off bigger losses or add to overall returns.
Con: Risk of Volatility
You are basically signing up for a rollercoaster ride when you invest in crypto. In recent years, the value of crypto currencies has gone up and down wildly.
As a classic example, Bitcoin didn't reach a price over $1,000 until 2017. Then, by the end of the year, it reached $19,000. Only a year later, however, the price plummeted to nearly $3,000. As mentioned earlier, it then skyrocketed past $64,000 in April of 2021.
Con: Difficult to Understand
It's always a good idea to know quite a bit about what it is you're investing in. For example, if you invest in a particular company, you would want to know how it makes its money and what exactly it does.
It can be harder to fully understand everything to know about cryptocurrency, however. This is because this digital currency doesn't have the benefit of being a tangible service or product.
You'll probably want to understand the ins and outs of blockchain and other essential aspects of cryptocurrency before you put your money into it.
Con: No Known Valuation Benchmark
For other types of assets such as real estate and stocks, there is an understanding of how to value them. However, when it comes to cryptocurrency, there isn't a set standard for valuation.
This means that it isn't actually that easy to know if you're getting a good deal when you invest in crypto.
Con: Potential for Fraud and Scams
Lastly, cryptocurrencies are both open to fraud and scams. This is due to a number of factors, including anonymity, changing rules, and overall complexity.
There have been warnings to investors issued by regulatory bodies like the SEC, CFTC, and FINRA about crypto scams including Ponzi schemes.
Bitcoin, Dogecoin, and Cryptocurrency: What's Your Stance?
Understanding the difference between Bitcoin and Dogecoin can be a reasonable starting point to dipping your toes in the water of the crypto world. However, this is a vast, complex ocean that will definitely take some time and dedication to understand if you're just starting out. It's easy to get caught up in the hubbub around rising cryptocurrencies, only to hop on the bandwagon too late and watch your hard-earned money disappear to nothing.
For this reason, it's best to stay away from making impulsive investments. Just because someone else made money with a cryptocurrency doesn't mean that they weren't just lucky or that they will be able to repeat their success. Be wary of taking advice from other amateur investors, and always make sure that you are choosing your investments with a level head.
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