The rise of Dogecoin

The value of Dogecoin, a cryptocurrency that originally started as a “joke” has continued to rise in the recent years along with other cryptocurrencies. The value of Dogecoin as of January 2018 is at $2 billion.

Cryptocurrencies like Ripple and Bitcoin have also enjoyed an exponential increase in their valuation.   

Background

Cryptocurrency is a digital asset (in other words a form of digital money) that is designed to stay secure. It uses cryptography to secure its exchanges making it nearly impossible to counterfeit. Cryptocurrency in particular is classified as a subset of digital currencies.

Bitcoin was the first decentralized cryptocurrency. It was first created in 2008 by either an anonymous programmer or a group of programmers under a pseudonym, Satoshi Nakamoto. “Nakamoto” released Bitcoin in 2009 as an open source software. It is not controlled by any government and is one of the most popular cryptocurrencies in the world. Litecoin, Peercoin, Namecoin and Ripple are among the other cryptocurrencies available.

Initial coin offering (ICO) is means of crowdfunding through the use of cryptocurrency. This form of crowdfunding is not regulated as cryptocurrency is unregulated. ICO is a method employed by companies to raise money. They sell investors digital tokens in exchange for cryptocurrencies like Bitcoins. As the field is unregulated, there is also an increased risk of investor scams.

Despite the inherent risks, ICOs have become increasingly popular, especially with companies in Silicon Valley. According to a report from Financial Times, software developers have been able to raise about $1.8 billion through the sale of new currencies. Some of these currencies that were used are Atoms, Basic Attention Tokens and Tezzies. These digital tokens are traded only in unofficial online markets.

The value of Bitcoins has continued to rise in 2017. Earlier this year, it was worth $1,000 and had risen to over $12,000 by the end of the year. In December, it began to reach dizzying heights when it was valued at just over $20,000.

Analysis

Dogecoin is a cryptocurrency featuring a likeness of the Shiba Inu dog from the "Doge" Internet meme as its logo. Initially it was introduced as a "joke currency". It came into existence on December 6^th 2003. Despite the fact that it had been created as a joke, within the span of one year, its valuation had jumped to $60 million. It has continued to steadily rise since then. In January of 2017, it was valued at $1 billion. A year later, the cryptocurrency is now worth $2 billion.

Even within the spectrum of cryptocurrencies where valuation has been erratic, Dogecoin is not taken seriously. The founder of Dogecoin, Jackson Palmer, has talked about the recent price rise by saying: "I have a lot of faith in the Dogecoin Core development team to keep the software stable and secure, but I think it says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn't released a software update in over 2 years has a $1B+ market cap".

Bitcoin is still the most valuable cryptocurrency in the block and has a total value of more than $270 billion. Prof Ethan Ilzetzki at the London School of Economics told the BBC: “A digital unit of currency has no intrinsic value unless it can be used in transactions, and I cannot name a single cryptocurrency that is more useful in transactions than a credit card that's denominated in dollars or pounds or yen. There's nothing inherently wrong with privately provided digital currencies, but they need to be well designed and well thought out. They're worth a lot because people say they're worth a lot. I have very little confidence that they have any long-term value.”

Assessment

Our assessment is that markets are still struggling to denote a clear value to the many cryptocurrencies being introduced and traded. However, it has become clear that in a networked world, people are gravitating towards decentralized transactions and will come to view cryptocurrencies as hard cash. Dogecoin proves that even cryptocurrencies that began as jokes should be taken seriously.