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As the year of bitcoin comes to an end, David Gilbert investigates the next big crypto-currency - Dogecoin.
As bitcoin, litecoin and the other better known digital currencies saw their value crash heavily this week, there was one notable exception – Dogecoin – the hot new crypto-currency which was born out of a strange internet phenomenon based on the inner thoughts of a dog.
Dogecoin's value soared 400% in just over 24 hours on Wednesday, and while it has dropped slightly since, it is still outperforming all other digital currencies which almost uniformly follow the ups and downs of the grand-daddy of virtual currencies, bitcoin.
But what is Dogecoin? Where has it come from? And what is it being used for? To answer these questions, let's begin at the beginning, with a dog and his inner thoughts:
What is doge?
If you don't spend most of your time on the internet, then the likelihood is that you have not come across Doge, which has been given the prestigious title of Meme of the Year 2013.
Doge is a slang term for dog and the meme is primarily assoiated with pictures of Shiba Inus dogs which have been enhanced with text (in the Comic Sans font) which is said to represent the inner voice of the dog.
No, I don't get it either, but millions do, and it became a huge sensation during 2013. That said, it is likely the last place you would expect the next big virtual currency to spring from – but you would have been wrong.
Who created Dogecoin?
The person who managed to bring an internet meme about a dog's inner thoughts together with bitcoin was Jackson Palmer, an Australian who by day works at Adobe's marketing department in Sydney.
Meanwhile, on the other side of the world in Portland, Oregon, Billy Markus was struggling away trying to program his own crypto-currency, when he stumbled across Dogecoin.com and decided this was for him.
Palmer and Markus got in touch and within a week of the idea first forming, Dogecoin coin was born.
How does Dogecoin work?
Dogecoin was created by Markus using the publically available bitcoin source code, altered so that the user-facing elements reflected the doge meme.
It works in the same way. To mine Dogecoins, you need to solve complex mathematical algorithms using your computer. Once mined, these coins are held in virtual wallets, with transactions being anonymous.
Dogecoin actually more closely resembles another virtual currency, litecoin, which uses a cryptographic program called Scrypt. Like litecoin, a block of dogecoins can be mined much faster than a similar block of bitcoins.
This also makes transactions faster, meaning that payments for goods or services can be cleared faster than those made by bitcoin - an obvious benefit for retailers..
The other main difference is that the number of Dogecoins which can theoretically by mined is much greater than the number of bitcoins which will ever be created – 100 billion versus 21 million.
How much is one Dogecoin worth?
As of Friday morning at 10am GMT, one Dogecoin was worth $0.00099.
Some of the goods currently being sold for Dogecoins include a 1-year old Subaru Impreza for 7.5 million Dogecoins – or $6,825.Granted this is not a lot, but on the basis of market capitalisation (price x number of Dogecoins in existence), the crypto-currency is the 11th biggest in the world with a market cap of almost $9 million.
Is Dogecoin legitimate?
Yes, as much as any other crypto-currency is. It is currently being traded on three separate crypto-currency exchanges and there is a Dogemarket running on Reddit where people are buying and selling the virtual currency.
Why has it become so popular?
There are a number of reasons, but the main one is the same reason most things like this become popular on the internet – Reddit.
Reddit was where the doge meme itself began to gain traction, and now with a subreddit dedicated to the new digital currency, it is here where its main fanbase is likely to grow.
Another reasons that Dogecoin has gain popularity so quickly is because, in the words of Palmer:
"It's not taking itself as seriously, it's not being used by people worrying about whether they'll become rich."
Dogecoin is envisioned as an anti-bitcoin, which is seen now as the plaything of serious investors and businessmen such as the Winklevoss Twins.
Dogecoin can still be mined using a run-of-the-mill PC, unlike bitcoin which requires industrial strength computing power in order to mine a single coin.
Tipping with Dogecoin
What has facilitated Dogecoin's rapid rise to popularity is the phenomenon of "tipping" online.
Tipping is the online equivalent of throwing a few coins into a busker's hat on the Underground. People who perform good deeds online will be donated some coins in their virtual currency of choice.
Within a week of launch, Dogecoin was the second most-tipped crypto-currency in the world. As Palmer says: "It's something to share for thanks or kudos."
Will Dogecoin become the new bitcoin?
It's unlikely, as it is looking to capture an altogether different demographic. Bitcoin is likely to continue its dominance of the crypto-currency landscape well into 2014.
Dogecoin is looking to fill the gap left for those interested in digital currencies but unable to get on the bitcoin bandwagon now that the price has soared. It offers a way to get involved with the movement without breaking the bank.
The problem is, that as we move into 2014, and pictures of dogs with their inner thoughts are replaced by the next meaningless meme, Dogecoin could disappear just as quickly as it has appeared.