The Story of Dogecoin — A Multi-Million Dollar Joke

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In Brief
  • Dogecoin recently reached more than $90 billion of market capitalization.

  • The cryptocurrency was born out a joke, before exploding in popularity.

  • The phenomena of reflexivity and mimicry explain how something like this happened.

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Dogecoin exceeded $90 billion at the beginning of May 2021. DOGE started out as a joke, so how did this coin reach these heights?

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The history of dogecoin (DOGE) began when Australian Jackson Palmer, an Adobe software engineer, became fascinated with the cryptocurrency markets’ craziness. Intending to laugh at it all, he tweeted that dogecoin would be the next great cryptocurrency after bitcoin.

Jackson came up with the fictional coin by combining the two trending topics: cryptocurrencies and the Doge meme.

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Once the tweet gained traction, Jackson doubled down. He bought the domain Dogecoin.com, uploaded the famous Shiba Inu dog (the breed of the Doge meme), and photoshopped it into a coin. He left a note on the website saying, “if you want to make dogecoin a reality, get in touch.”

Meanwhile, in the United States, Billy Markus, a software engineer who worked for IBM and obsessed with video games, saw Palmer’s tweet. Markus had just finished his own project, “Bells.”

“Bells” was a cryptocurrency named after the money used in the Nintendo game Animal Crossing. Markus decided to take a weekend away to create something as a joke using bitcoin’s open-source code.

The idea was that bells was not a serious coin. It was a digital currency based on a video game about animals living in a town and fishing together. However, apparently, the cryptocurrency community failed to understand the joke.

After the failure of bells, Markus read Palmer’s message on Dogecoin.com and realized that this tweet was going in the same direction as his cryptocurrency attempt, something lighthearted and fun.

Creating a multi-million dollar prank

Markus decided to contact Palmer to propose that they work together on the development of dogecoin. Palmer did not respond initially, but Markus still decided to get to work on the project immediately.

He began to reconfigure bitcoin’s source code to turn its user-oriented elements into what was to be dogecoin. Markus created 100 billion DOGE (as opposed to 21 million bitcoin) and made it easier to mine.

He changed the font (to comic sans, of course) and changed the word “mine” to “dig” (because dogs don’t mine, they dig …). Talking about his work, Markus said:

“It took me about 3 hours to do it, and most of that time I made modifications to change the text to comic sans, customize some graphics, and change the wording of different parts of the user interface.”

Finally, Palmer responded, and the two partnered. Just over a week after Palmer’s joke tweet, dogecoin was going live.

Neither Markus nor Palmer pre-mined any DOGE. Once it was launched, Markus was officially the first person to mine dogecoin.

Given the nature of mining (which becomes increasingly difficult as the coin is mined), his computer quickly became too weak to mine dogecoin after about five minutes. Markus split what he had drawn 50-50 with Palmer, and that was it. They both got around $5,000 from dogecoin.

The Reddit explosion

Dogecoin exploded almost instantly on Reddit, generating a market value of $8 million at the time. The cryptocurrency was made popular by the Reddit practice of “tipping. This is the act of rewarding people on the web for doing “good deeds,” such as sharing an idea or making a platform more accessible.

So it was Reddit’s “tip bot” that took dogecoin into the stratosphere. If a user posted something like “hey ‘dogebot’ give this person five dogecoins,” that Reddit user automatically received five DOGE.

Taking the joke to new heights

In January 2014, Jackson Palmer and the dogecoin team came up with a hilarious idea. For the first time in a decade, the Jamaican bobsleigh team qualified for the Winter Olympics.

However, they didn’t have enough money to attend. As big fans of the comedy Cool Runnings, Palmer and the dogecoin team decided to do something about it.

They put a dogecoin address on the subreddit and asked for donations. Hours later, they had raised $25,000.

This wasn’t the only charitable initiative by the founders. Both Palmer and Markus donated all of their dogecoins to charity initiatives. They helped build water wells in Kenya and raised money to help train assistance dogs for autistic children.

The illusion fades

As the community grew, the initial spirit in which dogecoin was launched was challenging to preserve. People started to worry about the price of dogecoin. Markus began clashing with members of the community. For him, dogecoin was still crypto “for dummies.”

In 2014, the market capitalization of dogecoin soared to almost $90 million. This resulted in more people seeing the coin as an opportunity to make money. Finally, he decided he had enough, and around 2015, Markus decided to abandon dogecoin.

Later Palmer would also end up leaving the project after an incident with Moolah. Moolah was a cryptocurrency exchange designed to make it easier for people to buy and sell dogecoin.

Alex Green, who ran Moolah, began handing out DOGE in exchange for upvotes on the dogecoin subreddit. He also donated generously to charitable causes the community was involved in. These included $2,500 to a cancer charity and $3,000 to help get the dogecoin Nascar vehicle on the track.

However, in October 2014, Moolah went bankrupt, and many people in the dogecoin community lost a lot of money. Things got worse when it was discovered that the name of the director of Moolah was not Alex Green but Ryan Kennedy.

As if this were not enough, the UK police were involved. After a three-year investigation, Kennedy faced multiple charges for fraud and money laundering.

In January 2018, the market capitalization of dogecoin exceeded $2 billion. However, it collapsed throughout that year, and by November, it barely reached $250 million.

Elon Musk and the resurrection of dogecoin

It’s remained relatively quiet on the dogecoin front until this year. At the end of January 2021, the Redditors behind the pump of GameStop (GME) turned their attention to dogecoin, causing a 250% increase in its price.

Shortly after that, Tesla founder Elon Musk caused another explosion in the price of DOGE by launching a tweet showing a rocket blasting off to the moon. Finally, dogecoin reached its all-time high on May 8, with a market capitalization of more than $90 billion.

Explaining the DOGE surge

So, where did this surge and interest come from? To find the answer, it’s necessary to turn to some economic and psychological theories.

What is the difference between a game and a financial asset? When does a game become actual finance? AS these lines blur, the phenomena of reflexivity and mimicry can be looked at as the reason.

The concept of reflexivity describes the circular relationships between cause and effect, especially those embedded in the structures of human beliefs. A reflective relationship is bidirectional, and in it, cause and effect affect each other, generating a feedback loop.

Philosopher of economics George Soros, influenced by the ideas presented by his tutor, Karl Popper, is one of the figures who has studied the relevance of reflexivity for economics.

According to Soros, thinking has two functions, the cognitive function, and the manipulative function. These two functions connect our mind and the world in opposite directions.

In cognitive function, reality determines people’s opinions. That is, facts shape our thoughts.

In the manipulative function, the intentions of the participants affect the world. The direction of causality is reversed, and then our thoughts shape the facts.

When both functions operate at the same time, they can interfere or interact with each other. The participants’ opinions influence the course of events, and the course of events influences the participants’ views.

The influence is continuous and circular; that’s what makes it a feedback loop. Hence the famous wheel analogy. Prices drive desire, desire drives prices.

Self-fulfilling prophecies

Anything that requires description beyond mere physical properties is subject to reflexivity. Highly reflective things need a narrative to be understood. Also, reflective assets are prone to volatility as narratives tend to be quirky.

For example, if someone says that bitcoin will revolutionize the world, this is a highly thoughtful statement. This statement is clear and concise, but it is not immediately verifiable and therefore triggers the human being’s ability to believe in something. In this case, in the promise of a better and more accessible world.

Dogecoin started with a highly thoughtful statement: “Dogecoin is going to be the next big thing.”

Later, the charitable spirit undoubtedly reinforced the dogecoin narrative as something revolutionary that had come to make the world better.

The public quickly empathized with the idea and wanted to buy the coin, which began to drive prices up. This only increased the desire for other people to have DOGE, which, as the demand increased, the price increased, thus initiating the reflexive circle.

Both the Reditters and Elon Musk’s tweets only increased this phenomenon. The truth is that behind dogecoin, there is no solid project. Therefore there is nothing to limit it. Any message, any narrative that connects with the user can trigger the desire to have it.

Memes and mimicry

In addition, to the reflexive cycle, Palmer’s joke coin was accompanied by something significant, a meme.

Evolutionary biologist Richard Dawkins defined the meme concept in 1976 as an idea, behavior, or style that spreads rapidly from person to person in a culture.

Memes are designed to help convey an emotional state in an easy-to-understand way. They are great generators of empathy and reflect a shared experience between the creator and the viewer.

Palmer used the doge meme that featured a picture of a dog with an expression that quickly generated a connection with the public. This is because the expressiveness of that dog gave rise to endless interpretations.

This made it easy to pass on, reinterpret and adopt. As a result, combining this meme with cryptocurrency became a potent combination for cultural spread and adoption.

Is dogecoin bad for cryptocurrencies?

The dogecoin phenomenon has drawn numerous criticisms of the cryptocurrency ecosystem. Many have seen this as the perfect excuse to attack bitcoin and other cryptocurrencies, accusing them of being a bubble and warning of the danger suffered by all the people who have invested in DOGE.

While a speculative bubble is dangerous for less savvy investors, it is also a way to draw attention to the crypto world.

It is evident that in the crypto sector, there are projects of a disparate nature. Some like ethereum or bitcoin with a solid proposition and a consolidated product-market-fit, and others are a joke like dogecoin.

However, speculative bubbles are nothing new. They have happened before in history, and they will undoubtedly continue to occur in the future since they have formed thanks to desire, longing, and fear, emotions all of which are part of human nature.

The dogecoin specualtive bubble

The formation of a bubble follows several stages. First, there is an investor rapture at something new and revolutionary, such as a technology.

The euphoria follows this, and later the more savvy investors begin to sell and collect profits, making the price fall. Investors eventually panic, and the bubble bursts.

Economist Robert J. Shiller defines an economic bubble as a situation in which the news about a price increase stimulates the enthusiasm of investors, which is spread by psychological contagion from person to person.

Enthusiasm amplifies narratives that could justify rising prices. This attracts a growing class of investors who, despite doubts about the real value of the investment, are drawn to it partly out of envy of the successes of others and partly out of the thrill of the game.

However, Shiller also believes that it is tough to know when a bubble will end or if it is going to end.

The problem with speculative bubbles is that the concept creates a mental image of an expanding soap bubble, which is bound to burst suddenly and irrevocably. However, speculative bubbles don’t end easily. Rather, they can deflate a bit as the story changes and then inflate again.

This is what happened to dogecoin after Moolah’s bankruptcy in 2014; the price deflated. However, thanks to redditors and Elon Musk, the price swelled again in 2021.

However, the deflation from this recent hype has already begun. While the coin has not crashed, it has continued a steady decline from its all-time high.

Will DOGE disappear completely one day?

Assets like DOGE are volatile precisely because they depend on a narrative. There are no fundamentals behind that can sustain prices.

Dogecoin’s market capitalization was around $625 million on January 1, 2021, and over $90 billion five months later. At the time of writing, it is around $50 billion, down from its ATH but not near crashing.

While it could go down 90% as sentiment turns, with every Musk tweet comes another jump, so it’s hard to say where it will go next.

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