What are the main risks of holding Dogecoin?
Holding Dogecoin means facing endless new coins, hype-driven demand, exchange failures and US tax on swaps. The network itself has no off switch.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
On this page
- A hardware wallet removes exchange risk, not market or tax risk.
- Losing your seed phrase usually puts the coins out of reach.
- Dogecoin payments are public and traceable, so they are not private.
Dogecoin is a cryptocurrency that its community uses for quick payments and small tips, the project says. It started as a joke and became the first meme coin.
What are the main risks?
Dogecoin has no maximum supply. Miners receive new coins for every block they add, so the total grows each year and your share shrinks unless you buy more. Demand follows social media attention, and a few large wallets hold enough coins to push the market down when they sell. Coins on an exchange add company risk: the platform can be hacked, freeze withdrawals, or fail.
What legal rules apply?
The IRS treats cryptocurrency as property. Selling Dogecoin for dollars, swapping it for another coin, or paying with it can create a taxable gain or loss, even if the money never reaches a bank. Buying with dollars is not a taxable event by itself.
How does Dogecoin work?
Dogecoin runs on a proof-of-work network, the design Bitcoin also uses, and miners are paid in new coins for adding blocks. It uses the Scrypt algorithm, so Bitcoin mining hardware cannot mine it.
- Blocks arrive faster than Bitcoin's, so payments confirm sooner.
- The supply has no ceiling, while Bitcoin's is capped.
- The project says miners can secure it and Litecoin together.
- Every payment sits on a public ledger, so anyone can trace the coins.
Who created Dogecoin?
Two software engineers, Billy Markus and Jackson Palmer, released Dogecoin on December 6, 2013, as a parody of Bitcoin and the grand plans other coins advertised. It became the first meme coin and the first dog coin. The joke origin does not make the network unworkable.
Frequently asked questions
Under the Commodity Exchange Act, virtual currencies count as commodities, and the CFTC can police their cash markets. The SEC has not named Dogecoin a security, and no court has ruled that it is one.
The network has no owner and no off switch, so no company can shut it down. Exchanges and wallets are the usual targets, and the CFTC warns that stolen coins come with no guarantee of recovery.
The seed phrase in a wallet you control is the usual way to recover coins. Lose the keys and the phrase, and the coins stay on the ledger, out of reach.
