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What is Dogecoin and Why is it Claimed to be a Tesla Pyramid Scam?

Here we Explain Why Elon Musk is in Trouble Again for his Irresponsibility on Twitter, This Time Because of the Dogecoin Cryptocurrency.

Dogecoin

Photo: Pixabay

LatinAmerican Post| Juan Manuel Londoño

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Leer en español: ¿Qué es Dogecoin y por qué se afirma que es una estafa piramidal de Tesla?

Dogecoin is one of the many cryptocurrencies that exist on the Internet. Originally conceived as a joke and a “satire” on existing cryptocurrencies, the coin bears the face of the Shiba Inu dog from the “doge” meme. The coin was launched in 2013, but its huge popularity among various Internet users led it to become a legitimate currency.

Its popularity reached its peak on May 7, 2021 when it reached a value of 0.64 dollars, due to various factors that we will mention in a few moments. This made several people see this coin as a legitimate investment. However, since then the value of the coin has been slowly but surely falling and today it is barely worth $0.063.

This understandably drew the ire of several investors, who saw the various endorsements made by celebrities such as Elon Musk, Snoop Dogg, and Mark Cuban to the coin as a hoax. One US investor in particular, Keith Johnson, decided to take action on this and is now suing Musk and his companies in a class action lawsuit. Johnson claims that Musk was instrumental in attracting investors to Dogecoin, which then tanked, causing investors to lose millions.

It is that Musk, again, is in trouble for using his Twitter improperly. In February 2019, the tycoon sent a series of Tweets promoting the cryptocurrency that catapulted its value.

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According to Johnson, “Musk used his pedestal as the richest man in the world to operate and manipulate the Dogecoin pyramid scheme for profit, exposure and fun.” Therefore, he is suing Elon for $86 billion in damages and $172 billion in treble damages. The plaintiff also wants Musk to stop promoting the coin on his social media and to qualify the coin as a form of gambling under federal and New York law.

Why is it called a pyramid scheme?

As the lawsuit argues, Dogecoin is based on the “greater fool theory”. It argues that people can sell overvalued securities to a "major fool," whether or not they are overvalued. That is, of course, until there are no bigger fools left.

Bill Gates, for example, argues that cryptocurrencies are based on this theory. Cryptocurrencies have no intrinsic value, they are just lines of code. However, people buy them at enormous prices, hoping to sell them at even more exorbitant prices. Of course, this chain has to have an end, a person (or several) who makes a huge investment and has no one else to sell to.

In his defense, Dogecoin creator Shibetoshi Nakamoto argued that “if Dogecoin is a pyramid scheme, so is the entire cryptocurrency market, the stock market, the commodity market, and the monetary system itself. Let's sue Alexander Hamilton."