What is Dogecoin & How it Works?

What is Dogecoin?

Dogecoin is an open-source, peer-to-peer cryptocurrency created in 2013 as a lighthearted alternative to traditional cryptocurrencies like Bitcoin. Designed to send and receive payments through the Dogecoin blockchain network, Dogecoin is abundant, unlike Bitcoin, which was designed to be scarce. So, Dogecoin has no maximum supply.

Dogecoin is based on Litecoin and follows the same computationally intensive Proof of Work (PoW) consensus mechanism. Thus, miners will need advanced mining hardware with excellent hash rate and energy efficiency to solve complex puzzles and mine new Dogecoins. Upon confirmation, the transactions are added to a decentralized public ledger.

Dogecoin attracted several eyeballs due to the tremendous price surge in May 2021. It is most probably due to social media-driven trends. For instance, Tesla Elon Musk’s tweet on Dogecoin is partly responsible for the price surge. The user base of Dogecoin increased drastically following the price surge of Dogecoin.

However, the price dropped in the later months of 2021. No one can predict when the Dogecoin price will fall or surge again, as it depends on several factors. Thus, users should watch the market closely before making any investment decisions.

Dogecoin is often used for crowdfunding and as a light crypto-asset for tipping content creators. However, since many started using it, various merchants have widely accepted it as a mode of payment.

History of Dogecoin

Billy Markus, an IBM software developer, and Jackson Palmer, a product manager at Adobe Inc., created Dogecoin in 2013. The idea behind Dogecoin is to create a fun alternative to overhyped traditional cryptocurrencies.

1. Initial Stages (2013-2014)

Launched in December 2013 by Palmer and Markus, Dogecoin was welcomed by users worldwide due to China’s encouragement of cryptocurrency investment. Moreover, Dogecoin is a fork of Luckycoin, which is itself a fork of Litecoin. It leverages Litecoin’s Scrypt and PoW mechanism on its blockchain. Earlier, Dogecoin used a randomized mining reward and changed to a stable reward in 2014.

2. Last Decade (2015-2024)

Later, in 2019, the famous crypto platform Binance listed Dogecoin. With increased market capitalization, Dogecoin gained popularity with an active online community. Kabosu, the dog behind the Dogecoin meme, died in May 2024, and the internet was flooded with the dog’s passing messages.

Features of Dogecoin

Now, let’s discuss some of the prominent and unique features of Dogecoin.

• Abundant in Supply

Dogecoin is abundant, unlike other traditional cryptocurrencies like Bitcoin, which are scarce and limited in supply. Dogecoin has no maximum supply. So, how many Dogecoins can you mine per day? One can mine around 10,000 Dogecoins every minute. That concludes around 14,400,400 new Doge coins per day.

• Decentralization

All cryptocurrencies are decentralized, meaning no central authorities govern them but a collection of users worldwide. The number of nodes generally determines decentralization. The number of nodes is comparatively lesser than Bitcoin, making Dogecoin susceptible to a 51% attack when a single entity controls over 50% of the network.

• Dedicated Community Support

Dogecoin has an active and supportive community online. Often, they indulge in social media campaigns, tipping, and other charity events. In fact, the active community played an extensive role in Dogecoin’s recognition worldwide.

• Uneven Distribution

A small number of individuals hold the majority of Dogecoins. For instance, around 0.002% of Dogecoin wallets have about two-thirds of the total Dogecoins in supply. Thus, there is a risk of few individuals determining the price fluctuations and market liquidity.

How does Dogecoin Work?

Like traditional cryptocurrencies like Bitcoin or Ethereum, Dogecoin has its dedicated blockchain. It has a transparent digital ledger that displays all Dogecoins transactions for users to view.

Dogecoin follows the PoW consensus mechanism, which requires miners to solve complex mathematical algorithms to validate transactions and update them on the ledger. Miners will be paid in Dogecoins for contributing their resources and expertise.

• Users can use Dogecoins to make payments and buy stuff. However, it is not ideal to store Dogecoins as the cryptocurrency is highly inflationary in terms of development and design.
• Now, let’s see the steps involved in the Dogecoin transactions in detail.
• Users can initiate Dogecoin transactions with another person by knowing their wallet ID and public key. Firstly, users will need to make a transaction request.
• Once the transaction request is made, the system alerts the Dogecoin miners worldwide to validate the transaction.
• Miners will validate whether the sender has enough Dogecoins to make the transaction. Once they have verified this, they will approve the transaction request.
• Dogecoin miners collect all the pending transaction data called nonce and then apply a mathematical function to generate the correct hash number for that specific nonce.
• The miners will be rewarded with Dogecoins upon successful generation of accurate hash numbers.
• Both the sender and receiver will get a confirmation message stating their transaction approval.
• The requested amount of Dogecoin is credited into the receiver’s wallet within a few minutes.

How to Buy Dogecoin?

Dogecoin is available in various cryptocurrency exchanges. Hence, you can open an account with a reputed cryptocurrency exchange supporting Dogecoin. Most exchanges accept US dollars or cryptocurrencies.

Once you get your crypto wallet to store Dogecoins, you can place your order through your broker. You will receive your Dogecoin in your wallet once they execute the order. Besides, you can also buy a crypto wallet that adds an extra layer of security for your Dogecoin to prevent malicious attacks.

You can either use hot software wallets or cold hardware storage wallets. While hot software wallets are free, you will require an internet connection to access your Dogecoins. On the other hand, cold hardware wallets can be accessed offline. However, those cold hardware wallets come with a reasonable fee.

Here are some reputed crypto exchanges that you can buy Dogecoin from,

• Coinbase
• Gemini
• Kraken
• Binance
• KuCoin
• CoinSwitch

Dogecoin Vs Bitcoin

Dogecoin has a few notable differences from the popular cryptocurrency Bitcoin. Though they are both cryptocurrencies that follow the PoW consensus mechanism, the points below distinguish them.

• Dogecoin transactions are quicker and easier. For example, if Bitcoin transactions take 10 minutes, Dogecoin transactions will take only one minute. Thus, Dogecoin is slightly more efficient for daily transactions.
• Bitcoin has a maximum cap of 21 million. It is designed to be limited in supply to prevent inflation. However, Dogecoin has no limits and is abundant in supply.

Should you Invest in Dogecoin?

Dogecoin is a cryptocurrency that has seen significant growth since its inception. Moreover, it has many advantages over traditional cryptocurrencies, such as low costs, easy accessibility, and security. Thus, anyone can easily buy or mine Dogecoin compared to other cryptocurrencies.

However, investing in Dogecoin is as risky as investing in any other crypto. No one can predict its price movements accurately, so there is no guarantee that it will be profitable.

Moreover, Dogecoin is abundant in supply as it is not designed with a maximum limit like Bitcoin’s 21 million. Thus, Dogecoin will be available in the market abundantly without any scarcity. Hence, there will be reduced demand for Dogecoin. That, in turn, makes Dogecoin mining also less profitable, unlike Bitcoin mining, whose value keeps increasing due to its limited supply.

Researching, understanding price movements, and making an informed decision about investing in Dogecoins are always recommended. Thus, you can avoid potential losses and enhance your profits.

Dogecoin Price History

Analyzing Dogecoin’s price history and past performances will help you make informed decisions about investing in or mining Dogecoin.

The price movements of any cryptocurrency are highly volatile, and Dogecoin is no exception. Thus, users should follow the price movements closely before making potential decisions.