In this article, we’ll explain what Dogecoin is, how it works, and discuss its advantages and disadvantages.
Dogecoin is an altcoin and the original memecoin named after the popular “Doge” meme, created using a 2010 photograph of a Shibu Inu dog.
On the functional front, Dogecoin is a peer-to-peer cryptocurrency. It is a virtual currency that allows global payment and transaction options for token holders. Similar to other popular cryptocurrencies, Dogecoin is also open-source and decentralized.
This means that Dogecoin’s code can be reviewed by anyone for legitimacy, and there is no central authority that controls its blockchain network.
Dogecoin uses the same fast, efficient, and secure algorithm as Litecoin; therefore, it can be mined easily using a regular personal computer. (Add graphic of a PC)
However, it is faster to mine than Litecoin due to upgrades in the algorithm.
Dogecoin is listed on many popular crypto exchanges and has gained substantial industry support in recent years.
However, it has also gained plenty of criticism due to its comic origins.
So, how did Dogecoin get started?
Dogecoin was launched in December 2013 by Billy Markus, an IBM software engineer, and Jackson Palmer, an Adobe software engineer.
The duo launched Dogecoin as a joke, aiming at cryptocurrencies and the well-established cryptocurrency Bitcoin.
They wanted to give cryptocurrencies a friendly, non-threatening look that helps the public embrace the future of virtual currency and the world of crypto.
Due to this reason, the founders used the internet meme Doge to represent their crypto. This meme, which features an image of a Japanese Shiba Inu dog giving an astonished look, is popular among Internet users.
Billy Markus has even gone as far as to tweet under the handle “Shibetoshi Nakamoto” in a Shibu-related nod to the pseudonym Satoshi Nakamoto used by Bitcoin’s founder.
Surprisingly, investors missed the joke behind Dogecoin, and it didn’t take long for the crypto to hit a market cap in the billions. (Add Dogecoin performance charts)
People had started using Dogecoin for online transactions as soon as it hit the market, and this came as a huge surprise to Dogecoin’s founders.
Moreover, the endorsement of Dogecoin by famous billionaire tech giant Elon Musk and Ethereum founder Vitalik Buterin has further added to the meme coin’s popularity and mass acceptance.
Like Litecoin and Bitcoin… Dogecoin offers transactions and payment options to users around the world without the need for an intermediary to process the transactions.
However, Dogecoin’s overall usefulness and underlying technology are not on par with the likes of, Bitcoin, or Ethereum which are established crypto giants.
The problem with Bitcoin’s network has always been its limited capacity to handle large amounts of transactions in a short period.
This is because its records or blocks on the blockchain are limited in size and frequency, which reduces its scalability.
Dogecoin overcomes these scalability issues using larger blocks to provide a faster and cheaper everyday virtual currency. This is similar to what other altcoins like Litecoin do.
Since Dogecoin and Litecoin are based on the same cryptographic algorithm, they have an easier time with transaction speeds and scalability than Bitcoin. Although, Dogecoin is the fastest among these three.
Both Dogecoin and Litecoin employ the newer, scrypt (pronounced ess-crypt) algorithm, which is different from Bitcoin’s SHA-256 algorithm.
Unlike SHA-256, scrypt requires less computational power and energy because of its much lower hash rate. However, some argue that Bitcoin’s SHA-256 algorithm offers better data security because it is more thorough.
This does not mean that scrypt is unsafe by any means. It is still very secure while also offering speed and efficiency, and most miners and crypto experts prefer scrypt over SHA-256 for these reasons.
Dogecoin has a 1-minute block generation time, allowing it to process and confirm transactions every minute. (Add animation of physical blocks/cubes being generated.)
This block generation rate is what makes Dogecoin nearly twice as fast as Litecoin and ten times as fast as Bitcoin when it comes to real-world transaction processing.
These improvements demonstrate Dogecoin’s advantages as an everyday virtual currency. However, they do not make it superior to Bitcoin because experts and the general public prefer Bitcoin’s security and market value over altcoins.
This is especially true for altcoins like Dogecoin because it is also a memcoin and the market perception of memecoins is that they are flippant, untrustworthy, and hyper-volatile investments.
Regardless, Dogecoin is on its way to reduce standard transaction fees by a factor of 100, add CheckSequenceVerify (CSV) technology, and include segregated witness or SegWit technology to its network. (Add CSV and SegWit graphics)
SegWit increases the number of transactions a block can hold by segregating the “witness data” or “signature data” from the transactions, while ensuring security is intact.
Whereas CheckSequenceVerify will allow Dogecoin to create second-layer payment channels similar to the Lightning Network on Bitcoin.
Lightning Network is a technology that offers incredibly fast, multiple transactions to be performed securely without interacting with the blockchain network fully.
These upcoming technologies aim to enable fast, safe, multiple transactions on the Dogecoin network and reduce transaction costs to improve its scalability and everyday use.
How Does Dogecoin Work?
Dogecoin works using blockchain technology that relies on a network of computers. In a blockchain network, all the computers maintain an up-to-date, distributed ledger.
Every computer, known as a node, has the same copy of the ledger to establish trust. The ledger holds all the “blocks” of information “chained” in a chronological order.
The blocks contain time-stamped transaction information of the cryptocurrency. They ensure that every crypto token and its transaction history is accounted for.
The nodes on the blockchain network are working constantly to verify the latest transactions, produce new blocks for them, and update the ledger collectively.
This process upholds the integrity of decentralization because no single node can tamper with the recorded contents of the ledger without being noticed by other nodes.
Dogecoin uses a Proof-of-Work system to secure transactions and, in turn, secure its blockchain network.
In a Proof-of-Work system, a node on the blockchain has to share and provide evidence that it has performed the necessary computations needed to produce a new block of transactions securely.
The other nodes confirm this claim by processing the evidence within the new block. If the evidence proves legitimate, they all save the new block as a permanent record on the distributed ledger.
This Proof-of-Work system allows secure and accurate updates to the ledger or blockchain because they are based on consensus to justify new transactions.
What Can Dogecoin Be Used for?
By now, you are probably wondering what Dogecoin can be used for. As mentioned previously, Dogecoin provides transaction and payment solutions to its users around the world. Since it is peer-to-peer and decentralized, there is no need for an intermediary, like a bank or government, to process the transactions. (Add relevant graphics)
You can purchase products and services, or simply exchange Dogecoin for fiat currencies at the ongoing market rates.
This allows Dogecoin to also serve as an investment opportunity.
Investors and traders can speculate on its market performance and make long-term investments or short-term trades for profit.
Like most cryptocurrencies, Dogecoin’s value is volatile because it has no government backing.
What Are Dogecoin’s Tokenomics?
Dogecoin’s tokenomics are reflected in its volatile performance history. Being a viral and more established cryptocurrency, Dogecoin can be found on almost every crypto exchange.
Its performance is also linked to its popularity, which is driven by its constant presence on social media platforms, like Twitter and Reddit.
Dogecoin is seen as a people-powered underdog and gets frequent recognition from the Twitter accounts of Elon Musk and many other celebrity influencers. (Add Elon Musk’s tweets)
It is also a constant topic of conversation on the crypto enthusiast Reddit groups, including the influential subreddit, SatoshiStreetBets.
Bitcoin and Litecoin have a limited supply of coins, hard-capped at 21 million and 84 million coins respectively. In contrast, Dogecoin has an unlimited supply of coins.
This means Dogecoin has an inflationary supply and its price action depends on demand and supply rather than scarcity that makes Bitcoin and Litecoin deflationary.
Therefore, investors need to understand an altcoin’s tokenomics before investing in it.
New coins of Dogecoin are constantly being supplied to the market, and its price hike depends on there being more demand for these coins than the ongoing supply.
However, the memecoin does have a limit of 5 billion coins per year to incentivize Dogecoin miners and keep the network secure and operational.
There are currently over 130 billion Dogecoin in circulation and will continue to rise by 5 billion each year. This mass supply of Dogecoin helps bring down its per coin costs, which further lowers transaction fees, making them inexpensive.
Due to the lack of a hard cap, Dogecoin has no halving cycle like Bitcoin or Litecoin. This means that the mining reward for each block of Dogecoin will always remain the same at 10,000 Dogecoin per block.
Additionally, Dogecoin uses the same scrypt algorithm as Litecoin, hence both cryptos can be merged mined or mined simultaneously. Crypto miners favor cryptocurrencies that can be merged mined since they are more resource efficient.
However, experts warn that Dogecoin has one of the most unbalanced distributions of wealth in the crypto world. This is because a mere 82 addresses account for almost 65 percent of the total Dogecoin supply, with one address holding a whopping 28 percent.
It isn’t difficult to see that these “whales” have a substantial advantage and control over Dogecoin’s market value.
Moreover, the continued volatility and long-term reputation of Dogecoin as a joke make considering it as an option very difficult for serious investors.
Even the creators still think of Dogecoin as a joke, and this is evident in Jackson Palmer’s tweet describing the cryptocurrency space as “the worst parts of today’s capitalist system.” (Add the Jason Palmer Tweet)
Co-creator Billy Markus famously expressed a lack of trust in the memecoin by selling all his Dogecoin holdings to buy a used Honda Civic in 2015.
What Are the Key Advantages of Dogecoin?
PRESENTER: So, what are the key benefits of Dogecoin?
- Dogecoin is supported on almost every cryptocurrency exchange.
- It is a well-known altcoin, making it easy and popular to trade.
- Offers low transaction fees and fast transaction speeds.
- Is open-source, decentralized, and uses the efficient scrypt algorithm.
- Easy to mine, requiring less computing power.
- It is energy-efficient and scalable.
Dogecoin is viral on social media platforms and endorsed by popular internet influencers from the crypto, tech, and investment spaces.
What are the main disadvantages Dogecoin?
- Being the first memecoin, Dogecoin has a long-standing reputation of being a joke.
- Due to its unlimited supply of coins, dogecoin is inflationary and its price action is heavily dependent on supply and demand.
- Whales hold the majority of the Dogecoin in circulation, and it influences much of its market value.
- Dogecoin creators are not fully invested in the crypto, devaluing its credibility.
Conclusion
Dogecoin is an old altcoin created as the first memecoin, and to everyone’s surprise, it turned into a popular, billion-dollar cryptocurrency for transaction and payment purposes.
When compared to giants like Bitcoin, Dogecoin has a faster and efficient performance. However, it is still not considered at par with Bitcoin because of its inferior security and reputation.
Dogecoin has gained viral status over the years and is regularly promoted by popular internet influencers, however, it is still a volatile crypto that is not trusted by most experts.
Regardless, Dogecoin continues to show promise as an everyday virtual currency, and its endorsement by popular influential personalities indicates growing demand and value over the coming years.
