How do Dogecoin and Bitcoin work?

Dogecoin is a parody cryptocurrency created by Adobe Systems employee Jackson Palmer and programmer Billy Markus in 2013. Its name is derived from the “Doge” meme, whose many iterations usually feature a Shiba Inu dog surrounded by Comic Sans text.

The meme gained popularity in 2013 and dogecoin was introduced in December of that year. Palmer has said he wanted dogecoin to draw positive attention to cryptocurrency and to encourage innovations with the technology by making it accessible and appealing to new users.

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The open-source protocol is a fork of the luckycoin blockchain, which means that the original dogecoin developers created a copy of the luckycoin source code and modified that source code according to their own preferences. Luckycoin is a fork of litecoin, which is itself a fork of bitcoin.

Dogecoin was written in the C++ programming language, the same as bitcoin. According to the dogecoin website, the cryptocurrency is often used to tip internet users who create or share digital content. Its market capitalization exceeded $1 billion in 2018 and Elon Musk once declared dogecoin his favorite cryptocurrency.

Dogecoin’s developers have been largely inactive for several years. In 2015, Palmer announced that he would take an “extended leave of absence” from the cryptocurrency community, calling the community “toxic” and criticizing it for being “white male dominated” and marred by “buzzword-filled business ideas.” He left the protocol’s development in the hands of a team of select community members.

In July 2020, a video urging people to invest $25 in dogecoin went viral on TikTok, pushing its then-price of approximately $0.0028 (as of July 7) to $1 temporarily. As the #TikTokDogecoinChallenge began to trend, interest in buying dogecoin soared, and its trading volume increased 1,900% within two days. Briefly after the spike, dogecoin developers warned people on Twitter to avoid buying into financial “guarantees” to keep the market safe. The asset price has since returned to close to what it was before the surge.

How does dogecoin work?

Vision

Similar to bitcoin, dogecoin was designed to be a type of currency (albeit not a serious one); it is not Turing complete or capable of facilitating smart contracts like ethereum.

Dogecoin is often used to tip internet users who create or share digital content. Its market capitalization exceeded $1 billion in 2018.

Launch & issuance

Dogecoin was launched in December of 2013. At the time none of the cryptocurrency’s supply was set aside to incentivize the founders. The software was made immediately available for use, and those who wanted to mine the cryptocurrency were able to compete for rewards.

Network design & security model

As mentioned, dogecoin is a fork of the luckycoin blockchain. The developers were able to copy the Luckycoin software because it is an open-source protocol — anyone is free to use, study, change, and share it.

Unlike bitcoin, however, dogecoin uses the scrypt mining algorithm, which has lower hashrates and uses less energy than bitcoin’s SHA-256 mining algorithm.

Monetary policy

The total possible supply of dogecoin was originally capped at 100 billion coins, and the value of block rewards (which miners receive for validating transactions) was set to halve every 100,000 blocks until block 600,000 was mined. At this block, the reward became fixed at 10,000 dogecoin per block.

However, in early 2014 developers decided to make dogecoin an inflationary currency rather than a deflationary currency like bitcoin, and eliminated the cap on its supply. The network’s block reward remained 10,000 dogecoin per block.

Because dogecoin’s hard supply cap was removed, the price of the coins began to decline and the incentive for miners to mine the coin diminished. The network’s hashrate — a unit used to measure the processing power of a proof-of-work network — declined throughout 2014 and the dogecoin community became concerned that it could be susceptible to a “51 percent attack.”

Transaction processing

Dogecoin’s block time is approximately 1 minute — significantly faster than bitcoin’s average of 10 minutes.

Coding

Dogecoin was written in C++ (the same programming language that bitcoin was written in). The protocol is licensed under the open source MIT license which permits without restriction the copying, modification, publication, distribution, sublicensing, and selling of copies of the protocol.