What is Dogecoin?
Dogecoin (DOGE) is an open-source, peer-to-peer cryptocurrency that was made as a parody of the crypto market following the establishment of Bitcoin. It was originally created as a light-hearted joke for crypto enthusiasts, but it quickly exploded to be one of the leading cryptocurrencies in use today.
Dogecoin’s brand logo is based on a popular meme of that time that featured a Shibu Inu dog. It was created in December 2013 and was based on the same basic technology of other cryptocurrencies like Bitcoin and Litecoin.
However, Dogecoin introduced some improvements, which included faster access speeds and more affordable transactions. Also, it counts the support of a robust community around the DOGE popularly known as the “Doge Army.” In 2021, Dogecoin is the ninth-largest cryptocurrency by market capitalization.
Dogecoin uses a simplified variant of the hashing algorithm, Scrypt. It also uses the “proof-of-work” protocol, enabling it to receive work from other Scrypt based networks. Dogecoin mining is less power-intensive than Bitcoin algorithm SHA-256.
History of the Dogecoin
Dogecoin was created in late 2013 by two software engineers, Bill Marcus and Jackson Palmer, who were working at IBM and Adobe Systems, respectively. It was created using the open-source code from Litecoin, which itself was a fork of the Bitcoin blockchain. The main purpose of its creation was to raise public awareness of blockchain technology capabilities.
Through the support of a large online community, which included Elon Musk, Mark Cuban, and Snoop Dogg, the volatile crypto has risen more than 4,000% in 2021 alone, with some analysts forecasting the price to reach $1 before the end of the year.
The online community has also been influential in newsworthy headlines, which included various fundraising events, such as the $50,000 fundraiser to send the Jamaican Bobsled Team to the 2014 Winter Olympics after the team qualified but could not afford to attend. They also sponsored a NASCAR Sprint Cup Series driver, Josh Wise, with about $55,000 in 2014.
Such publicity stunts raised Dogecoin to almost cult status by 2021. It gained influence on Redditt’s WallStreetBets message boards and Twitter, where its value responded to popular Elon Musk tweets, such as propelling its value “to the moon,” “fav cryptocurrency,” and “people’s crypto.”
The historical DOGE price is illustrated below:
The price of DOGE remained relatively flat since inception but began increasing rapidly in April 2021. The all-time highest price reached was $0.7376 and an all-time low of $0.00008547. The ROI for early investors is about 89,841% as of 15 September 2021.
1. No Maximum Supply
Dogecoin has no maximum supply as in other cryptocurrencies such as Bitcoin. Dogecoin miners earn 10,000 DOGE per block, and each block is created every minute. It entails that 14,400,400 new DOGE tokens are created per day, which are then sold to the market or stored in miners’ wallets.
At the time of writing this article, there is about 131.28 billion DOGE in circulation, with a market capitalization of $31.67 billion and a price of $0.24.
Decentralization is part of the security governing most cryptocurrencies, meaning that security is in the hands of a collection of users worldwide. The decentralization of a cryptocurrency is usually measured by the number of nodes on its network and miner distribution.
According to block explorer, Blockchair, Dogecoin has about 1,090 nodes compared to 10,000 nodes over 97 countries for Bitcoin. This makes the Dogecoin network susceptible to a 51% attack where a single person or entity controls over 50 percent of the network.
3. Most Dogecoins are in the Hands of a Few
Most Dogecoin wallets contain a vast amount of DOGE in circulation, which is a risk as they have undue control over price fluctuations and liquidity in the market. An estimated 0.002% of Dogecoin wallets hold about two-thirds of the total DOGE in supply. It is a very different scenario with Bitcoin, which has evenly distributed wallet holdings.
How Dogecoin Works
Dogecoin cryptocurrency runs on blockchain technology, which uses a distributed, secure digital ledger that stores and adds all transactions made on its network, much like how most cryptocurrencies work. The Dogecoin network also uses cryptography to secure all transactions on its blockchain network.
The mining of Dogecoin uses the “proof-of-work” concept, where miners use computers to solve complex mathematical equations to process and record transactions on the blockchain network. Miners are rewarded for their mining operations by earning Dogecoins, which they can sell on crypto exchanges or hold in their wallets.
Dogecoin can be used for making payments and purchases but has not been an effective store of value cryptocurrency. This is due to an infinite number of Dogecoins that can be created, making the cryptocurrency highly inflationary by design.
It is relatively faster and easier for DOGE miners to complete the mathematical equations and record transactions. This makes Dogecoin more efficient for processing payments. It takes an average of one minute to process and ratify new blocks on the Dogecoin blockchain compared to an average of 10 minutes for Bitcoin. However, to a certain extent, this differentiation helps Bitcoin retain and grow its value over time by forcing miners to work longer and harder on each block reward.
How to Buy Dogecoin
Dogecoin can be purchased on various cryptocurrency exchanges. Hence, the first step to buy Dogecoin is to open an online account with a cryptocurrency exchange that supports DOGE. The account will need to be funded through U.S. dollars or cryptocurrencies.
Once the wallet is funded, you can start making purchases by placing orders through your broker. If the order is executed successfully, you will see DOGE in your wallet. If not, the order could be canceled, and another will have to be made the following trading session.
An additional option is to buy a cryptocurrency wallet that offers a set of private keys to store your DOGE outside the realm of the exchange. Using a crypto wallet adds additional security for your DOGE in case of a hack or attack on the exchange.
There are two major types of wallets, i.e., hot software wallets and cold hardware storage wallets. Hot software wallets are generally free, but you’ll need an internet connection to access your DOGE investment. The best software wallet for Dogecoin is intuitively the Dogecoin wallet, which is available on both desktop and mobile applications. Cold hardware wallets are stored offline but come with a nominal fee depending on the provider.
Top cryptocurrency exchanges for Dogecoin include the following:
- Gemini Crypto
Dogecoin as an Investment
The lack of a lifetime limit on the DOGE and the fact that millions of new coins are released onto the market daily put downward pressure on its value. It is, therefore, a highly inflationary cryptocurrency, dampening its attractiveness for long-term investment.
Consequently, it is more suitable as a transacting currency than a long-term investment, different from other cryptocurrencies such as Bitcoin or Ethereum. Dogecoins have been popular for being used as a reward or “tip” for posting content on social media platforms such as Reddit and Twitter.
However, DOGE enjoyed a tremendous upsurge in 2021 despite the above factors. Some crypto analysts are of the opinion that the rally is not sustainable in the long term. Other undesirable features of Dogecoin also inhibit its purchase, such as relatively weaker security and code level scrutiny and lack of a robust mining community compared to its peers such as Bitcoin. These challenges present exposure to a mine-level attack.
The upsurge in the price of DOGE in 2021 has been largely attributed to the following factors:
- An increase in money supply due to the U.S. fiscal stimulus packages, which raised inflation in most traded commodities, stocks, real estate, and even cryptocurrencies.
- Increased access to trading and investment by the younger generation through the use of finance apps such as Robinhood. Retail brokerage platforms responded by reducing their commissions and fees.
- Social media platforms promoting select investment options, notably the Reddit forums. This young generation of retail investors is flocking in droves to these platforms.
How to Mine Dogecoin
Dogecoin mining has mainly been unprofitable due to its low value. However, the recent increase in the DOGE price has presented opportunities for miners. It is crucial to bear in mind the volatility of the DOGE when attempting to start mining it.
The DOGE Mining Process
The hardware used in mining Dogecoin is called a Dogeminer. It is simply a node in the Dogecoin blockchain that performs the calculation of mathematical equations to check and validate incoming transactions on the network. The nodes determine which validated transactions are included on the Dogechain (Dogecoin blockchain) and incorporate them into blocks which are then immutably recorded on the shared ledger.
Miners receive DOGE as rewards for performing these complex mathematical calculations. The Dogechain releases 10,000 DOGE per minute, which is received by the fastest miner to confirm an incoming transaction.
Choose the Appropriate Hardware
The first step in DOGE mining is to choose your hardware. Although you can still use computer processors (CPUs) and graphic cards (GPUs), the former is not encouraged for a crypto mining process. GPUs are more efficient than CPUs but suffer from poor heat dissipation. The emergence of ASIC miners has made it the most preferred hardware due to its efficiency and profitability.
Since Dogecoin runs on the Scrypt algorithm, there are specialized Scrypt ASIC miners which are the optimal hardware for DOGE mining. Scrypt ASIC miners are also considerably more profitable than GPUs. Notable Scrypt ASIC miners for Dogecoin on the market include:
To prolong and maintain your hardware, miners should ensure the hardware has adequate temperature control through coolers, noise containment, and storage space for the equipment. The best places are usually cool, soundproof spaces with an uninterrupted electricity supply.
Dogecoin Mining Software
Dogecoin mining software enables miners to connect to the Dogecoin blockchain to initiate the mining process. There is, however, a need to ensure the software application is compatible with the hardware in use. Notable dogecoin mining applications include:
There are three basic approaches to DOGE mining, which include:
- Solo mining – Miners mining individually. This may not be sustainable or profitable due to competition for block rewards from large mining pools with higher computing power. However, individuals with high computing power can always attempt.
- Joining mining pools – Groups of individual miners pool their computing power resources together to increase their chances of winning block rewards. Participation in a mining pool also lessens the burden of high energy costs. Popular Dogecoin mining pools in 2021 include Multipool, Antpool, Prohashing, and AikaPool.
- Cloud mining – Miners pay a monthly or annual subscription to an online data center to mine on their behalf. Cloud mining choices for DOGE include Genesis Mining and Nicehash.
When hardware, software, and mining approaches are determined, the next step is to create a wallet. As indicated in the sections above, the wallet should be able to support Dogecoin and use a private key. Earnings from the mining process will be deposited here. It is also important to link the wallet to the mining software.
Once all is in place, the DOGE mining operation can be launched. The mining software application should be capable of tracking your earnings per hour or per day. However, when you join a mining pool or cloud mining service, the process is much easier.
Thank you for reading CFI’s guide to Dogecoin. In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful: