What is Dogecoin and how does it work?
summary
Dogecoin is a cryptocurrency that started as a meme and fun alternative to traditional cryptocurrencies such as Bitcoin, Ethereum, etc. Developed by Billy Markus and Jackson Palmer, Dogecoin gets its name from the Shiba Inu dog from the Doge meme as its logo and mascot. This gave Dogecoin instant popularity and a unique identity.
Dogecoin operates on a decentralized network and follows the same proof-of-work (PoW) algorithm as Bitcoin. Dogecoin started as a meme, but over the years it has gained attention and a dedicated community.
Let’s take a closer look at Dogecoin, its features and how it works.
What is Dogecoin?
Dogecoin is an open-source cryptocurrency created as a lightweight alternative to traditional cryptocurrencies such as Bitcoin. Launched in 2013, Dogecoin is abundant, unlike Bitcoin, which was designed with scarcity in mind. Therefore, Dogecoin has no maximum supply.
Dogecoin follows the PoW consensus mechanism, which is a computationally intensive process. Therefore, miners need advanced mining hardware with excellent hash speed and energy efficiency to solve complex puzzles and mine new Dogecoins. After confirmation, the transaction is added to the decentralized public ledger.
Dogecoin caught several eyeballs in May 2021 due to its massive price surge. This is probably due to social media driven trends. For example, Tesla Elon Musk’s tweet about Dogecoin was partially responsible for the price surge. However, prices declined in the second half of 2021. Dogecoin price depends on many factors, so it is impossible to predict when it will drop or surge again. Therefore, users should closely observe the market before making investment decisions.
Features of Dogecoin
Now, let’s discuss some of the salient and unique features of Dogecoin.
Dogecoin is abundant, unlike other traditional cryptocurrencies such as Bitcoin, which are scarce and have limited supply. Dogecoin has no maximum supply. So how many Dogecoins can you mine per day? Approximately 10,000 Dogecoins can be mined every minute. Approximately 14,400,400 new Doge coins are created per day.
All cryptocurrencies are decentralized. This means that it is a distributed set of users around the world, with no central authority managing it. In general, the number of nodes determines decentralization. Because the number of nodes is relatively smaller than Bitcoin, Dogecoin is vulnerable to a 51% attack, when a single entity controls more than 50% of the network.
Dedicated Community Support
Dogecoin has an active and supportive community online. Often they participate in social media campaigns, tipping, and other charity events. In fact, the active community has played an extensive role in helping Dogecoin gain global recognition.
A small number of individuals hold the majority of Dogecoin. For example, about 0.002% of Dogecoin wallets supply about two-thirds of all Dogecoins. Therefore, there is a risk that few individuals determine price movements and market liquidity.
How does Dogecoin work?
Like traditional cryptocurrencies such as Bitcoin or Ethereum, Dogecoin has a dedicated blockchain. It has a transparent digital ledger that displays all Dogecoins transactions for users to view.
Dogecoin follows a PoW consensus mechanism where miners must solve complex mathematical algorithms to verify transactions and update them on the ledger. Miners are paid Dogecoin for contributing their resources and expertise.
Users can use Dogecoin to make payments and buy things. However, storing Dogecoin is not ideal as the cryptocurrency is highly inflationary in terms of development and design.
Now let’s take a closer look at the steps involved in trading Dogecoin.
- Users can start trading Dogecoin with others by knowing their wallet ID and public key. First, users must make a transaction request.
- When a transaction request is made, the system alerts Dogecoin miners around the world to verify the transaction.
- Miners verify that the sender has enough Dogecoins to complete the transaction. After confirmation, approve the transaction request.
- Dogecoin miners collect all pending transaction data, called nonces, and then apply a mathematical function to generate the correct hash number for that specific nonce.
- If the correct hash number is successfully generated, the miner will be rewarded in Dogecoin.
- Both the sender and recipient will receive a confirmation message confirming the transaction.
- The requested amount of Dogecoin will be credited to the recipient’s wallet within a few minutes.
How is Dogecoin different from Bitcoin?
Dogecoin has some notable differences compared to the popular cryptocurrency Bitcoin. Although they are cryptocurrencies that follow the PoW consensus mechanism, they differ from each other due to the following:
- Dogecoin trading is faster and easier. For example, if a Bitcoin transaction takes 10 minutes, a Dogecoin transaction only takes 1 minute. Dogecoin is therefore slightly more efficient for day trading.
- The maximum limit for Bitcoin is 21 million. It is designed to limit supply to prevent inflation. However, there is no limit to Dogecoin and its supply is plentiful.
Dogecoin price history
Analyzing Dogecoin’s price history and past performance will help you make an informed decision regarding investing in Dogecoin or Dogecoin mining.
The price movements of all cryptocurrencies are very volatile, and Dogecoin is no exception. Therefore, users should closely monitor price movements before making any potential decisions.
conclusion
Although Dogecoin is a light-hearted and meme-inspired project, the digital currency operates based on blockchain technology and utilizes the PoW consensus mechanism. This attracted a lot of users, which eventually translated into active and dedicated community support. Low transaction costs, fast block creation, and ongoing community support set Dogecoin apart from other cryptocurrencies.
