What Is Dogecoin (DOGE) and How Does It Work?

What Is Dogecoin (DOGE)?

Dogecoin is an open-source, peer-to-peer cryptocurrency. In simple terms, that means you can send DOGE directly to someone else without a central bank or other middleman processing the payment.

DOGE is the native coin of the Dogecoin network. This network runs on its own blockchain, so Dogecoin is not a token built on another blockchain. The blockchain is a public record where transactions are stored in blocks.

You do not just use DOGE to send and receive value. DOGE is also used for the transaction fees on the network. In addition, miners receive DOGE as a reward for adding new blocks.

Key Takeaways

• Dogecoin is a peer-to-peer payment network with DOGE as its native coin.
• It started in 2013 as a parody based on the well-known Doge meme.
• The network uses Proof of Work, and miners add new blocks.
• DOGE has no maximum supply, and new coins keep being created.
• Merged mining ties Dogecoin's security to Scrypt mining alongside other suitable networks.

Dogecoin, the first memecoin ever

Dogecoin launched on December 6, 2013. Its name, logo, and original identity are based on the Doge internet meme featuring a Shiba Inu dog.

The coin was originally meant as a parody of the crypto industry. Still, Dogecoin quickly grew into a well-known cryptocurrency. In the early days, DOGE was used on Reddit, among other places, to give people small tips for online contributions.

Dogecoin is often seen as the first memecoin: a crypto asset that is clearly built around an internet meme. It is worth noting, though, that memecoin is not a formal technical category. It is mostly a commonly used way to describe this kind of crypto.

How Does Dogecoin Work?

When you send DOGE, that transaction is sent to the peer-to-peer network. Computers in the network share and process these transactions. Valid transactions are collected into a block and then added to the public blockchain.

Dogecoin uses Proof of Work for this. With this system, miners do computational work to propose a new block. The blockchain with valid work then becomes the network's shared ledger. That way, there is no central party that alone decides which transactions get included.

For this work, Dogecoin uses the Scrypt hash function. A hash can be seen as a unique digital result of data. Miners try, through a lot of computation, to find a hash that meets the network's rules.

The target time between two Dogecoin blocks is one minute. To keep that speed as steady as possible, the network adjusts mining difficulty after every block. If a lot of computing power is active, finding a valid block becomes harder. If there is less computing power, it can become easier.

Dogecoin Core, the network's software, builds on earlier codebases from Luckycoin and Litecoin. Those were themselves based on Bitcoin Core.

Dogecoin (DOGE) Overview

How Does Mining Work on Dogecoin?

Mining is the process where miners help include transactions in new blocks. A miner first collects transactions into a candidate block. Then they use Scrypt computation to try to find a hash that meets the current difficulty target.

The miner that adds a valid block receives 10,000 new DOGE. On top of that, they also get the transaction fees from the transactions included in that block. This is how miners are rewarded for their role in the network.

Dogecoin uses AuxPoW, usually called merged mining. With this, the same Scrypt work can count as valid proof for Dogecoin and, for example, Litecoin at the same time. So one mining effort can help secure multiple suitable blockchains.

Merged mining was introduced around 2014/2015. The change was prepared and activated in 2014, while the implementation is also referred to as 2015.

In practice, profitable Dogecoin mining usually happens with specialized Scrypt ASICs. These are devices built specifically for this kind of mining. Many miners also join mining pools, where participants combine their computing power and split the rewards. Mining with a GPU can still contribute to the hashrate, but because of competition from ASICs, it is usually barely profitable.

Why Does Dogecoin Have No Maximum Supply?

Dogecoin does not have a fixed maximum supply. So there is no point where no more new DOGE can ever be created. The block reward is permanently set at 10,000 DOGE per block.

With a target block time of one minute, that works out to about 5.256 billion new DOGE per year. In practice, this can vary slightly because blocks do not always appear exactly every minute.

The number of new DOGE created each year stays roughly the same in absolute terms. But because the total supply keeps growing, that yearly issuance makes up a smaller percentage of all DOGE in existence over time.

The reason for this permanent reward is that miners also get a direct reward for securing the network over the long term. Their income comes from the block reward and the transaction fees in blocks.

Whether you see a growing supply as a good or bad thing depends on your preference. Technically, it is mainly a deliberate feature of the Dogecoin protocol.

Who Founded Dogecoin?

Billy Markus and Jackson Palmer created Dogecoin in 2013.

Jackson Palmer made the original Dogecoin website and was the public face of the project at first. Billy Markus was the main individual developer of the first four Dogecoin Core releases.

Both founders stopped working on Dogecoin in 2014. After that, Dogecoin Core maintenance was taken over by other maintainers and contributors. A maintainer is someone who helps maintain the software and manages changes.

What Are the Benefits of Dogecoin?

Dogecoin has a number of features that fit its goal as a peer-to-peer payment network:

• Frequent block production: the target block time is one minute. That means new blocks are produced regularly.
• Direct transfers: you can send DOGE directly to another user without a central payment processor.
• Open-source network: anyone can, in principle, run a node. A node is a computer that takes part in the network and follows the blockchain rules.
• Designed for relatively low fees: transaction fees and dust rules help discourage spam on the blockchain at the same time. Dust rules limit very small transactions that could unnecessarily fill up the network.
• Merged mining: Scrypt miners can use the same computing effort to mine Dogecoin alongside other suitable networks.
• Ongoing miner reward: the permanent block reward gives miners a lasting source of income in addition to transaction fees.

Relatively low fees and fast confirmation are design goals, not fixed guarantees. The final fee and confirmation time depend, among other things, on network activity, the fee you set, and mining conditions.

What Are the Downsides of Dogecoin?

Dogecoin also has some clear trade-offs to keep in mind:

• The supply keeps growing: there is no end date for new DOGE issuance. Whether you see that as a downside depends on whether you prefer a fixed or permanent issuance model.
• Mining uses electricity: Proof of Work requires computing power. Profitable mining usually requires expensive specialized Scrypt ASICs.
• Dependence on mining pools: many miners work through pools. Individual miners then depend on the pool operator's rules, payouts, and reliability.
• Transactions are public: the blockchain makes transactions and public addresses visible. An address is not automatically tied to a name, but transactions can still be tracked publicly.
• Limited capacity on the base layer: a Dogecoin block has a maximum size of 1 MB. That means the blockchain itself has limited capacity.
• No active original founders in development: Billy Markus and Jackson Palmer have not been involved in development since 2014. Maintenance is handled by changing groups of maintainers and outside contributors.

Conclusion

Dogecoin is an open-source peer-to-peer payment network with DOGE as its native coin. It runs on its own blockchain and started as a parody based on the Doge meme, but it is often seen as the first memecoin.

Technically, Dogecoin works with Proof of Work and Scrypt mining. Miners add transactions to new blocks and receive 10,000 DOGE plus transaction fees for doing so. Through merged mining, the same computing work can also be used alongside other suitable Scrypt networks.

One important difference from crypto with a fixed cap is that Dogecoin has no maximum supply. New DOGE keep being created, so miners receive an ongoing block reward. There are trade-offs, though, such as electricity use for mining, public transaction data, and limited capacity on the base layer.