Dogecoin 101:What is Dogecoin and How does it work?

2021/05/11 08:13:14

Do you know which cryptocurrency generated the highest amount of returns in the current status of the 2021 bull run? Here's a clue, it's not bitcoin or ether.

Surprisingly, it is the mighty dogecoin, generating phenomenal returns of over 10,000% in a matter of months. Yes, 10,000% (not a typo). Who would have thought a coin with the face of Shiba Inu would become the talk of the town among celebrities, influencers, and the rest of the crypto community.

In this article, we will demystify Dogecoin for people to have a better understanding of this super-hyped cryptocurrency.

Who Created Dogecoin? History and Some Fun Facts

Two brilliant software engineers, Billy Markus from IBM and Jackson Palmer from Adobe, launched Dogecoin in December 2013. Dogecoin was inspired by a meme of a cute and friendly dog, Shiba Inu, which went viral on Reddit and quickly became the 'meme of the internet' at that time.

The all-time famous meme of Shiba Inu, the dog behind dogecoin

The satirical Dogecoin was created as a Bitcoin parody, and it was not meant for actual investments or to serve any real-world utility. Dogecoin fans on Reddit nicknamed it 'shibes,' and they started tipping each other on the reddit forums for humorous or valuable comments.

Soon after, the Dogecoin Reddit community got into charity and launched the Dogecoin Foundation. Together, they raised $32,000 for the Jamaican bobsled team participating in the 2014 Winter Olympics. The community also launched the Doge4Water campaign and raised $31,996 for supplying clean water in a small village of Kenya.

Dogecoin wasn't even worth a fraction of a penny at that time, so the community raised a large sum of dogecoins, sold them for bitcoins, and then sold the bitcoins for US dollars to fund their initiatives. It wasn't very simple at the time because there was no exchange supporting dogecoin, so the community had to make the trades manually.

Another interesting fact came recently from the co-founder Billy Markus. He revealed in his reddit post that he sold off all his dogecoins stack back in 2015 at the time of his financial crises to buy a used Honda Civic. He also revealed that he left the Dogecoin community in 2015 due to conflicting visions within the community members.

In the next section, we will explore the mechanics of Dogecoin, its tokenomics, and how everything works under the hood.

How Does Dogecoin Work?

The meme-inspired Dogecoin isn't a technological marvel like Bitcoin or Ethereum. It's as simple as it can get. Dogecoin inherits a lot of its technology from Litecoin. They both use an ASIC-resistant mining algorithm called Scrypt (pronounced 'ess crypt') and UTXO model (Unspent Transaction Outputs) to manage the ownership in a shared ledger.

Dogecoin uses a Proof-of-Work (PoW) consensus mechanism that uses Scrypt, an ASIC-resistant and memory-intensive hash function. Scrypt-based mining is relatively easier and requires fewer resources (compared to SHA-256 used in Bitcoin mining). Due to its memory-intensive operations, the Scrypt hashing algorithm is more GPU-friendly.

Dogecoin doesn't have an 'accounts' model for managing the ownership of dogecoins. Instead, it employs the UTXO (Unspent Transaction Outputs) model used in both Litecoin and Bitcoin. In simple terms, UTXO means the coins live on the blockchain and are owned by addresses. If Alice sends her coins to Bob, the coins don't actually travel to Bob's wallet (account). Instead, the blockchain changes the ownership of the coins and associates them with Bob's address.

The average block-confirmation time in Dogecoin is one minute, and miners earn 10,000 dogecoins every minute as block-rewards, meaning that 10,000 new dogecoins are minted every single minute. There is also no fixed supply of dogecoins, and the current circulating supply has surpassed 127.5 billion. Due to its surge in value, Dogecoin miners are earning record-high profits.

Source: Statista (Dogecoin mining profitability)

Dogecoins can be stored on a variety of different multi-currency wallets today. They also have official native wallets available on their website. Dogecoins wallet addresses start with the letter 'D,' which distinguishes it from Bitcoin and Litecoin addresses because they use the same address generation scheme. You can send or receive dogecoins just like any other cryptocurrency.

Elon Musk and Other Celebrity Endorsements

Elon Musk, Mark Cuban, and even Slim Jim (beef jerky brand) have entered the Dogecoin tweet spree. Dogecoin is probably the only cryptocurrency getting numerous mentions from billionaires, celebrities, and TikTok influencers alike.

It all started when Elon Musk tweeted about the faux "Dogue" magazine cover on January 29th this year and became the center of attention for the dogecoin twitter warriors. The second tweet from Elon Musk, 'Doge Barking at the Moon,' came in on April 15th, and the dogecoin surged in value achieving its new ATH levels.

Source: CoinMarketCap(Dogecoin price chart)

Since then, dogecoin is all over Twitter and the internet. It became a trend that everyone followed. Here is a glimpse of what we saw during the last couple of months; everyone from a famous chocolate brand, tech billionaire, and even professional rappers followed the bandwagon.

Conclusion

Dogecoin did start as a joke but still managed to achieve widespread popularity. You might be thinking - what makes Dogecoin so valuable? Well, it's the 'story' and the 'joke' itself that gave it such value and attention.

Think of Dogecoin as a meme within the crypto ecosystem that went viral. This Dogecoin hype phenomenon has indeed brought a lot of attention from mainstream media towards the world of crypto.

So who is prepared to go to the moon with the Doge?

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