What Is Dogecoin and How Does It Work?
Dogecoin (DOGE) is a cryptocurrency that was created in 2013. It was created by developers Billy Markus and Jackson Palmer, who made it as a joke coin, inspired by the ‘doge’ meme that was popular at the time, featuring a Shiba Inu.
After a while, Palmer decided to step away from the project, believing that it had no future and that the joke had gotten old, however, the coin became a crypto community favorite, and it managed to remain popular to this day. Recently, it attracted the attention of Tesla CEO, Elon Musk, which catapulted its price higher than ever.
Why Was Dogecoin Invented?
As mentioned, Dogecoin originated as a joke cryptocurrency. Its creator thought it would be funny to create a coin based on a meme. Inspired by both the Doge meme and the cryptocurrency sector, Markus and Palmer set out to create a peer-to-peer (P2P) digital currency that could reach a greater number of people than Bitcoin.
At the time (December 2013), Bitcoin — and indeed, the entire crypto market — was mostly unknown, only used by developers, online criminals, and tech geeks. The sector’s short history was already tainted due to its ties to cybercriminals, accusations of money laundering, tax evasion, and the like. Plus, Bitcoin’s creator intended to use cryptocurrencies to take power away from the banks — this did not make the crypto sector popular among financial institutions.
Palmer and Markus decided to make a coin that would bring humor and lightheartedness to the controversial crypto industry, but also to make sure that it would distance itself from controversial coins. And so, on December 6th, 2013, Dogecoin was born. The word spread quickly, despite the small size of the crypto sector at the time, and DOGE already had over a million visitors in its first month of existence.
How Does Dogecoin Work and What Technology Is Behind It?
Dogecoin’s mechanics are based on Litecoin, which was one of the earliest ‘altcoins’, often known as the ‘silver to Bitcoin’s gold.’ DOGE uses Proof-of-Work technology, which means that it can be mined, much like BTC and LTC.
However, unlike Bitcoin and Litecoin, whose supplies are capped at 21 million and 84 million respectively, DOGE does not have a maximum supply and can be mined indefinitely. At the time of writing, Dogecoin has nearly 129 billion coins in circulation, while LTC has only 66.7 million coins, and Bitcoin has 18.6 million units.
Dogecoin is not a smart contract platform, so it doesn’t have dApps, DeFi protocols and other advanced features. Its main benefits are that it is cheap and fast, and it is a popular choice for transferring money between exchanges, as it has very low fees — much lower than Bitcoin or Ethereum.
But, since even fun money is still money, Dogecoin’s community has found many uses for their cryptocurrency. Of course, DOGE can always be used for trading and investing, like any other crypto, but in January 2014, DOGE also got into charity, with the community raising $30,000 in DOGE for the Jamaican bobsled team, in order to send it to that year’s Winter Olympics. They also raised $32,000 to supply Kenya with clean water. This has led many to understand that Dogecoin’s community is one of its strongest suits.
Is Dogecoin Real Money?
This is not a question where a simple ‘yes’ or ‘no’ will suffice. Dogecoin does have monetary value, and as such, it can be considered real money. However, as long as it is not officially recognized as money — and not only DOGE, but the rest of the crypto industry — it cannot technically be called money. We can call it digital money, although most people would consider that as something below “real” fiat money.
It is worth noting that Elon Musk, the second-richest person in the world at the time of writing (March 2021) is a major fan of Dogecoin.
All in all, yes, DOGE is real money, even if naysayers and skeptics might not consider it as such. And, while the lack of a maximum supply limit doesn’t bode well for its future, DOGE may still be a valuable investment, given how popular it is becoming.
Fees and Expenses of Dogecoin
As mentioned, DOGE is a very cheap coin to use, which is why it is often used for transacting money. This has become a popular use, and for a long time, DOGE fees were next to nothing — only a fraction of a cent. This has been the case until recently, as 2021 brought a lot of attention to the coin.
As the price of DOGE increased, so did fees. Dogecoin reached the largest average fee around February 8th, while its price was surging as a consequence of viral attention from Elon Musk, and users of crypto-oriented Reddit groups. DOGE fans and holders initiated an ad-hoc viral marketing campaign to piggyback off of the success of other cryptos, and it worked, sending DOGE fees from less than $0.01 per transaction to $0.3125. This was the highest fee in Dogecoin’s history. At the time of writing, however, DOGE is still fairly popular, but its fees have come down to $0.113 (March 31st, 2021).
Other than that, Dogecoin also has withdrawal fees on certain exchanges. Some platforms allow free DOGE withdrawals, but some have fees that can go from $0.05 to $0.11. Some platforms will even charge fees costing several dollars for large withdrawals.
What Are the Benefits of Dogecoin?
The biggest benefits of DOGE are its fast transaction processing speeds and low transaction cost. As mentioned in the previous segment, even the highest transaction costs were only $0.31, which is practically nothing compared to Ethereum’s fees that can go up to $50, or Bitcoin’s that were known to go above $40 during particularly busy, high-volume periods.
Other than that, DOGE can be mined cheaply, and it can be used to send money to anyone, which makes it a great choice for making international transactions almost instantly. Plus, it can also be used for payments. Originally, it was not very popular as no one was accepting it, but over the years, merchants willing to accept Dogecoin started to emerge, and more vendors are now accepting it as a means of payment for goods and services.
Transactions are transparent, fast, and secure, so DOGE might be a good choice if you can find those who accept it.
Can Dogecoin Be Used Anonymously?
We should note right away that Dogecoin is not a privacy coin — a class of cryptocurrencies that are meant to be used for anonymous payments. Thanks to blockchain explorers, most crypto transactions can now be followed with ease, especially since exchanges require their users to verify their accounts.
So, if you make an account on an exchange and verify your identity, then buy Dogecoin and withdraw it to your wallet, anyone can learn who that wallet belongs to, and how many coins you have in it. The only way to buy DOGE anonymously would be to use P2P platforms, where you would send an individual money directly via a bank transfer or cash, and they would send DOGE to you.
That way, your wallet would not be tied to your identity. Another option is to mine the coin and obtain it directly from the source, but once again, your identity would become known as soon as you connect your wallet to an exchange where your account is verified.
The last option would be to use crypto mixers after purchasing coins on exchanges. That way, people would still be able to learn that you bought DOGE, but they wouldn’t know which coins are yours, or which wallet do you hold.
How Safe Is Dogecoin?
Dogecoin is as safe as any cryptocurrency. In other words, you are always exposed to risks when it comes to the inherent volatility of crypto assets. Also, if you leave your coins on an exchange, they can be hacked and your coins could be permanently stolen from you. Using hardware wallets can help to prevent this.
Dogecoin itself is a safe coin. It is decentralized, and as such, it is obviously not a scam. It has never given any major promises that would attract people, other than the chance to own a very cheap token just for fun, so it never tried to attract investors and trick them through some scheme.
The only real danger would be 51% attacks on Dogecoin’s blockchain, but given that the coin is popular and it has over 1,300 full nodes, this should not be a major risk, as anyone conducting a 51% attack would have to hack more than half of devices that are running a full Dogecoin node. So, other than investing in it only to see its price drop, DOGE doesn’t come with major risks and dangers.
What Teams Are Working On Dogecoin Development?
Obviously, Dogecoin was worked on by Jackson Palmer and Billy Markus, its co-founders and original developers. For years, DOGE was wandering through the crypto industry rudderless, but the surging price and interest in the token have recently resurrected its tech development.
Dogecoin had a number of developers over the years, such as Michi Lumin and Ross Nicoll, who had previously contributed to the coin for the last time in October 2019. With DOGE being resurrected in 2021, Nicoll and four other developers have started working on upgrading the coin’s software. They found that the biggest problem is actually scalability, as the existing nodes allowed outbound connections, but not inbound ones, as node users are not disabling their firewall to allow incoming connections from peer nodes.
While DOGE doesn’t have a massive development team, it has a dedicated community that is trying to solve one issue at a time, which might be quite a task, given that technical development at DOGE did not move much over the past few years.
Which Financial Institutions Are Invested in Dogecoin?
So far, Dogecoin has not attracted major financial institutions. For the most part, financial institutions and institutional investors have opted to stick to Bitcoin and Ethereum, with a handful of them exploring certain decentralised finance (DeFi) projects.
DOGE, on the other hand, has attracted Elon Musk as a major supporter, although it remains unclear whether Musk has ever actually invested in DOGE or not. He frequently posts seemingly jokey tweets promoting DOGE, but has not ever confirmed an investment.
Dogecoin mining, like mining any other PoW-based cryptocurrency, revolves around processing transactions and ‘solving’ blocks, which are then added to the blockchain. In return for doing this, miners receive new DOGE coins, which they can then sell, use, or keep.
Dogecoin uses the ‘Scrypt’ algorithm, like Litecoin. Its mining difficulty is much lower than that of Litecoin, however, which makes it possible to use simpler and cheaper equipment to mine the coin. Note that we did not say cheap equipment — just cheaper than what you would need for some other cryptocurrencies, such as Bitcoin.
Block time for Dogecoin blocks is only 1 minute, which makes DOGE 10x faster than Bitcoin, and 2.5 faster than Litecoin. On the other hand, the reward is significantly lower. BTC miners, for example, receive 6.25 BTC per block, which is approximately $363,600 according to Bitcoin’s price at the time of writing ($58,178 per coin). DOGE grants its users 10,000 DOGE per block, which is around $531 in total. Multiply this by 10, which is how many blocks DOGE solves while BTC solves one, and you get $5,315.
So, while Bitcoin solves one block and grants its miners $363,600 for their efforts, DOGE can solve 10 of them, but only grant $5,300.
Of course, storing DOGE in your exchange wallet is the easiest method, as it will be instantly available for trading. However, this is not recommended as you will then not be the owner of the private keys, and if you don’t own the keys — you can never truly say that you own the coin. Plus, the funds can be stolen from the exchange if it gets hacked. If you were to lock up your DOGE in cold storage, only you would ever have access to it.
Is Dogecoin Worth the Investment?
In the end, this is something that investors need to decide for themselves. Dogecoin is a cryptocurrency, and cryptos are still unregulated, highly volatile, and DOGE developers have a lot of catching up to do. So, while you could say that DOGE is not the best choice, that wouldn’t be entirely true, either. The coin was never supposed to live this long, but it still charmed the community and managed to survive against all odds, even after its founder left, so anything is possible. Another endorsement from someone with the influence of Elon Musk could well lead to another huge spike in price.
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Frequently Asked Questions
Yes, Dogecoin is a legitimate investment, and not a scam.
In theory, it is possible, but it will require a lot more interest and usage. With that said, DOGE is seeing a new wave of development and work, so it is not impossible in the long run, especially with the wider adoption of cryptocurrencies in general.
This depends on the exchange you choose to use. Some platforms have a minimum investment, while others may allow you to purchase any amount. With the price at just a few cents at the time of writing, almost anyone can afford a few DOGE.
No, it is safe to say that Dogecoin is extremely unlikely to ever reach even a fraction of Bitcoin’s worth.
That is up to you to decide. DOGE does seem to have reawakened, and as such, it might eventually keep growing. But, it is also possible that the hype will end and that it will drop down to where it was. No one can know the future, and so you need to make your own assessment.
Dogecoin is available on most major exchanges, and even on plenty of smaller ones, so chances are that you won’t have trouble finding one to trade on.
Yes, Dogecoin is perfectly legal to own almost anywhere in the world. There may be a handful of countries that are extremely crypto-unfriendly, but even China allows you to own cryptocurrency, as long as you don’t use it for payments.
Absolutely. But, with that said, it might be best to mine DOGE as part of a mining pool instead of doing it on your own. It is cheaper, there are no technical issues to worry about, and you will still get a steady supply of new coins.