What Is Dogecoin And Is It A Good Investment?

Following the early success of bitcoin and the rise of the Shiba Inu dog meme in 2013, Jackson Palmer and Billy Markus created the altcoin, Dogecoin. Palmer, who at the time worked at Adobes Sydney office, purchased the dogecoin domain in a semi-joking manner. However, once the programmer Markus wrote the code, Dogecoin was launched on December 6, 2013.

At the time, the bitcoin space was populated by users who sought to take advantage of its rising price to profit from an increase in bitcoin’s value. Conversely, Markus decided to create dogecoin in an attempt to reach a broader demographic through a more lighthearted approach than its better-known forerunner.

Palmer explained: “It’s not taking itself as seriously, it’s not being used by people worrying about whether they’ll become rich.” The use of the Shiba Inu dog meme as its avatar was intended to spur further interest in the altcoin as well as acknowledge the playful nature of the cryptocurrency.

Dogecoin’s Technology

Dogecoin is based on Luckycoin, an altcoin that was characterized by a randomized block reward in the mining process. It is important to note that Luckycoin was created based on the Litecoin blockchain, one of the cryptocurrencies that was, at the time, leading the attempts to overcome some of the challenges that bitcoin was facing.

The Dogecoin ledger uses the proof-of-work consensus mechanism to validate the transactions on its blockchain. However, a notable difference from bitcoin is that it uses the scrypt hashing function. This hashing function is significant in that it is designed to make it difficult for the development of ASICs miners. This function is meant to ensure mining dogecoins remained accessible to people who did not have access to specialized mining equipment.

Initially, Dogecoin’s blockchain specified that there would be a maximum of 100 billion units of the currency and the mining difficulty would increase with every block. As explained by its developers:

“Dogecoin uses a simplified variant of the scrypt key derivation function as its proof of work with a target time of one minute per block and difficulty readjustment after every block. The block rewards are fixed and halve every 100,000 blocks.”

However, following heated discussions on platforms like Reddit, the developers decided to implement a standard, and permanent reward for every block mined after a certain point in early 2015. Github explained that “Starting with the 600,000th block, a permanent reward of 10,000 Dogecoin per block will be paid.” This move created an infinite supply of the digital currency and cemented the altcoins status as an inflationary currency.

Defending the move as an attempt to keep the supply of Dogecoin at constant levels, Palmer explained:

“The goal for the currency is to keep approximately 100 billion coins in circulation—thus after 100 billion dogecoins are created, rewards will continue at 10k each block. This will help maintain mining and stabilize the number of coins in circulation (considering lost wallets and various other ways coins may be destroyed) at 100 billion.”

In addition to the update on block rewards, the March 12, 2014, announcement also included a new difficulty algorithm. The version 1.6 version of the Dogecoin client introduced a new algorithm called DigiShield. DigiShield was added as a response to the fall in price witnessed after a large number of mining pools entered the mining space.

It was designed to reduce mining-related price fluctuations. “At the same time, the difficulty retargeting was also changed from four hours to once per block (every minute), implementing an algorithm courtesy of the DigiByte Coin development team, to lessen the impact of sudden increases and decreases of network hashing rate.”

The Dogecoin Community

The Dogecoin Foundation is a non-profit founded by members of the Dogecoin community. The organization aims to lead the growth of the altcoin via “promotional and charitable endeavors and [to] seek to foster and expand the community ideals of camaraderie and playful discovery and to empower people the world over.”

Moreover, outside of the foundation, the Dogecoin community is active and is quick to support initiatives that involve the use of the altcoin.

When Dogecoin first came into the market, it quickly became a way through which Internet users could tip others due to its low fees for microtransactions. The popularity of the coin rose, in part, spurred on by discussions on various social media platforms. Due to these discussions, a number of bots arose that were designed to tip in Dogecoin.

Palmer was quoted saying:

“The Internet has needed this. You know, it’s needed a form of, you know, sending value, if you will, that’s more than an upvote, more than a retweet or a like, you know. It’s actually giving somebody back something because of the time they put into something.”

The most famous of these was the Dogetipbot. The bot was supported by Twitter and Reddit, among other social media sites. At its peak, the bot’s creator, Josh Mohland revealed that around 56,000 people had sent upwards of $150,000 on Reddit since its creation.

However, in November 2017, Mohland announced the bot was broken. Users were incensed to find out they had lost the money that was in their bot accounts. Fortunately, members’ belief in the altcoin persisted, and a similar bot was created. Sodogetip works in the same way. However, all tipping transactions through the bot are recorded on the blockchain.

The Dogecoin community has also used the altcoin in a number of charitable endeavors. The community believes itself to be a philanthropic group as is evidenced by its charity drives. The Shibes, as they like to call themselves, raised funds to help the Jamaican bobsled team to participate in the 2014 Winter Olympics.

Moreover, the community also raised funds for Nascar driver Josh Wise. This resulted in Wise’s car being decked out in Dogecoin’s colors. Lastly, the community also raised funds for the creation of a water well in Kenya’s Tana basin.

Price Activity and Market Adoption

At the beginning of the year, the altcoin was in the headlines because it had doubled its market cap in a matter of weeks. Dogecoin is currently trading at $0.008182 with a market capitalization of around $920 million. The altcoin has been growing steadily since its release, with spikes witnessed after most notable events such as the Jamaican team donations.

The altcoin is ranked as 31st regarding its market capitalization. Moreover, the daily trading volumes witnessed in the altcoin are substantial. This is because Dogecoin’s transaction speed and comparatively low fees are conducive for using the altcoin as a spending currency. There are currently a number of retailers who also accept the digital currency.

Following the over one billion market capitalization at the beginning of the year, Palmer cautioned that the rise was more to do with the frenzied manner in which members of the public were buying into cryptocurrencies in order to capitalize on any gains made. He stated:

“[It] says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn’t released a software update in over two years has a $1bn-plus market cap.”

The Connection Between Ethereum And Dogecoin

Ethereum has been facing scalability challenges with a number of solutions suggested such as Raiden or Plasma. A lesser-known suggested solution is Truebit. The platform aims to be a scalable verification solution for blockchains.

On February 5, 2018, the Truebit team sent dogecoin to a testnet on Ethereums platform. Once received, the token was recognized as a distinct asset on Ethereum’s blockchain. This was the culmination of in-depth research created by Dogecoin community members. The project was named Dogethereum.

“Dogethereum will be a first-of-its-kind “bridge” between the Dogecoin and Ethereum blockchains. Once constructed, shibes will be able to send doge back-and-forth to Ethereum without using an exchange. This will allow shibes to trade dogecoin for other Ethereum-based tokens and use doge in smart contracts.”

The success of the transaction signaled a significant step towards the interoperability of native crypto-assets and, in turn, hope for Ethereum’s scaling problems.

Should You Add Dogecoin to Your Portfolio?

Despite the relative inactivity of the Dogecoin developer community in the past two years, Dogecoin has benefitted from the overall rise in the value of crypto assets. Furthermore, the new Dogethereum project has brought the once popular altcoin back onto the map and into crypto investors’ discussions.

Should this project succeed, that will bode very well for the price of the altcoin. Dogecoin also benefits from lower transaction fees than many of its peers, which makes it a viable digital currency for spending and remittances.

Despite Dogecoin’s long-standing statue in the cryptocurrency space, there are more promising cryptocurrency projects out there whose coins have more potential to “moon” than Dogecoin. Hence, if you are going to purchase Dogecoin, in the hope that the Dogethereum Project will boost its price, it should be a rather small holding in your crypto asset portfolio.