Dogecoin is an unlikely cryptocoin experiment that, against the odds, has taken off – mainly as a digital tipping tool for sending tiny amounts of value.

It wasn’t some loss of faith in government money systems that created dogecoin, and it certainly didn’t have anything to do with a hell-bent drive for profit.

It came from a desire to learn, and a need to share, which are principles that pretty much built the Internet in the first place.

Dogecoin might be the blueprint for how to make a true microtransactional cryptocurrency, a next-gen coin that could compliment bitcoin payments.

That’s a speculative guess at what the future holds for an altcoin with a Shiba Inu dog face as its thematic focal point.

But what is not conjecture is that people sure do like to spend tiny bits of dogecoin.

The catalyst

Jackson Palmer, the altcoin’s founder, told CoinDesk that the idea of dogecoin came from his appreciation for what feathercoin had been doing:

“I found the feathercoin community kind of friendlier [than bitcoin]. They’re just really welcoming,” he said.

An article about doge, written by Gawker’s Adrian Chen, really solidified what the meme was all about in Jackson’s mind. Doge has a sort of innocence that cannot be tarnished, Chen said.

Palmer explained that “a lot of other memes can be taken and made to back some other vicious message. With doge you can’t. It’s impossible to insert that into the meme because of the doge face. It’s kind of a pure meme.”

Investing in Dogecoin, pretty sure it’s the next big thing. http://t.co/yHR4bNv6OD — Jackson Palmer (@jacksonpalmer) November 28, 2013

That initial tweet interested dogecoin co-founder Billy Markus when he heard about it, and he got in touch with Palmer to help make the actual cryptocurrency happen.

“We launched [dogecoin] and we were just like, it will fizzle out in three days, nobody will be interested,” Palmer said.

That’s not what happened, though. Doge has quickly grown as a tipping method across the Internet and a brand new digital market has thus developed. Said Palmer:

“Dogecoin, to a certain degree, is testing what happens when you have a more approachable mascot as the face of your coin.”

The rise of the tip

Dogecoin is being used mostly for small transactions, as a way to show deference for something. Many in the community accept dogecoin tips, and it seems people are willing to oblige.

According to BitInfoCharts, dogecoin averages 800 transactions per hour, and 19,000 over a 24-hour period – which is second only to bitcoin. And dogecoin has only existed since December.

Palmer likened the dogecoin tip as a new way to share or ‘like’ something on the Internet. He’s concluded that’s the dogecoin sweet spot:

“It’s about enabling these frictionless microtransactions. I think that’s where dogecoin fits in,” he said.

And dogecoin is doing many more transactions than its block chain is showing. Social media ecosystems are acting as a top layer to enable more transactions than dogecoin can handle, according to Palmer:

“Microtransactions have to take place in the Reddit and Twitter tip bots ‘off chain’ as the protocol has scalability issues with lots and lots of tiny amounts rapidly firing.”

Bter and Cryptsy are the two largest exchanges trading dogecoin in a BTC/DOGE pair, while Vault of Satoshi has a fiat currency exchange for that accepts the altcoin.

Palmer said that most people get introduced to doge through tips:

“A lot of people have never had to buy dogecoin. They’ve posted a hilarious picture on Reddit, and they’ve gotten 1000 doge. Which they then tip on to their friends.”

Accidental inflation

After dogecoin reaches block 600,000 later this year, it will hit 100 billion coins mined. At that point, there will be a static block reward per block of 10,000 doge. That’s about 5bn additional dogecoin per year.

“It’s deflationary inflation,” said Palmer. And it all came by accident, according to him:

“This inflationary thing was really a bug in the code. It extended out of [co-founder] Billy and I not having a good understanding of what one of the variables, max money, actually means.”

A lively discussion about what to do after the 600,000th block has been raging on dogecoin’s GitHub repo over the last few months.

The consensus was that dogecoin should be used as a test bed, to see what happens when mining reaches a certain limit on block rewards.

“A lot of people were pro-inflation,” said Palmer. “A lot of people were saying ‘leave this in’. Because we don’t know what’s going to happen when bitcoin hits its cap.”

The founders and doge community at large don’t seem to think that transaction fees could ever sustain dogecoin. That’s the reason for the 10,000 doge static blocks. Said Palmer:

“The reason we decided to leave this in is incentive: [to] leave some incentive for miners to continue securing the network.”

A scalability experiment

Dogecoin and other alternative cryptocurrencies are a proving ground for testing new ideas. That the Auroracoin founder is supplying all Icelanders with free digital currency, in an effort to raise awareness of that country’s currency controls, is another example of this.

Palmer said:

“Altcoins are a really great way for the cryptocurrency industry to experiment. Because obviously we can’t change the bitcoin protocol outright.”

Dogecoin’s one-minute block generation time is far faster than that of bitcoin. Palmer, although he didn’t set out to do so, now aims to answer questions scalability.

“What kind of scalability issues do you encounter when you are doing thousands upon thousands of microtransactions a day?” he said. “These are scalability issues that just don’t exist, that bitcoiners have not come across.”

An example of this is ‘bitcoinj’ – a Java implementation of the Bitcoin protocol – which developers have ported over to dogecoin for its Android wallet.

However, when used with the high-volume transactions of dogecoin, it can freeze up. This was something that was brought to the attention of Mike Hearn, who confirmed that too many transactions going through the client is an issue that bitcoinj has to address.

Palmer doesn’t necessarily think that modifications that are found to improve dogecoin will be implemented into the bitcoin core.

He does think, though, that things like BitPay’s node implementation of the Bitcoin protocol, Bitcore, is an example of innovating on top of bitcoin. He said:

“I think what you’ll find is people taking the learnings and then porting them back into new implementations that vendors can use. Bitcore is a fine example of that.”

A friendlier coin

Dogecoin is a fascinating experiment that is helping to further advance the revolutionary aspects of decentralized money.

But it is doing so by building a community of small spenders. Doge is not just made up of developers and speculators that have built up somewhat of an inclusive group, according to Palmer:

“It can be pretty rough in the cryptocurrency world. If you come across as not understanding something, you get shouted at. And it’s not the right way to go about it.”

Doge’s successful emergence could be attributed to hitting the scene at just the right moment. Back in mid-December, the price of bitcoin was slipping after an all-time high.

“I think there was a lot of negativity and a lot of angst in the bitcoin community,” Palmer said.

Along comes this altcoin with a doge face on it, and it brightened people’s perceptions of cryptocurrencies. “People were being friendly to one another. I think people took some solace in that,” he said.

Dogecoin has hit demographics that other coins haven’t been able to touch. That includes women, high schoolers and anyone who loves the idea of memes.

Basically, it appeals to people that aren’t really concerned about cryptography or the future of money. And stories like a NASCAR driver receiving sponsorship funds via dogecoin, or Indian Winter Olympians being helped to Sochi, perpetuates the viral impact.

And what’s still remarkable is that it all started with a simple Twitter status update. “There was no master plan,” Palmer says. “A lot of people are like: ‘Oh you’re in marketing. This must have been something that you thought about for weeks and architected’.”

“And I’m like, no, it was a tweet, on a whim.”

Fancy doge image by Doge Assets