How Does Dogecoin Work?

DOGE is indirectly based on the code of Bitcoin or more specifically, it was created as a hard fork on the now-defunct Luckycoin which itself was a hard fork of Litecoin.

Litecoin was the first hard fork to be created when it split from Bitcoin and then DOGE borrowed the Scrypt-based consensus mechanism from Litecoin which is how DOGE shred most of its functionalities with Bitcoin and the other hard fork derivatives. The use of the Scrypt mechanism in Dogecoin’s proof of work algorithm is what prevents miners from using ASICs as the specialized equipment used in BTC mining. Just like BTC, the network participants of the Doge blockchain use their computing power in order to secure the network and fuel block creation while still verifying the transactions. The difference here is that Dogecoin has a light architecture which enables the coin to process transactions promptly compared to BTC.

DOGE can be mined with computational power that is used by the network participants to generate new blocks and to validate transactions by solving the mathematical equations and with every generated block, the miners will be rewarded with 10,000 DOGE. The creators of the coin designed the coin with a maximum limit of 100 billion DOGE but the team then removed the limit after the launch. DOGE now has an inflationary supply after the changes of monetary policies and generates 5 billion new DOGE each year. DOGE is a cryptocurrency that runs on blockchain technology much like BTC and ETH do so the blockchain is a distributed, secure digital ledger that stores all of the transactions made using a decentralized digital currency.

All of the holders carry an identical copy of the ledger which is often updated with new transactions in the crypto. Just as any other cryptocurrency, DOGE’s blockchain network uses cryptography to keep the transactions secure.

Also, people called miners are using computers to solve difficult mathematical equations in order to process the transactions and record them on the blockchain as a sort of proof of work system. In exchange for processing transactions and supporting the ledger, the miners earn additional DOGE which they can later hold or sell on the open market. Dogecoin can be used for payments and purchases but it is not really an effective store of value. This is mainly because there’s no lifetime cap on the number of coins that can be created by mining which means that the cryptocurrency is highly inflationary. The blockchain rewards miners for their work by creating new coins each day which makes it hard for speculative price gains over time.

Dogecoin has a few main differences compared to BTC. It is much faster and easier for the miners to complete the mathematical equations which complete and record transactions on the transactions making DOGE more efficient for processing payment. It only takes a minute on the DOGE blockchain compared to the 10 minutes needed to process and ratify the new blocks. Another major difference is the absence of the lifetime cap on the number of coins that can be created and there’s also a lifetime cap of 21 million BTC which limits the maximum possible number of coins that can be created.