INTRODUCTION TO DOGECOIN (DOGE)

Dogecoin as a serious coin

Dogecoin is a digital currency that started somewhat as a joke. This is the reason why the currency has a Shiba Inu dog on its logo. Despite the fact that the digital currency has a funny logo and has done a lot of creative fun publicity, it is an actual blockchain-based financial network that has its own pros and cons. This is one of the reasons for DigiCoin becoming on the top cryptocurrencies in the world. By January of 2014, the currency reached a capitalization of USD$60 million. In December of 2017, the capitalization of Dogecoin has surpassed USD$1 billion.

Just like Bitcoin and other cryptocurrencies, Dogecoin is a decentralized blockchain network. The developers of the network have made the code open source, which means that anyone can download the code for inspection, use it or become part of the Dogecoin network.

There are a number of differences between Dogecoin and Bitcoin. From the technical perspective, Dogecoin has more similarities with Litecoin than it does with Bitcoin. Here’s what this means: first, Dogecoin uses Scrypt protocol for proof-of-work while Bitcoin uses SHA256. Secondly, Dogecoin creates blocks of Dogecoin blockchain with the speed of 1 block/minute while Bitcoin is 10 times slower at 1 block per every 10 minutes. Another difference is the rate of change of the parameter of difficulty of the network. With Dogecoin, difficulty changes every four hours. With Bitcoin, difficulty changes every 2016 blocks.

The final difference is that Bitcoin has a coin cap of 21 million, meaning that the network could only have 21 million coins.

 

Coin supply on the Bitcoin network vs Dogecoin network

The Bitcoin network has been adding bitcoins to circulation gradually by giving them as a reward to miners for processing transactions on the network by adding them to the Bitcoin blockchain. Blocks from 0 to 210,000 got a reward of 50 bitcoins each. Then, the reward split in half and became 25 bitcoins per block. In July of 2016, the reward went down again and turned into 12.5 bitcoins per block. The next split of the reward will occur around June of 2020 when the reward will become 6.25 bitcoins. The reward will keep splitting in half until it reaches zero. After that, 100% of the rewards that miners get for doing the work on the Bitcoin blockchain will be coming from the optional transaction fees that users can add to the funds they are sending on the Bitcoin network to incentivize the miners to include the transactions into the blocks of bitcoin blockchain.

Bitcoin as a currency and as a network is about freedom and responsibility. Miners do not have to include any transactions into the blocks that they mine and users do not have to pay a fee for a transaction if they don’t want to. However, as the data from the Bitcoin network shows, when the network Bitcoin network started becoming really popular in 2017, users either had to pay a fee or wait for a long time for their transaction to go through. This means that Satoshi Nakamoto was right when he said that the network could sustain itself with miners getting paid from transaction fees. The downside of fees on the Bitcoin network is that they’ve already made the network not usable for small peer-to-peer transactions, but the issue of fees and scalability of the Bitcoin network is not a subject of this article.

As of January of 2018, there are over 16,5 million bitcoins in circulation out of 21 million, which means that over 80% of the total supply of bitcoins is already in circulation. On average, the network is generating 1,800 bitcoins a day. You can see the how many bitcoins the Bitcoin network has in circulation as you are reading this article by visiting http://www.bitcoinblockhalf.com/

Coin supply on the Dogecoin network works in a very different way. There is no cap on how many coins the network can have. After becoming available to the public in December of 2013, the network has added 100 billion coins by the end of June of 2015, in less than two years from the launch of the network. Since then, the number of coins that the network adds to the circulation is limited to 5.256 billion dogecoins annually. This means that Dogecoin is an inflationary currency while bitcoin is deflationary.

 

Inflation vs Deflation

Inflation of a currency is a decline of purchasing value of money. For example, if Dogecoin has 100 Billion coins in circulation one year and 105 Billion coins in circulation the next, this means that the value of each coin goes down because there are more coins today in circulation than a year before that.

Deflation of a currency is an increase of purchasing value of money. An example of deflation would be a currency that had 100 billion coins in circulation a year before and 90 billion today. Because the number of coins is decreasing, each coin is worth more.

While Bitcoin is not deflationary in the way it works and the way it has been designed, there can only be 21 million of Bitcoins. Also, because the network is decentralized, when a person loses the private key of a Bitcoin wallet, the bitcoins in the wallet become lost. Many people also argue that a lot of Bitcoins have been lost because they have been mined in the early days of Bitcoin. Many of the miners were installing Bitcoin software and mining coins just to check out the process and the idea. They didn’t understand the value of Bitcoin and didn’t realize that someday the price of Bitcoin will surpass $10,000, which is why they didn’t make backups of private keys of the bitcoin wallets and the bitcoins got destroyed together with old computers and old hard drives.

Both inflation and deflation have their own pros and cons. Most central banks on the planet aim for the inflation of 2%. This number is not too far from Dogecoin’s inflation rate. The banks argue that small inflation is healthy because it allows countries to adjust wages of workers in a proper way, adjust prices of goods and services, and avoid the deflationary spiral.

The value of labor in the economy changes all the time. For example, in the 1960s and 1970s, the value of manual labor in America was very high. It was possible to graduate from high school, get a job at a factory and eventually get to a six-figure income, buy a home, a boat and have an RV in the driveway. These times are long gone mostly because of automation of labor and outsourcing of production. However, the salaries of such workers did not go down. It was inflation of the currency that made the salaries smaller in value while nominally they stayed the same.

Many economists argue that this is one the main reasons why inflation is necessary. Here is there argument: if salaries were to go down nominally instead of going down in value (for example, someone would get a decrease in salary from $75,000/year to $65,000/year instead of keeping the same salary that goes down in value because of inflation), people would stop spending as freely as they did before. They would need to create a budget based on the $65,000 instead of $75,000, which means that they will have to cut spending on goods and services. This would lead to less economic growth and fewer jobs. Therefore, inflation is necessary.

 

An example of deflationary spiral

Proponents of inflation and coins such as Dogecoin also say that inflations helps avoid deflationary spiral and risks associated with it.

Here’s is an example of a deflationary spiral. Let’s say there is an economy that consists of just two products, mangos, and broccoli. Both mangos and broccoli are perishable foods and can go bad with time. For this reason, neither of them can become a long-term currency. For this reason, people start using silver as currency. They see silver as a tool that allows them to store value. They can exchange silver into mangos or broccoli at any time. A problem occurs when the economy starts growing. Suddenly, there are more mangos and more broccoli, but the same amount of silver. In economic terms, the supply of mangos and broccoli has increased and the supply of silver stayed the same. This means that the price of mangos and broccoli will go down. For example, if previously 1 silver coin was equal to 1 mango or 1 lb of broccoli, as the economy grows, 1 silver coin would be able to buy 1.5 mangos or 2 mangos.

This is likely to lead to coin hoarding. People would realize that the value of coins goes up because tomorrow they will be able to buy more with the coins than they do today. A lack of supply of currency in the marketplace because of coin hoarding would lead to prices declining even further down. Eventually, it will make no sense for farmers to keep producing mangos and broccoli and the markets would collapse. This is an example of a deflationary spiral.

As of the beginning of 2018, both Bitcoin and Dogecoin are doing really well in the marketplace. This means that the market has room for both deflationary digital coins and inflationary digital coins.

 

The role of inflation and coin supply in the popularity of Dogecoin

Inflation and large coin supply have played a large role in the success of Dogecoin. Because the currency has over 100 billion coins in circulation and the supply is growing, one Dogecoin costs much less than one Bitcoin and less than many of the other coins. This made the entry barrier to purchasing and transacting in Dogecoins very low. This is also one of the reasons why Dogecoin became “digital tipping currency of the Internet” while Bitcoin turned into “digital gold.” Being digital tipping currency, Dogecoin carved its place in the world of cryptocurrencies in 2014, with users sending small payments in Dogecoin to each other. In the beginning of 2014, the daily average number of transactions surpassed 100,000. It went down by April of 2014, yet stayed somewhat steady at between 10,000 and 20,000 transactions per day. You can see a Dogecoin Transactions Historical chart since the inception of the network here: https://bitinfocharts.com/comparison/dogecoin-transactions.html

Transaction fees on the Dogecoin network have also remained extremely low during the entire time of the network existence. While the fees did go up as the popularity of the network increased in the end of 2017, they remained extremely low. For example, the average transaction fee on the Dogecoin network on 12/27/2013 was USD$0.0002. On 11/13/2017 the fee was USD$0.0016.

 

History of Dogecoin

In 2013, Billy Marcus, a software developer from Portland, Oregon, was thinking about developing a cryptocurrency that would have a broader market appeal and feel more fun than Bitcoin. The idea of Marcus was to create someone that would capture the interest of younger demographic and distance the coin from many controversies that surrounded cryptocurrencies at the time, such as Mt. Gox hack [Mt. Gox launched in 2010 and by 2013 has become the largest cryptocurrency exchange, responsible for over 70% of bitcoin transactions in the world. In 2014, the company started bankruptcy proceedings because it had over 850,000 bitcoins stolen from its accounts].

At the same time, Jackson Palmer, a marketing professional working for Adobe Corporation in Australia, was following the developments of cryptocurrencies and the trends that were occurring on the Internet. One of the trends was the popularity of memes that included sayings of inner dialogue deliberately written in broken English in Comic Sans font and an image of Shiba Inu dog. Someone named the dog in the memes “Doge.” Popular saying included “so scare,” “wow,” “such awake,” “much morning,” “so cereal,” and others. This inspired Palmer to post a tweet that said “Investing in Dogecoin, pretty sure it’s the next big thing.”

To the surprise of Palmer, he started receiving messages that encouraged him to create a coin named Dogecoin. Reddit became a center of discussions about Dogecoin. This led to Palmer registering the website www.Dogecoin.com

Marcus visited Dogecoin.com a few days after the website went live. He found the website to be extremely funny and decided that he wanted to name his future coin Dogecoin. He contacted Palmer and Dogecoin project was born.

Several weeks after Marcus and Palmer launched the network, Dogecoin became the most popular online tipping currency. Users were sending dogecoins to each other as a way of thanking creators of content and websites. Because of the popularity of the currency, the community behind it started using slogan “To the moon!” to show their enthusiasm about the currency and its future. The culture that formed around Dogecoin was the force that drove it forward. The culture led to the creation of a number of serious projects.

 

Winter Olympics in Sochi, Doge4Water, and Nascar

In January of 2014, Liam Butler has created a fundraising campaign called Dogesled. The goal of the campaign was to help Jamaican athletes Winston Watt and Marvin Dixon participate in the Winter Olympic Games in Sochi, Russia. The athletes have qualified to participate in the games but later learned that their country didn’t have enough money to send them to the games. This was the reason why they turned to the Internet to seek donations.

Dogesled took off very quickly and the Dogecoin community raised over $35,000 for the athletes. The community was raising funds in Dogecoin, which was one of the reasons why the price of the coin went up 50% within less than half a day during the campaign.

Inspired by the success of the Dogesled campaign, Dogecoin community started another project, called Doge4Water. The community ran the project in cooperation with Charity:Water, a non-profit foundation that provides clean water to people in developing countries. The foundation was created in 2006 and as of January of 2018 has helped over 7 million people in 24 countries.

The goal of the Doge4Water campaign was to collect 40 million Dogecoins, which was about USD$30,000 at the time. The campaign did accomplish the goal and had over 4,000 donations. One of the donors has donated over 14 million dogecoins, which in 2014 was around $11,000.

After running Doge4Water, Dogecoin community has decided to become a sponsor of a NASCAR driver Josh Wise and his car. The community raised about $50,000 in Dogecoins in March of 2014 and became an official sponsor of Wise.

Also in 2014, DogeCoin started a project together with RevUp Render, a company that provides graphics-related designer services in the cloud. The challenge was called Lunar Iditarod and was supposed to have multiple stages with the final goal of having three rovers compete in a nine-meter-long race on the surface of the moon.

 

Dogecoin in 2018

In December of 2017, Dogecoin has surpassed $1 billion in market capitalization and had a trading volume above $100 million on certain days. This led to Jackson Palmer expressing concerns about the cryptocurrency market and Dogecoin. At the same time, Dogecoin developers were very optimistic and excited about the future of the coin. According to them, the growth of Dogecoin price was a sign of market interest and proof that not every cryptocurrency needs a lot of innovation or features to be successful.

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