How Dogecoin works
Dogecoin’s blockchain operates using a proof-of-work consensus mechanism – the same system Bitcoin uses for network participants to reach an agreement on the data being added to the blockchain.
Dogecoin’s mining code was initially copied from another crypto project called LuckyCoin. LuckyCoin – a fork of Litecoin, which is a fork of Bitcoin – featured a completely random block reward schedule where miners could receive zero or potentially thousands of free coins for producing new blocks. Australian entrepreneur Jackson Palmer and American software engineer Billy Markus – the two creators of dogecoin – believed the randomness would annoy dogecoin miners and prevent them from actually using the token long term.
As the community grew around dogecoin, however, Palmer and Markus eventually decided to change this to a fixed block reward schedule in March 2014. Blocks created under the new schedule contained 10,000 dogecoin, meaning 5.2 billion dogecoins are mined each year.
Dogecoin’s mining difficulty adjustment, which controls how hard or easy it is to find a block, is tweaked every block, unlike Bitcoin, which adjusts every 2,016 blocks.
In 2014, Litecoin creator Charlie Lee proposed the idea of merge-mining dogecoin and litecoin. This idea of “merged mining” meant miners would mine both dogecoin and litecoin simultaneously, helping to boost the network security of Dogecoin. Palmer and Markus accepted Lee’s proposal four months later. That resulted in Dogecoin producing faster blocks than Bitcoin (1 minute vs. 10 minutes), meaning doge transactions are significantly faster than Bitcoin transactions.
Risks of owning dogecoin
Despite all the celebrity endorsement, social media hype and internet tribe support, there are a number of associated risks with owning dogecoin that many investors may not be aware of.
