To begin with, in much the same way as Bitcoin and Ethereum, Dogecoin is a cryptocurrency that operates on blockchain technology. A blockchain is a distributed secure ledger [all participants within the network possess an identical copy of the ledger (where all past transactions may be viewed)] which stores all transactions made on the chain utilizing a decentralized digital currency [it exists and operates without a centralized governance (instead the network is managed by all distributed ledger holders)].
Each Dogecoin holder carries an exact duplicated copy of the blockchain that is often updated to reflect new Dogecoin transactions. This blockchain (Dogecoin's network) uses cryptography to secure the past and ongoing transactions in the chain, all in the same fashion as other cryptocurrencies.
The Dogecoin blockchain is based on a 'proof of work' system (like Bitcoin and in it's present state Ethereum). In this P.O.W. system, miners utilize computers to solve complex mathematical equations, by guessing the result, to process transactions within the network and further record the transaction on the Dogecoin chain. As a reward for performing these functions, miners earn compensation in the form of additional Dogecoin. Once earned the miners are free to hold the additional Dogecoin, or in the alternative, sell the same on the open market.
As will be discussed later in this Guide in more detail, Dogecoin proves not to be an effective store of value, but nonetheless may be used for payments of obligations owed or for purchases of goods and services. Briefly, this is due to the fact there exists no lifetime cap on the number of Dogecoin that may be minted by mining. As a result, by design, Dogecoin is highly inflationary.
The Dogecoin blockchain creates millions of new coins daily to provide compensation for mining. This provides a challenge for any speculative gains in the price of Dogecoin to be sustainable over any long period of time.
Although Dogecoin doesn't take itself seriously, the technology used by Dogecoin is 100% serious. Ths technology covers a few things:
the blockchain;
the mining process;
the Proof of Work (PoW) consensus algorithm;
the actual DOGE coin.
The Blockchain
Blockchain 101
Usually a blockchain is described as a distributed ledger which stores all transactions made using it.
Sometimes a blockchain is described as a database which stores information about the transactions which take place on it.
Both descriptions of blockchain are true, although they may still lead to blank stares.
At its most basic level, a blockchain is a linked list of blocks. That's it.
Each block contains 3 items:
a transaction;
an ID; and
the ID of the block which came before.
A transaction could be as simple as payment made or as complex as a post on social media using multimedia elements along with text.
The ID is a representation of the transaction. This representation is known as a hash, and it gets created when a transaction is processed.
The ID of the block which came before is known as the last hash. It's this last hash which links all the blocks into a chain. The last hash points to the block before the current block.
In real life we talk about the length of a chain. Technically we can do that with blockchain, but the number of blocks in the chain is usually called the height of the blockchain.
At first that sounds odd, until you realize that the tool used to show this blockchain (sometimes called a blockchain explorer) shows it on screen as a 1-column table with each block above the one which was generated before. The newest block in the blockchain is the one shown first, and the oldest block as at the bottom of the page (or at the bottom of the last page of a series of pages).
Nearly all blocks in a blockchain are generated during the course of use. The first block has no last hash since it has no preceding block. This block is known as the genesis block. The last hash for Block Number 2 points to the genesis block.
It's a lot of text, but it's perhaps the clearest explanation of what a blockchain is.
The Dogecoin Blockchain
Like blockchains which came before it-- including Bitcoin-- operates as described above. Since it was the original, it took a long time to develop Bitcoin's blockchain. However, since it was based on a copy of he Bitcoin blockchain, the developers of Dogecoin took 3 hours to develop its blockchain.
Blockchain is blockchain, and fundamentally they all do the same thing. What makes blockchains different from one another is how the coins are mined and how they are validated. This is where mining comes in.
Mining
Mining is the process of verifying a transaction to make sure it takes place as expected. It uses mathematical processes and calculations to ensure that coins aren't spent repeatedly for the same transaction. Once verified, it takes more math to produce a new coin to be added to the blockchain.
The table below shows how long it takes blockchains of interest to produce a new coin:
Litecoin was the first blockchain to use Scrypt for its hashing algorithm, and Dogecoin is a modified version of Litecoin. Given their places in cryptocurrency history, both claim Bitcoin as a direct ancestor.
While Bitcoin takes roughly 10 minutes to verify a transaction and produce a new coin, Litecoin's use of Scrypt cut that time down 75% to 2.5 minutes. Dogecoin (really a modified Litecoin), cut that time further to 1 minute.
Bitcoin is famous for is hard cap of 21 million coins to be mined. Among other things, Dogecoin is famous for being an inflationary cryptocurrency. Every 4 years Bitcoin cuts the numbe of new coins to be mined in half. At the other end, Dogecoin began with a cap of 100 billion, a cap which Dogecoin reached in 2015; going forward, 5 billion new DOGE will be added yearly to its circulating supply.
The Proof of Work (PoW) consensus Algorithm
Like Bitcoin and Litecoin before it, Dogecoin uses the Proof of Work consensus algorithm. This is what ensures that transactions take place as expected and each coin is is used properly (no double-dipping).
Like Litecoin yet unlike Bitcoin, Dogecoin went with the Scrypt hashing algorithm. Scrypt is a more intensive hashing algorithm than SHA-256d, so it works better with more powerful hardware such as GPUs (graphics processor units) rather than standard CPUs which run entire commputers. On top of that, miners must use equipment made specifically for use with Scrypt; SHA-256d and Scrypt are not interchangeable, so the right mining equipment is needed.
The combination of greater processing power and and moe intense processing makes Scrypt a better hashing algorithm for Dogecoin than SHA-256d.
The Actual DOGE coin
As noted earlier, Dogecoin is a cryptocurrency which effectively has no maximum number of coins. Already hard-coded for 100 billion DOGE, it also allowed for an inflation of the circulating suppply. Dogecoin was officially launched in 2013, and the 100 billion DOGE limit was already eached in 2015. Every year since 2015 an additional 5 billion DOGE will be added to the amount already circulating.
Due to the built-in scarcity of BTC, each BTC has risen in value dramatically as demand has increased. On the other hand, the original 100 billion DOGE limit combined with annual additions of 5 billion DOGE dampened the value of each DOGE.
Despite BTC and DOGE being about as different as two cryptocurrencies can be from each other, their combinations of coin supply and price make both cryptos Top 5 or Top 10 by market cap. BTC is is the leading cryptocurrency, so that's expected.
DOGE, though, came out of nowhere in 2021 when it reached it's all-time high of USD 0.73158 on 8 May 2021 after being less than USD 1 cent as recently as 27 January 2021. Given it's history as a meme coin, for Dogecoin to crack the Top 5 in market cap is nothing short of astounding.
Despite the 66% drop from its ATH reached in 2021, Dogecoin still garners much attention. It is expected to break the USD 1.00 barrier later in 2021 or sometime in 2022.
It took 2 years before BTC/USD reached two-decimal places, and for a few years more it was priced like silver. From there, BTC went on to be called "Crypto Gold."
It took about 8 years before the DOGE/USD rate reached two-decimal places.
The price of DOGE is approaching aluminum and zinc territory, or USD/CHF/EUR/GBP terrirory if you prefer ForEx.
Dogecoin will not be the next Bitcoin, and Dogecoin will not be the next Ethereum. Dogecoin will remain Dogecoin, and that's still OK too.