Nowadays the real innovation seems to be embodied by digital currencies. Almost everyone knows what Bitcoin are, but it is also important to get in touch with the whole word of crypto-currencies.
Some months ago I heard about Dogecoin for the first time. At first it was just a game to me, but in a few weeks this crypto-currency showed a huge potential. Let's start from the beginning. When Kanye West threatened to sue the producers of Coinye Coin, it seemed to be the perfect moment to create a new digital currency. So, the idea of Dogecoin took place and now it is actually the cutest crypto-currency on the web. Despite being initially misunderstood, Dogecoin has been able to achieve a number of transactions doubling Bitcoin’s one, in a relatively short time.
How did such a coin, born almost as a joke, become one of the crypto-currencies with the highest growth rates on the web? In late November, the co-founder of Dogecoin, Jackson Palmer, encouraged by the exorbitant growth of crypto-currencies, registered the domain dogecoin.com introducing also a simple logo, which soon spread everywhere. “At first it was nothing more than an hilarious idea… The next morning, Billy Markus, a former engineer of IBM, worked on the interface and suggested me the creation of a digital wallet suitable for Dogecoin”. The rest is what we experienced. The creation of a digital and safe wallet for Dogecoin meant that it could work as a proper crypto-currency. The first sign implying that Dogecoin was more than just a passing fad occurred a few weeks after its creation, when its value increased more than 300% in a day: the largest growth ever registered for any crypto-currency within 24 hours. Soon after, a true microeconomic system around the universe of Dogecoin took form. People started to use the newborn coins for real transactions. On websites like shibemart.com, Dogecoin could be used to pay for different services such as Latin translations services, Photoshop, or even get a plumber (currently available only in Vancouver).
Going a little deeper into the technicalities of Dogecoin let me explain how it works in simple words.
Dogecoin is a Litecoin-derived crypto-currency. Basically, both Litecoin and Dogecoin are derivations of Bitcoin original protocol, however they use Scrypt (more specifically a simplified version of it) in their proof-of-work algorithm. Scrypt is a sequential memory-hard function, which makes algorithms, built on it, require more memory than algorithm not memory-hard, asymptotically.
In terms of mining, the choice was meant not to advantage GPU, FPGA and ASIC miners over CPU ones. A last update of the Dogecoin software changed the difficulty algorithm to DigiShield, to prevent pools from making profit from their mining activity. There are four ways to obtain Dogecoin:
- Water bowls: also known as faucets, they are free handing-outs of coins. There are websites managed by generous Shibe (as Dogecoin users are called), who give out free coins to those who enter their wallet address on the site.
- Giveaways: as the name suggests, users can obtain free Dogecoin also in this way. Sometimes Shibe will reward another Shibe with coins, simply because she replied to a post with her wallet address.
- Tipping: a user on a forum or another social network tips another user with coins, as a way to show appreciation.
- Digging: it’s Dogecoin equivalent of Bitcoin mining.
As far as digging is concerned, as it was said above, it consists in solving a proof-of-work challenge, like in Bitcoin case. One of the main differences is that digging can be easily performed through normal CPU or GPU (graphic card, which have proved to be a more efficient mining tool than traditional CPU), either on your own or joining a “pool”, digging in cooperation with other people inside it. Actually, digging outside a pool is less convenient, because the chances of solving the challenge are definitely smaller than the ones a pool has. For those interested, one of the most reliable sites to find a pool is the following: http://doge.pool.webxass.de/.
Once a new block is added to the chain, a reward of newly emitted Dogecoin is given to the winner. This reward is not fixed for now. The original algorithm envisaged for a random reward between zero and an upper roof, computed using Mersenne Twisted pseudo-random number generator, and a fixed reward only after block 600,000. However, the algorithm was changed at block 145,000, so that from then on a fixed reward was always available. Today the reward amounts to 250,000 Dogecoin per block, but it is going to be halved every new 100,000 blocks. The proof of work complexity is set so that a new block is added every minute, with a recalibration interval of four hours.
Another huge difference with Bitcoin is that Dogecoin supply is unlimited, making Dogecoin an inflationary crypto-currency, like Peercoin. The inflation rate, now progressively decreasing, is going to be fixed at a yearly value after the 600,000th block. Having said all of this, you are ready to get started and become a Shibe. Simply download the program, available on the main website for Dogecoin (www.dogecoin.com), extract the zip file to a directory and you are done.
Today, Dogecoin is 100 days old. Data shows that these first 100 days were even “better” than Bitcoin’s first 1000. This crypto-currency has been able to face the competition with Bitcoin, appointing itself as an alternative crypto-currency, as we can see by its outbreak. There are many examples of its great success. We could mention that Dogecoin community have funded the Jamaican bobsled team’s journey to Sochi’s winter games, and have raised $ 50.000 to provide clean drinking water to Kenyans, too. Dogecoin users have launched initiatives such as Doge4Kids, SaveDogemas and have even reached out to actual Shiba Inu owners and rescuers to help them pay their vet bills. The wide use of Dogecoin is what sets them apart from the other digital currencies. In fact, Dogecoin’s purpose is not limited to speculation; it has more of a humanity feeling to it. It seems to have the power to reward people.
Could Dogecoin be the novelty of this year? It is probably too early to sustain it. In fact, as explained by Ben Doernberg, a Dogecoin investor, people on social network (like Reddit, Imgur or Twitter) produce great ideas, images or products. You could have a million followers, get thousands of like or tweet, but there is no way to translate this success into real monetary terms. According to Palmer, Dogecoin does exactly that.
It is something more than a simple “Like”. We have to understand, explains Palmer, that when you send a person 50 Doge as a reward for their efforts means that they can achieve something too. Even obtaining a small amount of this coin could make people smile.
"I spent a lot of time inside online communities in my life and I think that Dogecoin’s one is probably the most positive, optimistic, happy and friendly community on the Internet I've ever seen" says Doernberg.
Over Christmas time, many Dogecoin users discovered that a hacker stole approximately an amount of Dogecoin equal to $ 12,000. In a short time the community has quickly organized a support campaign to repay the victims, managing to collect over 11 million Dogecoin. As explained by Doernberg, " with other crypto-currencies, there would have never been a similar solidarity action”. Palmer thinks that the power of Dogecoin is due to the intrinsic qualities of Shiba Inu dogs, whose image is the symbol of this crypto-currency (the symbol is the famous 2013 Doge meme, which immediately became viral on social networks). Dogecoin took the warmth and sweetness of those dogs, helping to build a community of kind-hearted and generous people around this coin. This is Palmer’s belief.
Dogecoin could be worth three million times less than Bitcoin, but its daily usage is the double, which suggests that there is a large and growing number of people actually using Dogecoin as a real currency, to purchase goods and services, unlike many Bitcoin users that are interested in it only for speculative purposes. "Money is ultimately a social thing," says Doernberg "The only thing that determines a currency worth is people’s acceptance of it. Dogecoin is the only crypto currency that is open and available also for new people. I do not think Dogecoin could overcome Bitcoin value, but there is enough space for two or three digital currencies, coexisting. Dogecoin could easily become the most widely used currency among families and children. I can already imagine that in the future children will ask for pocket money in Dogecoin".
Dogecoin thus seems to be a great success: "On the Moon " is the slogan of Dogecoin users, reflecting how they feel about it.
Today, Dogecoin's market cap is at about $47 million, after having risen to over $87 million in less than two months. Of course, due to the volatile nature of cryptocurrencies, we cannot rely on them and on their exchange ratio to be stable, but what about the traditional coins? What are they supported by, since fiat money is not linked to gold? Dogecoin is the result of a great marketing strategy and it is simply this source of its market value. Not good enough? I conclude quoting Kotler: "Marketing will never die”.