Dogecoin Mining 2021: Everything You Need to Know

Dogecoin has come a long way since its modest beginnings as a joke cryptocurrency centred around a viral internet meme of a Shiba Inu “doge.” What was once a parody project purposefully created by software engineers Jackson Palmer and Billy Markus to be “as ridiculous as possible,” is now a top ten crypto-asset boasting a $32 billion market capitalization and a global fanbase?

Dogecoin’s spectacular rise over the first half of 2021, driven largely by internet pop culture and relentless promotion from Tesla CEO Elon Musk, has unsurprisingly reignited significant interest in dogecoin mining as mining profitability spikes to a new six-year high.

Even with its recent success, mining Dogecoin is still significantly less competitive than mining bitcoin (BTC, -0.59%) (but still difficult). New blocks are also discovered much faster and coin rewards are substantially higher – 10,000 DOGE per block reward vs 6.25 BTC.

How does Dogecoin mining work?

Dogecoin’s blockchain network employs the same system for adding new blocks to its decentralized ledger and reaching agreement among its network participants as bitcoin, litecoin (LTC, +1.59%) and many other cryptocurrencies. 

Known as a “Proof-of-Work” mechanism, this process involves “mining” where individuals or organizations compete for the right to add new blocks containing pending transactions to the blockchain ledger using specialized computer equipment. 

More specifically, miners use their machines to try and create a fixed length code known as a “hash” with a value that is equal to or lower than the target value of the new block, known as the “target hash.” Whoever creates the winning code earns the exclusive right to add new transaction data to the next block in the chain and is rewarded with newly minted coins for doing so.

Each hash generated is completely random so it’s simply a process of trial and error until one miner wins.

As a rule, PoW blockchains such as bitcoin and litecoin usually have a predetermined total supply of coins that have to be mined in order for them to be added to the circulating supply (21 million and 84 million, respectively). Think of it as being like actual mining and how precious gems or gold have to be physically mined before they can enter the market.

Unlike a vast majority of cryptocurrencies, however, dogecoin doesn’t have a maximum supply cap. Its circulating supply will continue to increase indefinitely over time as new coins are created through mining. 

New blocks are discovered approximately once every minute on the Dogecoin network. For comparison, Bitcoin blocks are discovered approximately once every 10 minutes.

Despite using the same Proof-of-Work system, dogecoin mining operates slightly differently than bitcoin. 

Bitcoin, which is the oldest and largest cryptocurrency by market cap, uses a hashing algorithm called SHA-256. This might sound complicated but a hashing algorithm is simply a function that generates a fixed-length code using a certain technique. Think of it as random code generators, where each hashing algorithm creates random codes in a unique way.

Dogecoin and litecoin use a hashing algorithm called Scrypt, which is less complex than SHA-256. This makes mining litecoin and dogecoin much faster and less energy intensive than bitcoin. 

The use of a common algorithm enabled Dogecoin and Litecoin mining to be “merged mined”, meaning both coins can be mined simultaneously without impacting operational efficiency. The two share a common algorithm because dogecoin’s design is based on luckycoin, which in turn was derived from litecoin.

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