Written By Aldo and Jorellano

Dogecoin, the popular “meme” cryptocurrency created as a joke by Billy Markus and Jackson Palmer, has seen incredible success this past year. Popular figures such as Elon Musk, Mark Cuban and Gene Simmons have publicly shown their support for the coin, rallying up a significant amount of new supporters.

In its early years, due to its low fees, Dogecoin (also referred to as “Doge”), gained prominence as a tipping coin. Interestingly enough, it was also used as a way to crowd-fund the Jamaican bobsled team in 2014, raising $30,000. The Dogecoin community, having a strong meme-culture, has established itself as one where being light-hearted and having a good laugh is of utmost importance.

Dogecoin was launched on December 6, 2013, making it one of the most time-proven cryptocurrencies to this day. At the time, the crypto space was still in its infancy and much as we still see today, a testing-ground for different ideas. Although there’s much to be celebrated in regards to Dogecoin’s recent success, it’s a little-known fact that at one point in Dogecoin’s history, failure was looming.

During 2013, Litecoin already had a thriving community and eco-system, having been launched two years prior to Dogecoin. Litecoin was the Scrypt-dominant coin, meaning, most hash rate was directed towards protecting the Litecoin network. Dogecoin, being a distant fork (or spin-off) of Litecoin, decided to also maintain its status as a Scrypt coin and modify certain coin issuance parameters. With Dogecoin sharing Litecoin’s Scrypt algorithm, it would have to obtain the majority of the hash rate to become the dominant and most secure coin of the two. Otherwise, it’d face the lingering threat of a network attack by malicious actors.

Dogecoin was designed with an unusually vast rate of coin distribution within its first year. The network was paying its miners extremely well at the beginning, with approximately half of all circulating Dogecoins being released within the first 4 months. The following chart shows examples of Dogecoin’s high initial distribution rate, using specific dates as reference points.

Essentially, about one week after Dogecoin’s launch on 12/15/13, 6.58 billion Dogecoins had already been mined (5% of all currently available Dogecoins). About one year after its launch, 95% of all current Dogecoin’s were already mined.

Featured below is an excerpt from Dogecoin’s Whitepaper explaining the rapid release of most coins within the first 1.5 years and continuous creation of approx. 5 billion Dogecoins per year.

In a Reddit Merged Mining AMA with the Dogecoin community, Litecoin creator Charlie Lee described Doge’s rapid distribution in the following way.

“Using the startup analogy, imagine if Coinbase paid 95% of its equity to its employees hired in its first year, how can it hire good people after its first year? Is it still possible to succeed? Yes, but it will be really, really hard.”

On the other hand, coins such as Bitcoin and Litecoin were designed with a more spread-out coin distribution over time. They were designed to reduce their rewards to miners in half every 4 years, while Dogecoin’s rewards to miners were halved every two months — in percent terms, miners earned 50% less every few weeks. One can see why this was discouraging for miners, especially as Dogecoin’s price started to drop a few months after its launch.

Although this rapid initial coin distribution incentivized people to swiftly join the network (imagine a tremendous stockpile of gold being discovered), the downside was that the majority of the stockpile would be guzzled up in rapid fashion, leaving very little for anyone later on. The difference here is that in the crypto world, these miners provide security to the network — in which case, if there were little-to-none left, who’d remain to defend the network against attacks in the long run?

Several contributors in the crypto space had predicted that because of this rapid issuance rate, Dogecoin would face the consequence of a diminishing hash rate over time and thus, less network security, increasing the risk of a 51% attack. Not to mention, only a few months before Dogecoin’s launch, Feathercoin, another Scrypt-based cryptocurrency, was 51% attacked. About 580k coins went to the attackers.

Dogecoin had a successful stretch after its launch, with an increasing hash rate (being even higher than Litecoin’s throughout several transient periods), although it was becoming clear that this was not sustainable due to its high issuance level.

The following chart shows Dogecoin’s hash rate (red) throughout its first few months (2013-2014) in comparison to Litecoin’s (blue). One can see Dogecoin’s hash rate increase in the beginning, with a stagnating effect over the following months. As Litecoin’s hash rate continued to increase, Dogecoin’s network became more vulnerable by the day. Due to this divergence in hash rates, a decision had to be made sooner rather than later.

Bitinfocharts.com

Because of this increasing security risk, several discussions were held within the community in search for an answer. Unfortunately, there was no perfect solution, as every option came with a list of pros and cons. The task at hand could be compared to switching an airplane engine in mid-flight, when ideally, it should’ve been taken care of before take-off. The goal here was to find the least-risky option.

Of the options discussed, Proof-of-Stake (PoS), Auxiliary Proof-of-Work (AuxPoW, or “Merged Mining”) or switching to a completely different mining algorithm were the main choices.

Throughout this phase, Litecoin founder Charlie Lee contributed to the discussion by explaining to the Dogecoin community the benefits and negatives of merged mining with Litecoin. With Dogecoin hardforking and allowing merged mining, Litecoin miners (who after all, shared the same mining algorithm as Dogecoin’s), would be incentivized to protect Dogecoin’s network by mining LTC + DOGE simultaneously. Two birds, one stone.

At the time, the Dogecoin community seemed to be at odds with one another, questioning Charlie’s intent— many asking themselves why Litecoin’s creator was trying to help them. Were the intentions good or bad? What was in it for Litecoin? Some were afraid that the two communities would merge, losing their identity. More than anything, it seemed like the community was mostly angry about the situation they were finding themselves in.

In reality, all Charlie was doing was guiding the community. The merged mining code was open-source and all information was freely available for anyone to analyze and interpret — the benefits/consequences of merged mining were transparent.

As such, after a few months of on-going discussion, the Dogecoin community decided that merged mining was the best option and followed Charlie Lee’s advice, hardforking on August 2014.

                                                                                                                                                              Dogecoin Hard Fork (August 2014) - Bitinfocharts.com

Visualized above, after the hard fork, Dogecoin’s hash rate saw a tremendous increase after Litecoin mining pools added merged mining. The ongoing hash rate separation that was occurring between the two chains came to a drastic halt as Litecoin miners began contributing to Dogecoin’s network security.

In the grand scheme of things, it could be said that the notion of mining is an experiment. Although Bitcoin and Litecoin have so far proven to be successful with their four year reward halving cycles, on a long-term basis, the efficiency of this system will continue being assessed. As Litecoin block rewards continue to halve over the following decades, eventually, transaction fees will take over as the main source of revenue for miners.

On the other hand, Dogecoin has a continuous stream of about 5 billion newly created coins per year (with no more halving cycles), which could also be considered a monetary experiment. Interestingly enough, this constant tail emission can continue serving as revenue for miners for hundreds of years to come.

At first, Litecoin offered a helping hand in securing Dogecoin’s network via merged mining — saying that, there could become a reality in which through Dogecoin’s constant inflation and continuous mining, miners could later return the favor by helping secure Litecoin’s network as it transitions into a fee-based system. What originally began as Litecoin protecting Dogecoin could convert into Dogecoin helping Litecoin throughout its transition — continuing the beneficial collaboration between the two.

Via a longterm outlook, one can see that Dogecoin and Litecoin have effectively formed a symbiotic relationship in regards to hash rate — with Dogecoin no longer being at high risk of a 51% attack. A mutual protection was generated.

Although today, this is a notably forgotten event, it appears that in retrospect, the decision to merge mine was highly beneficial for both parties involved. Billy Markus, one of the creators of Dogecoin, recently stated that the decision of merged mining with Litecoin not only saved Dogecoin, but was also the most important release ever done by Dogecoin developers.

The comments in the following threads also demonstrate that the majority of the community think the decision was a net positive. “1 Year Anniversary of Merged Mining AMA post!” — “Was the merged mining decision the right one?”.

Undoubtedly, the narrative in the Dogecoin community has now shifted from worrying about lingering security threats to being able to focus on global awareness and adoption. The recent spike in Dogecoin’s price has also led to high demand in Scrypt miners and an increased pay-out to miners securing both of the networks. Litecoin miners who decide to merge mine with Dogecoin are essentially receiving “extra gravy” on top of their mined Litecoin’s.

Without question, the merged mining relationship between Litecoin and Dogecoin has bolstered one of the most robust Proof-of-Work networks in the crypto space. As more users continue entering the space and decide to participate in each others networks, it’s anticipated that the network security of both coins will continue to expand and become increasingly difficult to attack in the long run.

To those who doubted the success of merged mining, the “joke’s” on them.

"Doge" meme                                                                                      Litecoin "Chikun"