To learn more about Dogecoin, take a look at our FAQs.
Find answers to recurring questions and myths about Dogecoin.1
Dogecoin is a consensus network that enables a new payment system and a completely digital money. It is a decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Dogecoin is pretty much like cash for the Internet.
Developers Mr. Markus and Jackson Palmer co-created dogecoin as a joke in 2013. Even the way people originally obtained the coin was meant to be ridiculous: In return for solving mathematical puzzles, dogecoin miners operating fast-running computers received anywhere from one dogecoin to hundreds of thousands of dogecoins.
Neither works on the project anymore, and Mr. Markus has said he sold all of his dogecoin in 2015.
Nobody owns the Dogecoin network much like no one owns the technology behind email. Dogecoin is controlled by all Dogecoin users around the world. While developers are improving the software, they can't force a change in the Dogecoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Dogecoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.
From a user perspective, Dogecoin is nothing more than a mobile app or computer program that provides a personal Dogecoin wallet and allows a user to send and receive dogecoins with them. This is how Dogecoin works for most users. Behind the scenes, the Dogecoin network is sharing a public ledger called the "block chain". This ledger contains every transaction ever processed, allowing a user's computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending dogecoins from their own Dogecoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in dogecoins for this service. This is often called "mining".
Yes. There are a growing number of businesses and individuals using Dogecoin. This includes brick-and-mortar businesses like restaurants, apartments, as well as popular online services. While Dogecoin remains a relatively new phenomenon, it is growing fast.
While it may be possible to find individuals who wish to sell dogecoins in exchange for a credit card or PayPal payment, most exchanges do not allow funding via these payment methods. This is due to cases where someone buys dogecoins with PayPal, and then reverses their half of the transaction. This is commonly referred to as a chargeback.
Dogecoin payments are easier to make than debit or credit card purchases, and can be received without a merchant account. Payments are made from a wallet application, either on your computer or smartphone, by entering the recipient's address, the payment amount, and pressing send. To make it easier to enter a recipient's address, many wallets can obtain the address by scanning a QR code or touching two phones together with NFC technology.
Much of the trust in Dogecoin comes from the fact that it requires no trust at all. Dogecoin is fully open-source and decentralized. This means that anyone has access to the entire source code at any time. Any developer in the world can therefore verify exactly how Dogecoin works. All transactions and dogecoins issued into existence can be transparently consulted in real-time by anyone. All payments can be made without reliance on a third party and the whole system is protected by heavily peer-reviewed cryptographic algorithms like those used for online banking. No organization or individual can control Dogecoin, and the network remains secure even if not all of its users can be trusted.
You should never expect to get rich with Dogecoin or any emerging technology. It is always important to be wary of anything that sounds too good to be true or disobeys basic economic rules.
Dogecoin is a growing space of innovation and there are business opportunities that also include risks. There is no guarantee that Dogecoin will continue to grow even though it has developed at a very fast rate so far. Investing time and resources on anything related to Dogecoin requires entrepreneurship. There are various ways to make money with Dogecoin such as mining, speculation or running new businesses. All of these methods are competitive and there is no guarantee of profit. It is up to each individual to make a proper evaluation of the costs and the risks involved in any such project.
Dogecoin is as virtual as the credit cards and online banking networks people use everyday. Dogecoin can be used to pay online and in physical stores just like any other form of money. Dogecoin balances are stored in a large distributed network, and they cannot be fraudulently altered by anybody. In other words, Dogecoin users have exclusive control over their funds and dogecoins cannot vanish just because they are virtual.
Dogecoin is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Dogecoin is not anonymous and cannot offer the same level of privacy as cash. The use of Dogecoin leaves extensive public records. Various mechanisms exist to protect users' privacy, and more are in development. However, there is still work to be done before these features are used correctly by most Dogecoin users.
Some concerns have been raised that private transactions could be used for illegal purposes with Dogecoin. However, it is worth noting that Dogecoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Dogecoin cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted. Additionally, Dogecoin is also designed to prevent a large range of financial crimes.
When a user loses his wallet, it has the effect of removing money out of circulation. Lost dogecoins still remain in the block chain just like any other dogecoins. However, lost dogecoins remain dormant forever because there is no way for anybody to find the private key(s) that would allow them to be spent again. Because of the law of supply and demand, when fewer dogecoins are available, the ones that are left will be in higher demand and increase in value to compensate.
The Dogecoin network can already process a much higher number of transactions per second than it does today. It is, however, not entirely ready to scale to the level of major credit card networks. Work is underway to lift current limitations, and future requirements are well known. Since inception, every aspect of the Dogecoin network has been in a continuous process of maturation, optimization, and specialization, and it should be expected to remain that way for some years to come. As traffic grows, more Dogecoin users may use lightweight clients, and full network nodes may become a more specialized service.
To the best of our knowledge, Dogecoin has not been made illegal by legislation in most jurisdictions. However, some jurisdictions (such as Argentina and Russia) severely restrict or ban foreign currencies. Other jurisdictions (such as Thailand) may limit the licensing of certain entities such as Dogecoin exchanges.
Regulators from various jurisdictions are taking steps to provide individuals and businesses with rules on how to integrate this new technology with the formal, regulated financial system. For example, the Financial Crimes Enforcement Network (FinCEN), a bureau in the United States Treasury Department, issued non-binding guidance on how it characterizes certain activities involving virtual currencies.
Dogecoin is money, and money has always been used both for legal and illegal purposes. Cash, credit cards and current banking systems widely surpass Dogecoin in terms of their use to finance crime. Dogecoin can bring significant innovation in payment systems and the benefits of such innovation are often considered to be far beyond their potential drawbacks.
Dogecoin is designed to be a huge step forward in making money more secure and could also act as a significant protection against many forms of financial crime. For instance, dogecoins are completely impossible to counterfeit. Users are in full control of their payments and cannot receive unapproved charges such as with credit card fraud. Dogecoin transactions are irreversible and immune to fraudulent chargebacks. Dogecoin allows money to be secured against theft and loss using very strong and useful mechanisms such as backups, encryption, and multiple signatures.
Some concerns have been raised that Dogecoin could be more attractive to criminals because it can be used to make private and irreversible payments. However, these features already exist with cash and wire transfer, which are widely used and well-established. The use of Dogecoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems, and Dogecoin is not likely to prevent criminal investigations from being conducted. In general, it is common for important breakthroughs to be perceived as being controversial before their benefits are well understood. The Internet is a good example among many others to illustrate this.
The Dogecoin protocol itself cannot be modified without the cooperation of nearly all its users, who choose what software they use. Attempting to assign special rights to a local authority in the rules of the global Dogecoin network is not a practical possibility. Any rich organization could choose to invest in mining hardware to control half of the computing power of the network and become able to block or reverse recent transactions. However, there is no guarantee that they could retain this power since this requires to invest as much than all other miners in the world.
It is however possible to regulate the use of Dogecoin in a similar way to any other instrument. Just like the dollar, Dogecoin can be used for a wide variety of purposes, some of which can be considered legitimate or not as per each jurisdiction's laws. In this regard, Dogecoin is no different than any other tool or resource and can be subjected to different regulations in each country. Dogecoin use could also be made difficult by restrictive regulations, in which case it is hard to determine what percentage of users would keep using the technology. A government that chooses to ban Dogecoin would prevent domestic businesses and markets from developing, shifting innovation to other countries. The challenge for regulators, as always, is to develop efficient solutions while not impairing the growth of new emerging markets and businesses.
Dogecoin is not a fiat currency with legal tender status in any jurisdiction, but often tax liability accrues regardless of the medium used. There is a wide variety of legislation in many different jurisdictions which could cause income, sales, payroll, capital gains, or some other form of tax liability to arise with Dogecoin.
Dogecoin is freeing people to transact on their own terms. Each user can send and receive payments in a similar way to cash but they can also take part in more complex contracts. Multiple signatures allow a transaction to be accepted by the network only if a certain number of a defined group of persons agree to sign the transaction. This allows innovative dispute mediation services to be developed in the future. Such services could allow a third party to approve or reject a transaction in case of disagreement between the other parties without having control on their money. As opposed to cash and other payment methods, Dogecoin always leaves a public proof that a transaction did take place, which can potentially be used in a recourse against businesses with fraudulent practices.
It is also worth noting that while merchants usually depend on their public reputation to remain in business and pay their employees, they don't have access to the same level of information when dealing with new consumers. The way Dogecoin works allows both individuals and businesses to be protected against fraudulent chargebacks while giving the choice to the consumer to ask for more protection when they are not willing to trust a particular merchant.
New dogecoins are generated by a competitive and decentralized process called "mining". This process involves that individuals are rewarded by the network for their services. Dogecoin miners are processing transactions and securing the network using specialized hardware and are collecting new dogecoins in exchange.
The Dogecoin protocol is designed in such a way that new dogecoins are created at a fixed rate. This makes Dogecoin mining a very competitive business. When more miners join the network, it becomes increasingly difficult to make a profit and miners must seek efficiency to cut their operating costs. No central authority or developer has any power to control or manipulate the system to increase their profits. Every Dogecoin node in the world will reject anything that does not comply with the rules it expects the system to follow.
There is no implemented hard cap on the total supply of Dogecoins. At this point, Dogecoin miners will probably be supported exclusively by numerous small transaction fees.
Dogecoins have value because they are useful as a form of money. Dogecoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies). In short, Dogecoin is backed by mathematics. With these attributes, all that is required for a form of money to hold value is trust and adoption. In the case of Dogecoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, dogecoin's value comes only and directly from people willing to accept them as payment.
The price of a dogecoin is determined by supply and demand. When demand for dogecoins increases, the price increases, and when demand falls, the price falls. Because Dogecoin is still a relatively small market compared to what it could be, it doesn't take significant amounts of money to move the market price up or down, and thus the price of a dogecoin is still very volatile.
Yes. History is littered with currencies that failed and are no longer used, such as the German Mark during the Weimar Republic and, more recently, the Zimbabwean dollar. There is always potential for technical failures, competing currencies, political issues and so on. As a basic rule of thumb, no currency should be considered absolutely safe from failures or hard times. Dogecoin has proven reliable for years since its inception and there is a lot of potential for Dogecoin to continue to grow. However, no one is in a position to predict what the future will be for Dogecoin.
A fast rise in price does not constitute a bubble. An artificial over-valuation that will lead to a sudden downward correction constitutes a bubble. Choices based on individual human action by hundreds of thousands of market participants is the cause for dogecoin's price to fluctuate as the market seeks price discovery. Reasons for changes in sentiment may include a loss of confidence in Dogecoin, a large difference between value and price not based on the fundamentals of the Dogecoin economy, increased press coverage stimulating speculative demand, fear of uncertainty, and old-fashioned irrational exuberance and greed.
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money, or the money paid by subsequent investors, instead of from profit earned by the individuals running the business. Ponzi schemes are designed to collapse at the expense of the last investors when there is not enough new participants.
Dogecoin is a free software project with no central authority. Consequently, no one is in a position to make fraudulent representations about investment returns. Like other major currencies such as gold, United States dollar, euro, yen, etc. there is no guaranteed purchasing power and the exchange rate floats freely. This leads to volatility where owners of dogecoins can unpredictably make or lose money. Beyond speculation, Dogecoin is also a payment system with useful and competitive attributes that are being used by thousands of users and businesses.
Some early adopters have large numbers of dogecoins because they took risks and invested time and resources in an unproven technology that was hardly used by anyone and that was much harder to secure properly. Many early adopters spent large numbers of dogecoins quite a few times before they became valuable or bought only small amounts and didn't make huge gains. There is no guarantee that the price of a dogecoin will increase or drop. This is very similar to investing in an early startup that can either gain value through its usefulness and popularity, or just never break through. Dogecoin is still in its infancy, and it has been designed with a very long-term view; it is hard to imagine how it could be less biased towards early adopters, and today's users may or may not be the early adopters of tomorrow.
This is a chicken and egg situation. For dogecoin's price to stabilize, a large scale economy needs to develop with more businesses and users. For a large scale economy to develop, businesses and users will seek for price stability.
Fortunately, volatility does not affect the main benefits of Dogecoin as a payment system to transfer money from point A to point B. It is possible for businesses to convert dogecoin payments to their local currency instantly, allowing them to profit from the advantages of Dogecoin without being subjected to price fluctuations. Since Dogecoin offers many useful and unique features and properties, many users choose to use Dogecoin. With such solutions and incentives, it is possible that Dogecoin will mature and develop to a degree where price volatility will become limited.
Only a fraction of dogecoins issued to date are found on the exchange markets for sale. Dogecoin markets are competitive, meaning the price of a dogecoin will rise or fall depending on supply and demand. Additionally, new dogecoins will continue to be issued for decades to come. Therefore even the most determined buyer could not buy all the dogecoins in existence. This situation isn't to suggest, however, that the markets aren't vulnerable to price manipulation; it still doesn't take significant amounts of money to move the market price up or down, and thus Dogecoin remains a volatile asset thus far.
That can happen. For now, Dogecoin remains one of the most popular decentralized virtual currencies, but there can be no guarantee that it will retain that position. There is already a set of alternative currencies inspired by Dogecoin. It is however probably correct to assume that significant improvements would be required for a new currency to overtake Dogecoin in terms of established market, even though this remains unpredictable. Dogecoin could also conceivably adopt improvements of a competing currency so long as it doesn't change fundamental parts of the protocol.
Receiving notification of a payment is almost instant with Dogecoin. However, there is a delay before the network begins to confirm your transaction by including it in a block. A confirmation means that there is a consensus on the network that the dogecoins you received haven't been sent to anyone else and are considered your property. Once your transaction has been included in one block, it will continue to be buried under every block after it, which will exponentially consolidate this consensus and decrease the risk of a reversed transaction. If the transaction pays too low a fee or is otherwise atypical, getting the first confirmation can take much longer. Every user is free to determine at what point they consider a transaction sufficiently confirmed, but 6 confirmations is often considered to be as safe as waiting 6 months on a credit card transaction.
Transactions can be processed without fees, but trying to send free transactions can require waiting days or weeks. Although fees may increase over time, normal fees currently only cost a tiny amount. By default, all Dogecoin wallets listed on Dogecoin.com add what they think is an appropriate fee to your transactions; most of those wallets will also give you chance to review the fee before sending the transaction.
Transaction fees are used as a protection against users sending transactions to overload the network and as a way to pay miners for their work helping to secure the network. The precise manner in which fees work is still being developed and will change over time. Because the fee is not related to the amount of dogecoins being sent, it may seem extremely low or unfairly high. Instead, the fee is relative to the number of bytes in the transaction, so using multisig or spending multiple previously-received amounts may cost more than simpler transactions. If your activity follows the pattern of conventional transactions, you won't have to pay unusually high fees.
This works fine. The dogecoins will appear next time you start your wallet application. Dogecoins are not actually received by the software on your computer, they are appended to a public ledger that is shared between all the devices on the network. If you are sent dogecoins when your wallet client program is not running and you later launch it, it will download blocks and catch up with any transactions it did not already know about, and the dogecoins will eventually appear as if they were just received in real time. Your wallet is only needed when you wish to spend dogecoins.
Long synchronization time is only required with full node clients like Dogecoin Core. Technically speaking, synchronizing is the process of downloading and verifying all previous Dogecoin transactions on the network. For some Dogecoin clients to calculate the spendable balance of your Dogecoin wallet and make new transactions, it needs to be aware of all previous transactions. This step can be resource intensive and requires sufficient bandwidth and storage to accommodate the full size of the block chain. For Dogecoin to remain secure, enough people should keep using full node clients because they perform the task of validating and relaying transactions.
Mining is the process of spending computing power to process transactions, secure the network, and keep everyone in the system synchronized together. It can be perceived like the Dogecoin data center except that it has been designed to be fully decentralized with miners operating in all countries and no individual having control over the network. This process is referred to as "mining" as an analogy to gold mining because it is also a temporary mechanism used to issue new dogecoins. Unlike gold mining, however, Dogecoin mining provides a reward in exchange for useful services required to operate a secure payment network. Mining will still be required after the last dogecoin is issued.
Anybody can become a Dogecoin miner by running software with specialized hardware. Mining software listens for transactions broadcast through the peer-to-peer network and performs appropriate tasks to process and confirm these transactions. Dogecoin miners perform this work because they can earn transaction fees paid by users for faster transaction processing, and newly created dogecoins issued into existence according to a fixed formula.
For new transactions to be confirmed, they need to be included in a block along with a mathematical proof of work. Such proofs are very hard to generate because there is no way to create them other than by trying billions of calculations per second. This requires miners to perform these calculations before their blocks are accepted by the network and before they are rewarded. As more people start to mine, the difficulty of finding valid blocks is automatically increased by the network to ensure that the average time to find a block remains equal to 1 minute. As a result, mining is a very competitive business where no individual miner can control what is included in the block chain.
The proof of work is also designed to depend on the previous block to force a chronological order in the block chain. This makes it exponentially difficult to reverse previous transactions because this requires the recalculation of the proofs of work of all the subsequent blocks. When two blocks are found at the same time, miners work on the first block they receive and switch to the longest chain of blocks as soon as the next block is found. This allows mining to secure and maintain a global consensus based on processing power.
Dogecoin miners are neither able to cheat by increasing their own reward nor process fraudulent transactions that could corrupt the Dogecoin network because all Dogecoin nodes would reject any block that contains invalid data as per the rules of the Dogecoin protocol. Consequently, the network remains secure even if not all Dogecoin miners can be trusted.
Spending energy to secure and operate a payment system is hardly a waste. Like any other payment service, the use of Dogecoin entails processing costs. Services necessary for the operation of currently widespread monetary systems, such as banks, credit cards, and armored vehicles, also use a lot of energy. Although unlike Dogecoin, their total energy consumption is not transparent and cannot be as easily measured.
Dogecoin mining has been designed to become more optimized over time with specialized hardware consuming less energy, and the operating costs of mining should continue to be proportional to demand. When Dogecoin mining becomes too competitive and less profitable, some miners choose to stop their activities. Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use. An optimally efficient mining network is one that isn't actually consuming any extra energy. While this is an ideal, the economics of mining are such that miners individually strive toward it.
Mining creates the equivalent of a competitive lottery that makes it very difficult for anyone to consecutively add new blocks of transactions into the block chain. This protects the neutrality of the network by preventing any individual from gaining the power to block certain transactions. This also prevents any individual from replacing parts of the block chain to roll back their own spends, which could be used to defraud other users. Mining makes it exponentially more difficult to reverse a past transaction by requiring the rewriting of all blocks following this transaction.
In the early days of Dogecoin, anyone could find a new block using their computer's CPU. As more and more people started mining, the difficulty of finding new blocks increased greatly to the point where the only cost-effective method of mining today is using specialized hardware.
The Dogecoin technology - the protocol and the cryptography - has a strong security track record, and the Dogecoin network is probably one of the biggest distributed computing projects in the world. Dogecoin's most common vulnerability is in user error. Dogecoin wallet files that store the necessary private keys can be accidentally deleted, lost or stolen. This is pretty similar to physical cash stored in a digital form. Fortunately, users can employ sound security practices to protect their money or use service providers that offer good levels of security and insurance against theft or loss.
The rules of the protocol and the cryptography used for Dogecoin are still working years after its inception, which is a good indication that the concept is well designed. However, security flaws have been found and fixed over time in various software implementations. Like any other form of software, the security of Dogecoin software depends on the speed with which problems are found and fixed. The more such issues are discovered, the more Dogecoin is gaining maturity.
There are often misconceptions about thefts and security breaches that happened on diverse exchanges and businesses. Although these events are unfortunate, none of them involve Dogecoin itself being hacked, nor imply inherent flaws in Dogecoin; just like a bank robbery doesn't mean that the dollar is compromised. However, it is accurate to say that a complete set of good practices and intuitive security solutions is needed to give users better protection of their money, and to reduce the general risk of theft and loss. Over the course of the last few years, such security features have quickly developed, such as wallet encryption, offline wallets, hardware wallets, and multi-signature transactions.
It is not possible to change the Dogecoin protocol that easily. Any Dogecoin client that doesn't comply with the same rules cannot enforce their own rules on other users. As per the current specification, double spending is not possible on the same block chain, and neither is spending dogecoins without a valid signature. Therefore, it is not possible to generate uncontrolled amounts of dogecoins out of thin air, spend other users' funds, corrupt the network, or anything similar.
However, powerful miners could arbitrarily choose to block or reverse recent transactions. A majority of users can also put pressure for some changes to be adopted. Because Dogecoin only works correctly with a complete consensus between all users, changing the protocol can be very difficult and requires an overwhelming majority of users to adopt the changes in such a way that remaining users have nearly no choice but to follow. As a general rule, it is hard to imagine why any Dogecoin user would choose to adopt any change that could compromise their own money.
Yes, most systems relying on cryptography in general are, including traditional banking systems. However, quantum computers don't yet exist and probably won't for a while. In the event that quantum computing could be an imminent threat to Dogecoin, the protocol could be upgraded to use post-quantum algorithms. Given the importance that this update would have, it can be safely expected that it would be highly reviewed by developers and adopted by all Dogecoin users.
This work, "Frequently Asked Questions", is a derivative of "Frequently Asked Questions", used under MIT License (MIT) available on https://opensource.org/licenses/MIT.
"Frequently Asked Questions" is licensed under MIT License (MIT) available on https://opensource.org/licenses/MIT by DogecoinIsAwesome.com ↩