How Litecoin and Dogecoin create one of the most powerful PoW networks?

Dogecoin (DOGE), the popular “meme” cryptocurrency created as a joke by Billy Markus and Jackson Palmer, has had incredible success over the past year. Celebrities like Elon Musk, Mark Cuban and Gene Simmons have publicly expressed their support for the coin and attracted a significant number of new supporters.

In the early years, DOGE became famous as a bounty coin due to low fees. Interestingly, it was also used in 2014 to raise funds for the Jamaican ski team and raise $ 30,000. The Dogecoin community has a strong meme culture and is establishing itself as a carefree and fun community of paramount importance.

DOGE was introduced on December 6, 2013 and is still one of the longest established cryptocurrencies. At the time, the crypto room was still in its infancy and was a testing ground for various ideas. While there is a lot to celebrate in relation to DOGE’s recent success, it is a little-known fact that at one point in Dogecoin history, failure surfaced big.

In 2013, Litecoin had a thriving community and ecosystem that started two years before Dogecoin. Litecoin is Scrypt’s dominant coin, which means that most of the hash rate is focused on securing the Litecoin network. Dogecoin, a spin-off (or spin-off) from Litecoin, has decided to keep Scrypt coin status and change certain coin dispensing parameters. Since Dogecoin uses the same scrypt algorithm as Litecoin, it needs to get the majority of the hash rate to be the most dominant and most secure of the two. Otherwise, it will be exposed to the ongoing threat from malicious actors attacking the network.

Dogecoin was designed in the first year with an unusually large coin distribution. The network paid off a lot to the miners from the start, with about half of the DOGE in circulation being released within the first 4 months. The following table shows examples of the initial high distribution of Dogecoin, using a specific date as a reference point.

Basically, about a week after the start of Dogecoin on December 15, 2013, 6.58 billion DOGE were mined (5% of the total available DOGE). Approximately 1 year after the start, 95% of all current DOGE have been phased out.

The picture below is an excerpt from the Dogecoin whitepaper, which explains the rapid release of most coins within the first 1.5 years and consistently generates around 5 billion DOGE per year.

“How many DOGEs can exist? So many, so much. At the beginning of 2015 (approx. 1.5 years since publication) there were almost 100,000,000,000 coins. Each block will later grant 10,000 coins to motivate miners to keep securing the network and to compensate for wallets that were lost due to hard drive problems / phones / lost encryption passwords / etc. get lost.)

During an AMA (Q&A) session on merge mining on Reddit Litecoin inventor Charlie Lee described the rapid spread of DOGE to the Dogecoin community as follows:

“Using an analogy for startups, imagine if Coinbase pays 95% of its equity to employees in the first year, how can they hire good people after the first year? Can you still be successful? Yes, but it will be really difficult. “

On the other hand, coins like Bitcoin and LTC are designed with a distribution density that is more distributed over time. They are designed so that the miner reward is cut in half every four years (the halving event) while the DOGE miner reward is cut in half every two months. As a percentage, miners earn less than 50% every few weeks. So it’s understandable why this is daunting for miners, especially when the DOGE price starts to drop a few months after its inception.

While the initial coin distribution is quick to encourage people to join the network (how a giant pot of gold is discovered), the downside is that much of the inventory is quickly depleted and very little is left later. The difference is that in the crypto world these miners ensure the security of the network – if there are only a few rewards left, who will then defend the network against attacks in the long term? ?

Some contributors in the crypto space have predicted that Dogecoin will face the consequences of a declining hash rate over time and poor network security due to the aforementioned fast issuance rate. Not to mention, just months before the launch of Dogecoin, Feathercoin, another Scrypt-based cryptocurrency, suffered a 51 percent attack. The attackers appropriated around 580,000 coins.

Dogecoin had a successful period after its inception, with its hash rate increasing (even higher than Litecoin in some transition periods), although this is clearly unsustainable given the high level of emissions.

The following graphic shows the hash rate of Dogecoin (red) in the first months (2013-2014) compared to Litecoin (blue). Dogecoin’s hash rate is increasing from the start and stagnating for the following months. As Litecoin’s hash rate continues to rise, Dogecoin’s network becomes more and more vulnerable. Due to the different hash rates, the community felt it was necessary to make an early decision to solve the problem.

Litecoin hashrate (green) and Dogecoin hashrate (red) | Source: Bitinfocharts.com

Due to the growing security risk, several discussions have taken place in the community in search of answers. Unfortunately, there is no perfect solution as each option has advantages and disadvantages. The goal here is to find the least risky option.

Among the options discussed, Proof-of-Stake (PoS), Auxiliary Proof-of-Work (AuxPoW or “Unified Mining”) or switching to a completely different mining algorithm are the most important options.

During this time, Litecoin founder Charlie Lee contributed to the discussion by explaining to the Dogecoin community the pros and cons of merging mining with Litecoin. With the Dogecoin hard fork and merge mining enabled, Litecoin miners (who eventually share the same mining algorithm with Dogecoin) will be given an incentive to secure the Dogecoin network by mining at the same time, LTC + DOGE. A double hit hit the target.

At the time, the Dogecoin community seemed at odds, which raised questions about Charlie’s intentions. Many people wonder why the creator of Litecoin is trying to help them. Does he have good or bad intentions? What’s in Litecoin? Some fear that the merger of the two communities will lose their identity. Most of all, more than anything, the community seems to be angry about the situation they find themselves in.

In fact, Charlie just leads the community. The Unified Mining Code is open source and all information is freely available to anyone who wants to analyze and interpret it. Therefore, the advantages / consequences of merge mining are transparent.

After several months of discussion, the Dogecoin community decided that mining consolidation was the best option and followed Charlie Lee’s advice with a hard fork in August 2014.

Heavy fork Dogecoin (August 2014) | Source: Bitinfocharts.com

As the picture shows, Dogecoin hash rate has increased significantly since the hard fork after Litecoin mining pools added consolidated mining. The hash rate disparity between the two chains completely stopped when Litecoin miners began contributing to Dogecoin network security.

Overall, it can be said that the mining concept is an experiment. While Bitcoin and Litecoin have so far proven successful with a 4-year reward halving cycle, the effectiveness of this system will continue to be evaluated over the long term. As the rewards for Litecoin blocks continue to halve over the next few decades, transaction fees will eventually become the primary source of income for miners.

On the other hand, Dogecoin has a constant stream of around 5 billion new coins created every year (no more halving cycles) which is also seen as a currency experiment. Interestingly, this constant expense could serve as a source of income for the miners for hundreds of years.

Initially, Litecoin offered to secure Dogecoin network through unified mining – and said it could become a reality where, with constant inflation and the relentless mining of Dogecoin, miners can later return the favor by helping to secure the Litecoin- Network help when in a paid system. In short, what Litecoin originally did to protect Dogecoin can be converted back into Dogecoin to help Litecoin during the transition and continue a mutually beneficial partnership.

Long-term hashrate | Source: Bitinfocharts.com

In terms of the long-term outlook, Dogecoin and Litecoin can effectively have a symbiotic relationship in terms of hash rate – with Dogecoin no longer at the high risk of a 51% attack. Accordingly, they protect each other.

Even if this event has been somewhat forgotten today, the decision to merge the mining was perhaps very beneficial for both parties in retrospect. Billy Markus, one of the creators of Dogecoin, recently to explain that the decision to merge mining with Litecoin not only saved Dogecoin, but also the most important version ever made by Dogecoin developers.

“Another page for the history of Dogecoin! In the early days, DOGE had to grapple with the problem of reducing the rewards for mining. The creator of Litecoin gave the community the AuxPOW proposal. The community took some bad action, but he was right … Posting and trying to help the community accept AuxPOW was the last thing I did for Dogecoin before I left in 2014. The Dogecoin developers were taken over at that time and their AuxPOW release was the best DOGE important release – it saved DOGE. “

The comment on Reddit also proves that the majority of the community thinks this decision is a positive one. “One year anniversary of the AMA poster opening …