Dogecoin is dead. What killed Dogecoin is the same thing that’s killing Bitcoin — ASICs. At the heart of “cryptocurrencies” is the crypto, a difficult mathematical problem called a hash function. Hash functions take an input, and transforms it into a unique output of fixed length. Even changing the input minutely, should alter the output greatly, meaning it is extremely difficult to reverse the operation, and thereby find the input.
Cryptocurrencies require “miners” or people who’ve donated computing power the network. When a transaction is made, it’s recorded in a public ledger called a blockchain. Miners compete to be the first to solve the mathematical problem, and the winner gets a coin and a small transaction fee for their work. This is supposed to decentralize the network, and make it impossible for any one group to get control of the entire network.
The Bitcoin protocol is built to automatically make the mathematical problem more difficult to solve every 2 weeks or to keep up with hardware advances or if the network gets too powerful. So while Mom’s desktop used to get a Bitcoin an hour in 2008, you’ll now be more likely to get one per decade, if you’re lucky. Bitcoins use the SHA-256 algorithm, while Dogecoin and Litecoin use scrypt. This difference is important.
Then ASICs appeared on the market. ASICs or Application Specific Integrated Circuits are highly specialized circuits. They can do one task, and one task only, but because they’re optimized for that task, they’re extremely good at it. ASICs developed for the express purpose of solving the SHA-256 hashes can easily outclass any conventional computer. Regular people are now sidelined by huge mining pools, massive numbers of ASICs hashing at a colossal pace, using huge amounts of electricity. This places the blockchain in the hands of a few rich individuals who can afford to deploy these clusters.
It’s gotten so bad, the Bitcoin “miner operating margin” or the difference between what miners gain from transaction fees processing the public ledger and mined Bitcoins from the estimated cost of hardware and electricity currently stands at -583%. For every $1 a Bitcoin miner earns, he loses around $6 in hardware and electricity costs, in July he could stand to earn $0.10, that was 5 months ago.
Dogecoin and Litecoin use scrypt, which is an algorithm developed to use a lot of memory, and is supposed to make custom ASIC hardware too costly to produce. Theoretically that should avoid the ASIC arms race that has now made Bitcoin mining impossible for normal people, decentralize the network, and avoid any one group from taking over.
Now UK based Alpha Technologies says they’ve developed and are selling the world’s first ASIC scrypt miner. The popularity of Dogecoin is its downfall. All of those people gleefully mining dogecoins on their PCs are screwed. The Winkelvii will soon own a warehouse in Hong Kong filled with these ASICs, hashing at astronomical rates, gaining control over the network, and burning even more electricity to math at a meme.
Wow. Such futility. Much carbon.
PS: All your Dogecoins were probably just stolen anyway.