WHAT DOES IT MEAN TO MINE DOGECOIN?
Even though Dogecoin is a distant Bitcoin fork with several major differences in its source code, mining Dogecoin works similar to mining Bitcoin. Just like Bitcoin, Dogecoin is a decentralized cryptocurrency, whose digital ledger is maintained by a decentralized network of nodes instead of one single party. As a result, there is no central entity
to distribute the cryptocurrency out into the world. The distribution of coins has therefore been designed in a decentralized manner.In place of a pre-mine, where the entire stack of Dogecoin would be created in one fell swoop before the network’s launch, Dogecoin is issued and released by the protocol in a pre-programed way. The receivers of the newly issued Dogecoins are the so-called miners. These vital network participants are the ones doing the mining and are in return rewarded with the cryptocurrency. The term mining is an analogy that is borrowed from the process of extracting precious metals from the ground as they also need to be mined at the cost of labor and energy.
While costs and energy are incurred for Dogecoin miners as well, they are not the result of digging into the ground in the search of precious metals. The energy used to mine Dogecoin is going into dedicated computer machines, powering processors in a global competition to solve cryptographic puzzles at the cost of computing power. Whichever miner successfully solves this puzzle first and thereby outcompetes his contenders and gets to add a new block to the blockchain is rewarded with some additional Dogecoin in what is called a block reward. This mechanism handsomely rewards the miners for providing computational power to the Dogecoin network and thereby making the network secure for the decentralized handling of peer-to-peer transactions.
DOGECOINS MONETARY POLICY
Unlike its big brothers Bitcoin and Litecoin, Dogecoin doesn’t have a fixed upper coin limit and is therefore an inflationary currency. But this wasn’t always the case. When created, Dogecoin originally had a fixed coin cap of 100 billion coins and the block reward was set to halve every 100,000 blocks until block 600,000 was mined. After that, the block reward would be at a fixed rate of 10,000 coins until the 100 billion coin cap was reached. According to the mining schedule, this would have been the case approximately one year and 160 days after launch.
However, in the beginning of 2014, 3 months before the last block reward would have been paid out, the developers decided to give Dogecoin a constant tail emission by keeping the block reward at a flat 10,000 coins per block. Dogecoin thereby became a disinflationary currency with a slowly declining inflation rate (4% in 2022, 3% in 2030, 1.5% in 2065, …).
As a result of removing Dogecoin’s hard cap supply, its price began to decrease and the network’s hashrate declined significantly throughout 2014. To protect the network from 51 percent attacks, the developers decided to enable ‘merge mining’ which allowed the Dogecoin network to receive hashrate from other proof-of-work blockchains running on the same scrypt-algorithm. Merge mining allows miners to contribute computing power to two chains at once and thereby compete for both rewards, without having to split the provided hashrate among the two networks. For miners today it is therefore possible and a no-brainer to mine both Dogecoin and Litecoin simultaneously.
HOW TO MINE DOGECOIN
Contributing to the mining of Dogecoin requires the provision of processing power, also known as hashpower, to the Dogecoin network. Because Dogecoin represents an open, permissionless system like Bitcoin, anyone with access to computer processing power can participate in mining. In the early days of Dogecoin it was very well possible to mine the cryptocurrency using home CPU and GPU computer hardware. Due to Dogecoin’s recent surge in popularity, ever more hash power is being provided to the network, making mining increasingly more difficult. Today, Dogecoin cannot be mined efficiently with a computer processing unit (CPU) anymore. At least a powerful graphic card unit (GPU), or better a so-called application-specific integrated (ASIC) mining machine is necessary to provide relevant hashpower to the network.
Just like the Bitcoin mining industry, Dogecoin mining today is also dominated by mining pools. If someone is in possession of only limited computing power, it is best to connect these mining machines to so-called mining pools. This way, a smaller miner can team up with a lot of hashpower, making it more probable that he will get a steady flow of block rewards out of his minings machines. Whenever the respective mining pool finds a new block, the smaller miner gets a share of the rewards proportional to the hashpower he has contributed. Further, most of these mining pools allow for merged mining, which allows miners to participate in the mining of multiple scrypt-based currencies at once without compromising on the hashrate.
HOW MUCH CAN YOU EARN MINING DOGE?
A miner’s individual profitability depends on four different variables: Energy costs, hashpower provided, the current Dogecoin price and the block reward. The most important of these parameters are the energy costs, which strongly vary depending on a miner’s geographic location. The other 3 variables are similar for all miners. Therefore, miners tend to set up their equipment in places where energy costs are comparatively low making their mining business more profitable.
Looking at the most profitable GPU we see that they make $0.25 – $2 a day, depending on the current Dogecoin price. To amortize the GPU, depending on the exact model, it takes 1-2 years. Newer Nvidia models also provide half the hashrate of previous models, making them on purpose less attractive for mining to ensure availability for other use cases. In summary, we see that buying GPU for the sole purpose of mining Dogecoin (and Litecoin) at current price levels is rather unattractive. But for someone owing a powerful GPU, it can be a nice way to earn a few extra bucks.
Things look better when mining with the newest model ASIC miners. These make a profit of approximately $5 – $10 a day when mining both Litecoin and Dogecoin simultaneously and take around 1 year to pay off. Certainly a healthy way to acquire Doge without the need to speculate by buying the coin on the exchanges.
HOW TO START MINING DOGE
There are a few basic steps you need to follow:
Step 1: Purchase mining hardware
Acquire mining hardware or check if your CPU/GPU is suitable for mining. In order to most profitably mine Dogecoin, you need to get ASIC machines designed for scrypt-based mining. These can be purchased from official producers or resellers. It’s not unusual to encounter supply bottlenecks.
Step 2: Install software / Update drivers
Download and install the respective software (CPU, GPU or ASIC) necessary to run the ASIC or CPU/GPU miners and update your GPU driver if necessary.
Step 3: Join a mining pool
Join a suitable mining pool by creating an account. Here you can view the list of the top 5 Dogecoin mining pools.
Step 4: Connect your devices to the pool
Once you have an account with a mining pool, you must use this account to connect your mining machines to one of the mining pool’s servers in order to be able to mine Dogecoin. YouTube provides many tutorial videos on how to do this for each pool with ASIC machines or GPU/CPU. Examples for GPU and ASIC.
Step 5: Set up a Dogecoin wallet
In order to collect any revenue from the block rewards, you need to register your payout address with your pool account. If you don’t have a Dogecoin wallet yet, then now is the time to download and set up your personal wallet. Dogecoin offers official wallets, but other wallets who provide Dogecoin storage work as well.
Step 6: Start mining
Once everything is set up, your mining pool’s account settings monitor your hashrate, revenue and payout. Most mining pools provide you with a dashboard or even an app to keep track of your mining activities. Once you have mined some Dogecoin and received your block rewards, you can cash them out to your personal wallet via your mining pool account.
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