A comparison between Bitcoin and Dogecoin
One has been growing for over a decade, the other was created as an intended parody; which has suddenly gained a lot of popularity over the past few months.
Ever sine Bitcoin was introduced in 2008, it has revolutionised the way trade was possible. Bitcoin is already being used as legal tender in several countries and is even being accepted as a form of payment by some companies like Tesla.
Today we will go through a comparison between the two cryptocurrencies.
Wallets
In order to exchange any kind of cryptocurrency, you need a wallet. There are two kinds of wallets that you can choose from:
- Software Wallet
- Hardware Wallet
Although its not as popular as software wallets, hardware wallets tend to be more secure than software wallets, mostly due to the fact that its offline, and the private key that you obtain when creating the wallet is embedded into the physical hardware, so there isn’t actually a way an attacker can break into it.
A software wallet on the other hand is less secure, but more convenient, as you do not need to plug in a device every single time to access your wallet.
Dogecoin wallets
Dogecoin offers two kinds of wallets, a Multi-doge wallet and a Dogecoin Core wallet. The Multi-Doge wallet skims the blockchain (effectively only downloading a part of the blockchain) and allowing you to transact that way.
The Dogecoin Core wallet on the other hand is the full wallet, it synchronises the whole blockchain, and allows you to do much more than the light wallet.
Bitcoin wallets
There are several ways to create a bitcoin wallet, and the framework creating one is derived from bitcoin core (a fun fact, bitcoin core can be forked to create your own cryptocurrency).
You have the option of creating a mobile wallet, a hardware wallet or a desktop wallet. You can also do this using other services.
Scrypt vs Proof of work
Bitcoins proof of work is based on SHA-256, SHA-256 is a hashing algorithm that can be used to compute a one way hash to confirm the original source is authentic.
Unlike Bitcoin, Dogecoin does not use SHA-256 as its proof of work, instead it uses the scrypt algorithm, an alternative to the SHA-256 algorithm. The scrypt algorithm generates “noise”, noise refers to random numbers that are generated required to compute the hash. If an attacker tries to compute a hash the scrypt algorithm will add more operations to the task thanks to the “noise”, making it more exhaustive.
Proof of work is used mostly for mining; of which both Bitcoin and Dogecoin allow mining of cryptocurrencies. Proof of work ensures arbitrary blocks cannot be added to the chain. For example, if an attacker tries to alter the blockchain by adding a block that does not compute with the hash previously generated, it won’t be allowed to be added to the chain. The attacker would have to complete work for the whole chain; of which is theoretically impossible.
Why Dogecoin can’t live up to its hype
At the end of the day, Dogecoin does not have the same resources nor is it as popular as bitcoin is. Bitcoin is already being accepted as a means of payment in several countries despite being banned and has only continued to grow since. Everything Dogecoin does Bitcoin can do better, and that was always the intention of the developers.
Some countries like India (that had previously banned Bitcoin in 2018) now recognise it as a legal tender as its demand is growing.
On the bright side, if you had invested $100 dollars into Dogecoin in 2019 or 2020 you would have netted a return of $16000 (That’s over 8000% in returns!). While I am not a financial expert, I don’t see it as a potential long term investment. Dogecoin is highly volatile, its also one of 8000 cryptocurrencies listed on the exchange that you can find here:
Dogecoin might continue to appreciate in price, but eventually the market will have to correct itself; thereby leading to the decline of one or several assets in terms of price, and given that there are thousands of cryptos out there that Doge is competing with it’s unknown what the next Doge will be.
I do see Dogecoin as being a cryptocurrency that people will want to exchange from time to time; whether that be to accept a payment for a good or service, or in exchange for cash or other cryptocurrencies. Since it was created to parody bitcoin, it is neither a successor or an alternative to bitcoin itself, I see it as a precursor.
In hindsight what this does show is that investors who traditionally allocated their portfolio into investments such as bonds and indexes, are now finding that they can make much higher returns if they diversified their assets to include cryptocurrency. Retrospectively, It may also be a sign that fiat currencies like the Dollar; which used to possess a lot of purchasing power, has been in decline since the 1970’s, and they are no longer seen as having the same security.
The US dollar has been gradually declining for over 50 years, and particularly with the introduction of stimulus checks, some investors, including first time investors, have flocked to cryptocurrencies as a safe haven to retain or grow their wealth.
Many businesses in the future are likely to adopt some form of cryptocurrency in the future, with bitcoin being a likely frontrunner. Banks have been discussing the possibility of adopting a bitcoin standard where bitcoin can be exchanged into their own central bank digital currencies and vice versa. As a safe bet, its probably best to look at Dogecoin as a type of digital currency or short term investment, rather than a long term investment.
We will continue to do in depth comparisons of cryptos in future articles.
