The Dogecoin Dilemma

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When Satoshi Nakamoto mined the genesis block on January 3, 2009, Bitcoin became the first cryptocurrency to use a block chain secured by the proof-of-work (POW) process known as mining. The algorithm used to mine Bitcoin blocks is two rounds of SHA-256 hashing.

Soon after, the Bitcoin community gained an appetite for a distributed naming system. The project was initially named BitDNS. It was finally implemented when Bitcointalk user vinced mined the genesis block of Namecoin in April of 2011. Namecoin also used two rounds of SHA-256 hashing as its mining algorithm.

Using the same mining algorithm became a problem as Bitcoin and Namecoin then competed to attract miners to secure each block chain. As time went on, it became clear that the dominant network effect behind Bitcoin and its more valuable block reward would win it the vast majority of mining power. This left Namecoin and other SHA-256 coins vulnerable to a 51% attack.

To solve this problem, the Namecoin developers implemented the merged mining system originally suggested by Satoshi Nakamoto. With merged mining, one block chain (Namecoin) allows miners to use solutions found mining another block chain (Bitcoin). In this case, Namecoin is called the auxiliary block chain and Bitcoin is called the parent block chain. No modifications need to be made to the parent protocol, but a hard fork is required in the auxiliary protocol.

The process of auxiliary proof-of-work (AuxPOW) is really quite simple. A miner first creates a block hash for the auxiliary chain. This hash will almost certainly not be low enough to count as a valid block, but it does not matter. Next, the miner creates a block of transactions for the parent chain that includes the hash of the auxiliary block in a transaction and begins hashing it. If the miner finds a hash low enough for the parent chain’s difficulty, the block is published as usual throughout that network. If the miner instead finds a hash that is low enough for the auxiliary chain’s difficulty, the block can be redeemed and published on the auxiliary chain instead.

Since block 19200, Namecoin has been accepting auxiliary proofs-of-work (AuxPOW) from Bitcoin. As a consequence, its mining network is nearly as secure as Bitcoin without needing to compete for miners. The coins and their communities remain entirely separate, linked only through a technical aspect of mining.

More alternative cryptocurrencies have been developed since Namecoin. Many of these attempted to solve the competition for miners by using completely new POW algorithms. The most popular algorithm, Scrypt, was chosen by Charlie Lee when he created Litecoin. In time, Litecoin grew to dominate the Scrypt mining scene much as Bitcoin dominates SHA-256. Other Scrypt coins such as Dogecoin fall under the threat of a 51% attack just as Namecoin once did.

As Dogecoin mining profitability waned with the lowering value of the coin and the decreased rate of production, it had been quickly losing its mining network and becoming particularly vulnerable to a 51% attack. The Dogecoin network hash rate has recently been only about 6.5% that of Litecoin. In a sincere offer to help Dogecoin, Charlie Lee has proposed that Dogecoin accept AuxPOW from the Litecoin mining network.

This offer was originally met with opposition from the Dogecoin community. Accepting AuxPOW from Litecoin could be interpreted as an admittance of defeat and inferiority to Litecoin. Many other community members were simply confused about the extent to which Dogecoin would be linked to Litecoin and did not want an association between the two.

Hurried by a declining hash rate, the Dogecoin developers eventually committed to implementing AuxPOW. In typical Shibe fashion, the Dogecoin community rallied around the decision and began making light of the situation.

With its more stable mining network, I wish the Dogecoin community the best of luck as they reach for the moon.

Trevin Hofmann
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