Dogecoin Specifications

Coin number four in my list of coin specifications is something I've talked about before, so I'm not going to beat a dead horse too much. No, I'm going to beat a dead dog instead! Dogecoin (DOGE) is near the top of the total market cap for cryptocurrencies, and it was at least "fairly mined" -- which is why I've skipped NXT and Ripple for now. But "fair" is somewhat relative, and the biggest claim to fame for DOGE is that what started as a joke on an Internet meme became big money. At one point I think the total hashing power dedicated to DOGE actually surpassed LTC, but that's no longer the case -- it's not even close, as LTC has over 6X more hashing power these days. So, sanity is at least prevailing in that sense, and DOGE is generally not as profitable to mine as LTC now.

So what's the real problem with DOGE? Quite simply: it was a joke, and there are too many coins, too fast, for the market to sustain prices. The DOGE/BTC has been on a slow but steady decline for months now, and even the drop in block rewards has only slightly delayed things. Where will it finally settle? That's a difficult question to answer, but I'd be surprised to see DOGE go back over 100 satoshi. There are simply so many other -- often more sensible, serious -- coins around. But here's the quick summary:

Dogecoin Specifications (6/6/2014)
Symbol	DOGE
Launch Date	2013-12-07
Proof of Work	Scrypt
Starting Difficulty	0.000244140625
Block Time	1 minute
Block Reward	~500,000 (1-1 million, random) initially 250,000 static from block 145000
Difficulty Adjustment	Prior to block 145,000: 240 blocks After block 145,000: DigiShield
Reward Adjustment	Halving every 100,000 blocks (~69 days) Minimum reward: 10,000
Max Coins	~100 billion at 1.5 years +5.25 billion per year indefinitely
Forum Threads	Bitcointalk - no longer updated regularly Reddit - the usual chaos of Reddit
Block Explorer	Official with many alternatives

General Points of Interest:

DOGE hearkens back to an earlier time in cryptocurrencies, before multi-pools were online and coin hopping was only something the really dedicated miners really bothered doing. As such, the starting difficulty and block adjustment times were both rather conservative, but even so it only took about two days before things were more or less sensible -- at least, as sensible as anything could be with DOGE. After a slightly slow start, the meme caught hold and people started going crazy. Anecdotally, some of the early miners were able to make several BTC off of relatively modest GPU mining configurations. Once DOGE showed up on some exchanges, things started to level off, but it was still about 2-3X the profitability of mining LTC for quite some time.

As the mining scene developed, DOGE was hit pretty hard by multipools dumping coins, jumping on and off the "bandwagon", pools cherry-picking the most profitable blocks, etc. You see, the block reward was supposed to be truly random, but I'm not sure that was always the case, and evidently the developers didn't feel the long-term prospects of random block rewards were working out. The core code was eventually changed, and starting at block 145,000 the block reward became static (250,000 DOGE, halving every 100K blocks) and the difficulty adjustment algorithm was changed to DigiShield so that it adjusts every block.

Other changes have occurred as well, but after a major pump and dump that took the price to around 280 satoshi before it started dropping, DOGE has quieted down a lot. Many other coins have tried to copy DOGE's early success, but most have turned into abject failures -- EMU, PANDA, and many others have come and (mostly) gone now. Everyone had fun with DOGE and it got carried into the range of profitability and never really let go of that, but the copycats are not meeting with the same level of success and the problems with the core design are becoming more obvious.

First, there's the number of coins being created. Prior to DOGE, most cryptocurrencies tended to have a maximum number of coins somewhere south of 100 million, or perhaps 1 billion. DOGE tosses that out the window and goes for over 100 billion coins in just one year! What's more, with no ultimate cap on the number of DOGE that will be created through mining, the long-term prospects become even worse. 5% "inflation" per year generally isn't sustainable for a fiat currency, and it's certainly not working for DOGE right now.

At present, DOGE is nearing the 50 satoshi mark, and the market capitalization is only about 10% of LTC (after being nearly equal at the height of DOGE mania). LTC meanwhile is about 4% of the market capitalization of BTC. What that means is all of the DOGE currently available -- which is a rather large number at over 81 billion and counting! -- is only worth about 0.35% of the total BTC currently available. Now add to that the fact that there are over 6300 times as many DOGE in existence as BTC (and where BTC is now over five years old, DOGE is only six months old) and you have to wonder why DOGE should ever recover. Every day we get around 3600 more BTC mined, compared to generating 180 million DOGE -- or the rate of DOGE creation is 50,000 times higher than the rate of BTC. Until DOGE finally hits the 10K block rewards -- which will be in another six months -- I expect the value of DOGE to continue to drop.

Long-term prospects for DOGE are pretty weak, and the only thing that might save the coin is all the Scrypt ASICs coming online. They can't all mine LTC, can they? Well, actually they could, but they won't -- some SHA256 ASICs are still used for alternate cryptocurrencies, after all. I don't think DOGE will ever hit the point where it's valued at less than 1 satoshi, and in fact 10 satoshi is probably a reasonable minimum, but with the number of coins and the rate of blocks being so much higher than BTC and LTC, the market is flooded and this joke has run its course. Trying to turn that joke into something serious isn't funny either, so I'm pretty much done with DOGE now -- I just have to sell off my final 150K.


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Taking the DOGE for a Walk

A couple of things have happened in the past few days. First, in anticipation of the block reward halving, the price of DOGE shot up quite a bit -- from around 0.0000016 BTC/Doge to a current 0.0000025 BTC/DOGE (and a high of as much as 0.0000029 or so). If you were mining and holding DOGE for the past month or two, right now you're sitting on a pretty healthy balance and you could trade it all in for some good BTC gains. But now that the block reward has been cut in half and the price didn't double, the result is that mining DOGE is no longer looking so attractive -- especially when you look at other scrypt-based coins.

Right now the difficulty and exchange rate of LTC (2674, 0.0252) means mining LTC will net you about 0.0095 BTC per day, whereas mining DOGE will net you around 0.0105 BC per day. So yes, DOGE is still beating LTC, but only barely. Looking at scrypt coins in general, the top contenders right now for your hashing power are (depending on the time of day) Noblecoin, Lottocoin, Smartcoin, Anoncoin, and Klondikecoin. Others occasionally show up as well at the top of the profitability charts, but looking at the 14-day averages at Coinwarz, I'd recommend sticking with coins that are clearly above LTC during that time span (so 110% or more). Of course, if you're looking to trade for BTC, you shouldn't be mining any of those scrypt coins!

I keep mentioning alternative Proof of Work coins simply because right now, they make the most sense for GPU mining. There's really no other way to put it. The best scrypt-based coins are still profitable, but coins using something other than SHA-256 or vanilla scrypt seem to be the better option. It's not that these coins are inherently better, mind you, but that they're at least different enough to create some buzz, which in turn creates value. And if the buzz fades, so does the value, perhaps with some large coin holders sticking around to prop up the value of their millions of coins. If I were holding millions of DOGE right now, I'd probably be singing a different tune, but I've never viewed DOGE as more than a one-trick-pony and so I've moved on to greener pastures. Maybe I'll be back, but not just yet.

The other interesting thing to happen is that BTC has continued its rollercoaster performance since the start of the downward trend that apparently was sparked buy Russia declaring Bitcoins illegal (or something like that). What's truly awesome is that Russia declared Bitcoins illegal apparently because "it could finance terrorism." Maybe the US and all of the Middle East should do the same? "Ain't nobody gonna finance these here terrorists unless they do it with hard currency, dadgummit!" Anyway, if you're trying to day-trade BTC, the past few days were likely either great or terrible -- depending on whether you managed to properly "buy low, sell high" or if you ended up playing the fool and using the "buy high, sell low" strategy.

I'm bad at predicting where BTC values will go -- or any stock or cryptocurrency for that matter -- so I'm sticking with mining as best as I can! Good luck to you all. I've got a separate post to put together as well as to "what to mine", but before that I want to get into a separate topic. Stay tuned....

What Makes a Good Cryptocurrency, Part 1: Slow and Steady

I’ve discussed some of these thoughts before, but I wanted to get into this a bit more. Vertcoin is a great example of how to make a useful new cryptocurrency, and the reasons for its current success are due in a large part to the design. Fundamentally, I think any good cryptocurrency needs to have the following:

1. It needs to do something new relative to what is already out there.
2. It needs to launch in a “fair” manner.
3. Difficulty adjustments should happen sooner rather than later.
4. It needs to be designed with the future in mind.

I’m sure there are other things that I could put on the list, but I'm going to focus on point number four right now. There's an old saying: "slow and steady wins the race", which we're all familiar with from the story of the tortoise and the hare. While the latest meme cryptocurrencies may catch fire for a short time, I don’t think they’re a strong basis for a lasting currency. And DOGE, I hate to call you out like that, but long-term I don’t think your prospects are all that bright (similar to your silly Doge face – such wow and all that). A primary reason is that the coins get paid out in a short amount of time and we reach the point where the block rewards largely disappear.

Of course, "short" is all relative, but to me a coin should be designed such that it will still have a reason for mining (i.e. securing the network) in five, ten, twenty, etc. years. If as an example you have a new currency with one million total coins and they'll all be mined in six months, what will keep miners going with securing the network past that point? If transaction fees of 0.1 coins per transaction were mandatory, and if there are on average 10 transactions every block, that would mean even if you're doing a block every 30 seconds, you're still only giving out 2880 coins per day. So the people that mined the initial 1 million coins of this hypothetical currency did so at let's just say a steady rate of 5555 coins per day, and if you had a minimum guaranteed transaction fee of one coin, it perhaps wouldn't be so bad...but that's not really what we have on most coins.

The reality is that transaction fees are far, far lower than 1 coin on most of the major cryptocurrencies. Take Bitcoin as an example -- it's one of the most heavily used coins, and yet looking at the past 20 or so blocks, the biggest block I could find was this one. That has 826 transactions and only 0.21444776 BTC in total fees. If we were depending wholly on transaction fees, all of the power going into the Bitcoin network would only amount to on average something like 0.05 BTC every ten minutes, paid for by those conducting transactions.

Right now, the 25 BTC block reward means there's a bounty of around $20,000 that will go to some lucky miner (or pool) on average every ten minutes. The total network hash rate of Bitcoin has now reached a pretty staggering 19,720,113 GHash/sec. Let's assume for a second that every system participating in Bitcoin hashing is as efficient as the latest and greatest 28nm ASICs. That would mean world-wide, Bitcoin is sucking down around 11,503,400 Watts of power. At a relatively inexpensive $0.10 per kWh, that means in a day Bitcoin consumes $27608.16 worth of power -- not too bad, as the current block reward will pay that in just over 10 minutes. (Realistically, most ASICs are far less efficient so the power cost is probably twice that -- so 30 minutes to pay for all the power use of BTC.)

But what happens in the future, like say in 2030 when the block reward of Bitcoin will probably be at the 0.78125 BTC mark? Most likely we'll be seeing a lot more transactions on the Bitcoin network, so instead of 0.05 in average fees per block, maybe we get to the point where the average transaction fees per block amount to 0.5 BTC (which is probably a bit of a stretch). At that point, we're looking at perhaps 1.25 BTC every ten minutes, and the power use of the BTC network may not actually drop much (and more likely it will increase). What happens then?

1.25 BTC per block right now is still more than enough to cover the cost of power -- in fact, 11.5 MW of power costs something like $200 per block, so at current prices we would only need 0.25 BTC per block for those securing the network to break even. If BTC is worth ten times as much in twenty years (which is either optimistic or horribly pessimistic), an average block reward of 1 BTC with transaction fees will be enough to power a while lot of hashing, so the network stays secure and BTC can continue to succeed. It was designed with this sort of scenario in mind, which is why things should continue to function well. But that's for Bitcoin; what about other cryptocurrencies? Time to pick on DOGE for a minute.

The total number of blocks before the block reward drops to 10K + transaction fees is around 756,250 blocks -- or in just 525 days from the time DOGE first started. Looking at the past day of blocks, here's one of the largest; with a total of 617 transactions, there were just over 575 DOGE paid in transaction fees. Right now the total network hash rate of DOGE is around 86 GHash, but it's happening almost entirely with GPUs. Assuming everyone is using the most efficient GPU possible, so an R9 290X hashing at 900KHash and drawing 350W, that means the DOGE network is drawing about 34,000,000W (and in reality it might be 50-100% more than that due to less efficient GPUs). With an average of 500,000 DOGE produced every minute, that's 720 million DOGE per day, with a value of roughly $1,000,000. Meanwhile, the power cost for the DOGE network is around $81,600 per day, so clearly DOGE is more than paying for the power use. But what happens when the block reward drops to 10K + transaction fees?

With the largest block of the past few hours generating 575 DOGE, it's probably a safe bet that best-case we're looking at 1000 DOGE or less per block in transaction fees. That means 15,840,000 DOGE per day, so to break even on power costs of $81,600 per day DOGE will need to be worth at least $0.0052 per DOGE, or in BTC terms it would need to trade at around 0.0000064 BTC per DOGE. That's only about four times as much as the current value of DOGE, so we can certainly hit that level, but again that's just to break even. If other coins are generating a substantial profit, why would people stick with DOGE just to break even on their power costs? I'd say bare minimum it would need to consistently generate twice as much revenue for those mining (securing the network) as it costs in power, and perhaps 2-3 times the return would be better. Will we see DOGE trading at 0.0000192 BTC/DOGE? Possibly, but more likely a new meme will supplant DOGE before then.

Put another way: if you believe DOGE will manage to maintain current hash rates for the next two years, you'd be a fool to sell any of your DOGE at the current prices. All the "DOGE millionaires" (currently around $1300 worth of DOGE) would be looking at the equivalent of $10,000 or more if that happens. A nearly 10-fold return on your investment in under two years is "pie in the sky" sort of thinking in terms of investments, but yet cryptocurrencies are all beating that mark -- often by a large margin.

As usual, this is a bit long, but when you start thinking in terms like this it should help you to start seeing why coins that pay out most/all of their block rewards in a short amount of time are a bad idea. They start out looking pretty interesting and might garner some headlines and make waves, but a couple years from now I expect Litecoin will still be chugging along -- the little engine that could -- while most/all of the meme coins are going to end up fading away. And really, it's better that way in my book, as if I'm talking to friends or investors and trying to get them to understand that cryptocurrencies can succeed, the "success" of a joke coin like DOGE doesn't help at all.

Now if you'll pardon me, I'm going to go create the All Your Base Are Belong To Us (AYBABTU) coin. Does that sound old and stupid to you? Well, that's what today's memes will be in another decade. All memes die, and the meme currencies will die with them.

Getting back to the main topic, what I'm saying is that you need to build a cryptocurrency that will pay out block rewards long enough to reach the point where the transaction fees can actually sustain the network. Or you can be like DOGE and go with a deflationary approach and always have 10K DOGE per block minimums, forever. But that's what got us into the mess we're in with fiat right now, isn't it? As far as a long-term payout, there are plenty of ways to do that -- Bitcoin, Litecoin, and Vertcoin cut the block reward in half every 4 years or so while other coins might drop linearly over time. Coins that pay out too quickly on the other hand (DOGE, QRK, FZ, etc.) are very likely to reach the point where there's no profit in mining/securing the network. If that happens, the coin(s) will die. You've been warned -- don't get caught holding the bag for a poorly designed cryptocurrency.

EDIT: Note that I missed the fact that DOGE has a 10K minimum reward, apparently forever. I don't really like that as a solution either, if you can't tell. I've updated the text to reflect this with new calculations. Thanks to several readers for pointing out my errors!

Vertcoin: Potentially More Valuable than BTC or LTC?

It seems every new cryptocurrency that someone creates these days ends up with people taking sides. It's either a "scam coin / pump and dump" or it's the greatest thing since sliced bread. Now, there are a few ways to make a coin very undesirable -- premining a large chunk of coins before releasing a cryptocurrency to the mining community would be one, and I'd also steer clear (long-term at least) of any coin that distributes a large percentage of the total coins in a short amount of time. Looking at Vertcoin, this is what makes it worth potentially more than even Litecoin -- and long-term it could even surpass Bitcoin (assuming it remains ASIC-proof).

1) It's more resistant to ASICs
2) It has KGW so it's resistant to pools and/or large fluctuations in the number of miners
3) There was no premine or other silliness on the launch
4) It pays out slow and steady over a very long period of time.

Why shouldn't Vertcoin succeed where so many others have failed (other than the name and logo)? At present we are not even at block 30K, which means there are fewer than 1,500,000 VTC in existence. Sure, the first week or two things went a bit too fast, but now we've leveled off and for the foreseeable future we'll generate blocks every 2.5 minutes. We are 810,000 blocks away from the reward halving, and KGW means we really won't hit the halving much earlier than expected. That means 33,750 hours -- or 1406.25 days, or 3.85 years -- from now, we will have mined half of all VTC. By mining slow and steady (as opposed to, say, DOGE, which will be mined out in about 525 days since launch), we avoid the potential for a massive pump and dump.

As to the lack of a premine, even BTC had one -- Satoshi mined it with a small group of friends for about a year before it really hit the public. Wouldn't it have been nice to be one of select few (some say around 20) people mining BTC that first year? 2.6 million BTC went out to a choice few; so much for the "currency of the people" -- and no significant giveaways ever happened, at least not to a point where anywhere near 2 million BTC was distributed among the masses. BTC was also a proof of concept, and the long difficulty adjustment times were at least in part a way for early miners to get even more coins... but probably two weeks just sounded "reasonable" at the time. We now know better. The new standard is KGW, and any new coin that doesn't implement KGW (or have some other way of dealing with potential coin hopping) isn't going to last.

Getting back to Vertcoin, the current network hash rate is around 2.7 GHash/sec, but since VTC is roughly twice as hard to mine (on a GPU) as normal scrypt, that's like a 5.4 GHash/sec coin. Compared to other coins, LTC is at around 100 GHash/sec and DOGE is at 78.5 GHash/sec; most other scrypt coins are in single digit GHash at best, which means VTC has already passed many of them. And that's hardly a surprise, as we've gone vertical in the last day.

We're now seeing VTC trade at 0.008 BTC, or already about one third the price of LTC. Some will call this a bubble, and perhaps it is, but I like to think this is VTC assuming it's rightful place as the number three cryptocurrency in the very near future. When the scrypt ASICs begin to arrive en masse, we'll see even more people start to look at VTC -- as well as any other non-scrypt coins. I'm sure we'll see VTC clones as well, but I'm not sure what they can offer that will be "better" than VTC. Faster transaction times? Maybe. More coins in less time? See points #3 and #4 above. They'll be a flash in the pan at best, but VTC is here to stay.

VTC:  VaNuRCj73JVAwR1YMnt8CXaqoiPgykiMTk
BTC:  153qS9Ze32hnV3fwirZLWNka4wBAowc21E
LTC:  LfCLyykrNFftzpdWejR73hf478ZtBzQ9jE
DOGE: DD9iTWf8diPkvKdB8roPJepTyp6BGVQtct

Analysis of the Recent Performance of Hashco.ws (and Multi-Coin Pools in General)

Coin selection of late for most of the multi-coin pools seems a bit whacky. I don't know what the algorithm for Hashco.ws is, but I can look at Coinwarz and coinchoose and get a good idea of what sort of profitability each coin is supposed to have. I'm starting to wonder if Hashco.ws and others aren't being intentionally mislead by some external site on what to mine -- do they do their own internal calculations, or do they use externally available calculations? The reason this is important is because if it's not internal and correct, the results can be less than desirable. Let me give some examples from today's Hashco.ws statistics.

I just saw Mincoin showing a potential 600%+ profit relative to LTC on Coinwarz (around 10PM PST), which is pretty amazing. Not surprisingly, Hashcows was mining MNC at that time. But just a few minutes later, MNC was at 77% profits vs. LTC, so in the course of 10 minutes or less, MNC spiked to a huge value and then plummeted to a lousy value. The result of this is that Hashcows spent 10 minutes on MNC, mining 36 MNC that at current exchange rates are worth 0.02382912 BTC. If they were to mine at that rate 24/7, all 1700MHash of power at Hashcows would generate 3.43139328 BTC in a day, or around 0.002 BTC per MHash, which is obviously far less than what you would get from just mining LTC (currently around 0.007 BTC/MHash).

Now if this was the exception rather than the rule, that would be fine, but for the past few days that doesn't appear to be the case. Hashco.ws mined WDC for 126 minutes earlier today, generating 1283.0131392 WDC during that time. If we mined 24/7 on WDC, that would work out to 14663 WDC per day. At the current exchange rate (0.00043139) they could trade for at best 6.325 BTC. That means around 0.0037 BTC per MHash. But Coinwarz is showing 125% profitability vs. LTC right now. Maybe we just had an unlucky spell?

Let's try another.... Round 6565 at Hashco.ws was Ron Paul Coin (RPC), for 3 hours  55 minutes (3.917 hours), during which time the pool mined 59.0672 RPC. At the current exchange rate of 0.0191 BTC per RPC (and the best we've seen in the past 24 hours is only 0.02655 BTC per RPC), we're looking at 361.9437 RPC per day, which would be worth 6.91 BTC (or best-case 9.61 BTC), so again we're well below the 100% mark of LTC mining. Remember, LTC mining on its own with 1700MHash out to generate 436 LTC per day, which at 0.029 BTC each is 12.35 BTC per day.

But all of the alt-coins are going soft, right? Well, not quite....

What about DOGE? I know it was created as a joke coin, but I haven't seen a round of DOGE lately on Hashco.ws, which is odd. With 0.00000045 BTC per DOGE, based on the Coinwarz calculator Hashco.ws should be able to get around 18.171 BTC per day with 1700MHash, so there's at least one alt-coin that's beating the odds. Hell, even at the worst trade value of 0.00000025 BTC per DOGE (from Jan 8-9 time), we'd be looking at 10.095 BTC per day, which is still better than any of the other alt-coins I've run the calculations on above.

This is a long-winded way of saying something has perhaps gone fubar with the Hashco.ws (and Middlecoin and probably others as well) algorithm for selection of coins. Maybe it's that difficulty plummets, making the coin(s) look attractive, but by the time 1700MHash enters the picture the difficulty jumps back up and profitability drops back to nothing. Whatever is happening, all I can say is that right now profitability for mining via the multi-coin pools is not working out to what it should be. And what it should be is more profitable than mining LTC directly -- that's the whole point.

If you're still trying to mine at Hashco.ws or Middlecoin, I know personally the returns have been very poor for the past week -- like less than half of what you should get relative to mining LTC. Just going static on mining one of the more stable alt-coins like DOGE, WDC, LOT, EAC, etc. is supposed to be beating LTC by at least 20% over the past 14 days, and every time the multi-coin pools switch it seems to result in lower profits for miners. For now, I'm going to try manually mining one or two of the "best" alt-coins for a day and see what sort of returns I can get via Cryptsy's automatic trading. I'll report back and see how I do compared to Hashco.ws (where I've left ~1MHash of mining power).