In this subsection of the Dogecoin Guide we examine the question of how does Dogecoin work?
To begin with, in much the same way as Bitcoin and Ethereum, Dogecoin is a cryptocurrency that operates on blockchain technology. A blockchain is a distributed secure ledger [all participants within the network possess an identical copy of the ledger (where all past transactions may be viewed)] which stores all transactions made on the chain utilizing a decentralized digital currency [it exists and operates without a centralized governance (instead the network is managed by all distributed ledger holders)].
Each Dogecoin holder carries an exact duplicated copy of the blockchain that is often updated to reflect new Dogecoin transactions. This blockchain (Dogecoin's network) uses cryptography to secure the past and ongoing transactions in the chain, all in the same fashion as other cryptocurrencies.
The Dogecoin blockchain is based on a 'proof of work' system (like Bitcoin and in it's present state Ethereum). In this P.O.W. system, miners utilize computers to solve complex mathematical equations, by guessing the result, to process transactions within the network and further record the transaction on the Dogecoin chain. As a reward for performing these functions, miners earn compensation in the form of additional Dogecoin. Once earned the miners are free to hold the additional Dogecoin, or in the alternative, sell the same on the open market.
As will be discussed later in this Guide in more detail, Dogecoin proves not to be an effective store of value, but nonetheless may be used for payments of obligations owed or for purchases of goods and services. Briefly, this is due to the fact there exists no lifetime cap on the number of Dogecoin that may be minted by mining. As a result, by design, Dogecoin is highly inflationary.
The Dogecoin blockchain creates millions of new coins daily to provide compensation for mining. This provides a challenge for any speculative gains in the price of Dogecoin to be sustainable over any long period of time.