Dogecoin transition from proof-of-work to proof-of-stake: Why is it important?

In recent days, a hot question is buzzing around in crypto circles: Is Dogecoin (DOGE) proof-of-work (PoW) or proof-of-stake (PoS)? In September 2021, none other than Ethereum co-founder Vitalik Buterin set tongues wagging when he suggested that DOGE could be migrating from PoW to PoS in a “random Twitter experiment” reply.

Though initially thought of as wishful thinking, the issue cropped up as a crypto potboiler when in December 2021, Dogecoin released their updated trail map, detailing a plan regarding Dogecoin transition from PoW to PoS.

This article will deep dive into Dogecoin’s transition from PoW to PoS, analyzing what prompted them to opt for such a complex migration.

Consensus mechanism in crypto projects

Decentralized ecosystems like blockchains require a consensus mechanism for processing transactions. The process involves validating entries into a distributed database to keep it secure. In other words, users need to agree on the authenticity of proposed transactions. Consensus denotes the situation when all nodes agree on the state of the network.

What is proof-of-work in crypto?

Original consensus mechanism used since the inception of crypto, proof-of-work is termed so because it requires the network to have a voluminous amount of processing power.

Virtual miners across the globe compete to be the first to solve a cryptographic puzzle using powerful computers to verify transactions. The winner updates the network with a block of the latest verified transactions and the network rewards them with a predetermined amount of the respective native coins.

PoW does bring in a robust set of advantages for blockchains. As proof-of-work protocols require an exorbitant amount of processing power, interfering with the blockchain becomes improbable for anyone. An increase in the cryptocurrency’s value incentivizes more miners to join the network, making it more secure.

Flip sides of PoW 

There are various drawbacks of the PoW consensus method, as explained in the sections below.

Energy-guzzling equipment

With mining turning into a highly lucrative way of making money, the amount of computing power consumed by proof-of-work protocols have reached record levels, encouraging calls for a ban on crypto itself.

Erik Thedeen, vice-chair of the European Securities and Markets Authority, recently stated to the Financial Times how crypto mining poses a risk to climate change goals that were agreed upon in the Paris Agreement and advocated a ban on PoW for verifying transactions.

After the Chinese crackdown on crypto mining, miners were forced to find refuge in countries with plenty of wind and solar power such as Sweden and Norway. However, they didn’t find any respite as there were cries about the rising amount of renewable energy used for sustaining cryptocurrencies and the “questionable” social benefits of crypto as an asset class.

Swedish regulators, citing research conducted by the University of Cambridge, provided that mining a single unit of Bitcoin absorbs the same amount of energy as driving a medium-sized electric car less than 2 miles. As per the research, Bitcoin consumes around 0.5% of the total electricity consumption globally, which is more than that of the Netherlands.

Such statistics are bound to come into the limelight. If the price of Bitcoin increases unexpectedly in the upcoming days, power consumption will go up as well, drawing more severe criticism and possibly punitive measures by governments.

Scaling issues that hamper growth

Proof-of-work protocols also have trouble scaling. The approximate average TPS (transactions per second) of Bitcoin is about five.  Solana Blockchain, termed the Visa of crypto networks, has a whopping TPS of 65,000. Scaling emerges to be a major bottleneck for the growth of blockchain projects.

These challenges just couldn’t be brushed under the carpet. So, blockchain designers looked for alternatives and the most popular one among these was PoS.

What is proof-of-stake in crypto?

Proof-of-stake protocols replace the model of resolving cryptographic puzzles with the one where native cryptocurrency holders stake a predetermined number of coins for a certain period to be allowed for creating their own validator nodes.

With proof-of-stake protocols, miners need to stake digital currency before they get to validate transactions. Their capacity as a validator depends on the number of coins staked and the time they have been validating transactions.

The algorithm tends to give more weightage to validators who have staked more coins. To validate each set of transactions, the algorithm chooses a different group of miners taking into account the relative power of miners. Validators are responsible for giving finality to transactions and creating new blocks.

The algorithm rewards the validators that are proposing new blocks. Validators attesting to malicious blocks end up losing their stake completely or a part of it.

Proof-of-work vs. proof-of-stake: Is PoS decisively better?

The crypto community still speaks in different voices when it comes to the proof-of-stake protocols being conclusively better than PoW. A strong argument in favor of PoW is security. Jack Dorsey, former CEO of Twitter and Block, Inc. CEO, regards the level of security in the PoS model to be far behind PoW. However, PoS surges ahead when you consider parameters such as energy efficiency and better scalability.

Earlier, PoW was an appealing concept because people just needed an ordinary computer to mine coins. Nowadays, with major cryptocurrencies like Ether (ETH) migrating to PoS, specialized and expensive computer devices are needed to mine tokens.

Much of mining is now done by large well-financed pools of miners, keeping the general public out of the equation. With the PoS mechanism, however, any crypto holder can now easily contribute to mining and earn specialized rewards.

What is Dogecoin?

Named after Shiba Inu, a popular Japanese dog breed, Dogecoin was launched as a not-so-serious payments system by software engineers Billy Markus and Jackson Palmer in 2013 to talk satirically about high volatility and wild speculation in the crypto ecosystem.

The “doge” meme was quite popular online at the time, so Markus and Palmer chose it as the face of their project. Billy felt a light-hearted coin was more likely to bring new users to crypto compared to “serious” coins like Bitcoin (BTC).

Dogecoin is an open-source crypto project beginning with PoW mining, which was in vogue at the time. Contrary to critics’ opinion, Dogecoin drew quite an attention.

Backed by the likes of Elon Musk and Mark Cuban, the popularity of DOGE surged, sending the value of the token to an all-time high of $0.73 in May 2021. Musk went on to proclaim himself as the “Dogefather” to the amusement of everyone.

The mining consensus dispute has polarized the crypto world with Bitcoin proponents seeing PoW as the absolute and only solution to decentralization. Nonetheless, many people including Dorsey have stated that PoS is more centralized and risky than PoW. On the contrary, Vitalik Buterin is helping Dogecoin to achieve its goal of moving to a new consensus method. But, how exactly is Vitalik Buterin helping Dogecoin move to proof-of-stake?

Vitalik, one of the most prominent names in the crypto ecosystem, also happens to be an adviser of The Dogecoin Foundation, a non-profit behind the meme coin. The Ethereum blockchain, spearheaded by Vitalik, has been the flagbearer when it comes to replacing PoW with the more efficient PoS and settling the ever-going debate of proof-of-work vs. proof-of-stake.

Overseeing the complex multi-step process for Ethereum, Vitalik is the perfect person to guide Dogecoin through the complex transition.

Advantages of Dogecoin proof-of-stake

Dogecoin adopting PoS brings for the protocol a string of advantages over PoW:

How will the proof-of-stake plan for Dogecoin change the game for DOGE holders?

As Dogecoin became more popular, the number of DOGE holders increased as well, making the inherent disadvantages of proof-of-work protocols even more evident. The cost of running Dogecoin nodes discourages new validators. And, then, heavy power usage has ever been the nemesis of PoW consensus mechanisms, drawing sharp criticism from environmentalists and possible regulatory action from the authorities.

These developments prompted Dogecoin to look for alternatives regarding the consensus mechanism. As PoS emerged as a viable option, Dogecoin decided to adopt PoS with support from Vitalik Buterin. 

At a time when the world is experiencing an energy crisis and everyone is worried about pollution-induced climate change, the high energy consumption of the PoW consensus protocol always attracts bad press and repercussions. In this scenario, moving to PoS was a logical step. 

Dogecoin’s proof-of-work to proof-of-stake migration will allow anyone staking an adequate number of DOGE to participate in the operation of the network, thus eliminating the concentrated mining power from the hands of organized mining cartels that have become so intrinsically associated with proof-of-work protocols.

Drawing intense criticism for slow transaction output and bulk energy usage, the proof-of-work protocols now have few takers in the crypto community. The number of proof-of-stake protocols is steadily increasing and Dogecoin, too, has hopped on the bandwagon.

Dogecoin’s proof-of-stake consensus mechanism will boost governance and involvement in the DOGE holders’ community. A thorough analysis of proof-of-work vs. proof-of-stake will help understand the logic and reason behind the move. But, when will Dogecoin transition to proof-of-stake?

The Dogecoin Foundation trail map places the timeline for Dogecoin’s transition from PoW to PoS sometime in 2022. However, they haven’t announced an official date for it yet.

The road ahead 

PoW was an appealing consensus mechanism in the early days of cryptocurrencies when anyone could mine coins just with an ordinary computer. However, the emergence of expensive energy-guzzling mining equipment and scaling issues with the growing popularity of digital coins made proof-of-work protocols a misfit in the changing era. It is no surprise that projects began looking for alternatives.

Dogecoin’s transition from PoW to PoS is nothing extraordinary. Rather, it is just what other projects have been doing, led by Ethereum. The proof-of-stake plan for Dogecoin is likely to resolve the usual PoW issues the protocol was facing and set the ball rolling for the new era of PoS-based protocols.