Dogecoin: Why is Vitalik Buterin Against it? Will Scaling Increase its Popularity?
By Gate.io researcher Edward. H
If the creation of Bitcoin was a rebellion against the traditional financial system, then the creation of Dogecoin is a rebellion against Bitcoin.
The creation of Dogecoin started as a joke. In December 2013, Jackson Palmer, a member of Adobe's Sydney marketing team, designed a gold coin logo with Doge's emoji on it. His tweet of the design was seen by IBM engineer Billy Markus。 The two of them hit it off immediately and designed Dogecoin, a witty and eye-catching digital currency. The two men wouldn’t have expected back then that the price of it would skyrocket and even get the support of celebrities like Musk.
Musk's Dogecoin Scalability Plan
Musk is considered to be the "godfather" and an "influencer" of Dogecoin. He identifies with the grassroots and community culture that Dogecoin represents and is keen to promote the potential of Dogecoin in becoming a "world currency". On February 4th, 2020, Musk tweeted that Dogecoin was "the people's cryptocurrency". On February 6th, he tweeted a poll suggesting that Dogecoin was "the future currency of the planet".
In fact, Dogecoin does have some potential to become the world's future currency: With no cap on the amount of coins that can be added to circulation and a current large circulating supply (100 billion coins for the first time, with an annual growth rate of 5%), Dogecoin is very cheap and its barrier to entry is extremely low. The price was so low that it was even once sniffed at. Compared to Bitcoin, Dogecoin is less decentralized. In addition, Dogecoin has much smaller energy consumption than Bitcoin.
On May 16th this year, Musk posted such a tweet:
Musk's proposal to increase the block size and drop trading fees has stirred much debate. Opponents, including Ethereum founder Vitalik Buterin, argue that such a solution would make the Dogecoin network more vulnerable to attack.
Scalability of Blockchain
What is the scalability of the system? Scalability refers to the function between the number of problems and those of processors. For example, a system can run fast when there are few users, but once the number of users rises, the overall speed will slow down. There is thena problem of scalability.
Currently, the Bitcoin system generates blocks about once every 10 minutes, with a block size of 1MB and each transaction being about 54 bytes. With this calculation, the entire Bitcoin network is able to process 1,941 transactions every 10 minutes, or an average of just 3 transactions per second. As a comparison, Tmall reached a peak of 583,000 transactions per second during Alibaba Singles Day. At present, the blockchain network is simply incapable of supporting large-scale transactions, let alone becoming the world's currency. It is also why Musk has proposed to increase the speed of Dogecoin transactions through increased scalability. He wants to enhance the competitiveness of Dogecoin.
In Bitcoin’s early days, the number of participating nodes was small and the trading volume was relatively low. In recent years, as the number of participants continues to increase, the Bitcoin network has become heavily congested. Hundreds of thousands of transactions are likely waiting in line at peak times and transaction fees are continuously rising. To solve the scalability problem of Bitcoin and that of other blockchain systems, multiple scaling solutions have emerged.
On-Chain Scaling (Layer 1): As the name implies, Layer 1 refers to a scaling solution implemented on top of the blockchain's base protocol. It generally requires modifying the block capacity, block generation time, consensus mechanism and other inherent properties of the blockchain to increase the trading capacity.
Under-Chain Scaling (Layer 2) on the other hand, refers to a solution that does not change the blockchain's underlying protocol or basic rules. It accelerates trading speed through different channels, sidechains, etc.
In principle, whenever a miner mines a new block, he needs to broadcast the block information to 8~10 other nodes, and then these nodes will spread the information further. When the block information spreads exponentially throughout the network, the bookkeeping process is truly completed. However, this transmission process is sequential and limited by the speed of transmission on the blockchain network. Different nodes may receive different information, or the speed of new node generation exceeds that of node information dissemination .
Take the Bitcoin system as an example. If we wanted to accelerate the speed of its trading system by 10, the most direct way is to increase the block size by a factor of 10 (as is the case with Bitcoin Cash), or to reduce the block time by 1/10. Currently, the average transmission speed of the Bitcoin network is 60 Mbps. Expanding the blocks by a factor of 10 will result in an increase in the transmission time between nodes from 0.13s to 1.3s. The time for the entire network to complete transmissions will increase to a factor of 10. Then, there is a probability that nodes in the network will receive different information. The probability of redundant forks will also increase by a factor of 10. If the block time is reduced, the result will also be the same because the block generation speed is accelerated by a factor of 10.
In addition, the security of the Bitcoin system is based on its PoW algorithm of the consensus mechanism. In the Bitcoin system, an attacker who wants to hack the system would need to have a concentration of more than 50% of the computing power of the entire system. This is also known as a 51% attack. However, in the aforementioned case, since there are a large number of forks in the Bitcoin network at all times, miners are not always working on the longest chain. The security threshold for the entire system makes it difficult to reach the theoretical 50%.
Therefore, simply increasing the block size or reducing the block time cannot fundamentally solve the scalability problem of the blockchain. If we overdo it, we may even collapse the entire blockchain system. In a blog post (The Limits to Blockchain Scalability) published by Vitalik Buterin on May 23rd, the limitations of this approach are specifically discussed. This approach is fundamentally flawed and its positive effects are limited. In particular, with general consumer’s hardware, increasing block size makes it difficult for Dogecoin holders to run full nodes. In turn, the decrease in the number of operating nodes will lead to a decrease in the level of decentralization of the whole system. Its security will also be weakened.
"Vitalik Buterin Cracks the Impossible Triangle"
In the blockchain field, there is a so-called "Impossible Triangle". It refers to the combination of decentralization, scalability and security working efficiently on the blockchain. Several major public chains currently have trade-offs in all three areas. For example, Bitcoin and Ethereum 1.0 both based on proof-of-work consensus mechanisms, have a good level of security and decentralization. However, the trading speed is very slow with around 10 transactions per second. EOS, on the other hand, has a very fast trading speed of 3,000 to 4,000 transactions per second. However, it does not perform well in terms of decentralization, and there are even only 21 block nodes in the whole network.
It is now believed that Ether 2.0 may be able to crack its own scalability problem, so as to achieve the perfect balance of the three. The secret lies in the ZK-SNARKs technology and fragmentation technology mentioned by Vitalik Buterin in his rebuttal to Musk's article. ZK-SNARKs is short for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge. It allows you to compress a large amount of information so that no matter how big the data is, the block remains the same size. The integration of this technology into the Ethereum codebase is expected to increase Ether's trading power to 500 transactions per second. When applied to the blockchain, all information in the network will still be visible to all nodes, but each node in the system will no longer need to load all the transactions of the entire system. It will only need to process the transactions of a particular section.
On June 4th, Vitalik Buterin took part in a three-hour interview with Lex Fridman, a famous YouTuber. In the interview, he confessed that he was not against Doge and welcomed the possibility of Doge coming to Ethereum to improve its performance. He also pointed out that Ethereum and Doge are similar. Interestingly, Musk also retweeted Friedman's interview and said he pretty much agreed with Vitalik. Maybe one day, Musk will reach an agreement with Ethereum, leading to Doge and Ethereum “joining forces”. By then, what would the level of Dogecoin’s performance be? Let’s stay tuned.
By Gate.io researcher Edward. H *This article represents the views only of the researcher and does not constitute any investment advice.
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