Meme coins (also spelt as memecoins) are a type of cryptocurrency created based on popular memes. Memes are jokes, puns, satires, or puns that quickly go viral online.
Meme coin creators often get their inspiration from jokes. So they do not always intend for people to take them very seriously. But sometimes, people become interested enough to buy and sell certain meme coins, making them popular.
Take for instance, the first meme coin, Dogecoin (DOGE). Its creators launched it in 2013 as a joke to mock the myths about cryptocurrencies that were popular at the time. Most people believed that cryptocurrencies were scams, had no value, or were used only for illegal activities. Its logo and name on the Japanese Shiba Inu dog from the Doge meme.
However, Dogecoin quickly became popular, and more than a million people visited its website within 30 days of its launch. By May 2021, it had reached a market value of over $85 billion.
How do meme coins become valuable
A meme coin becomes more valuable as its popularity in mainstream social media rises. The opinions and reactions of celebrities and online influencers to meme coins also play a heavy role in how popular or valuable they become.
For example, the popularity (and value) of Dogecoin rose after Tesla CEO Elon Musk endorsed it in a tweet.
Another meme coin, Floki Inu, is based on his real-life pet dog, Floki Frankpuppy. Mongoose coin was created in December 2021 after a member of the US Congress made up the word at a hearing on cryptocurrency.
Differences between meme coins and other cryptocurrencies
The main difference between meme coins and other cryptocurrencies like Bitcoin or Ethereum is how useful they are in the real world. People can use Bitcoin to solve actual problems in payment systems.
Crypto analysts hope that soon, more people will accept cryptos as valid and legitimate means of payment. As a result, the world would have a new decentralised currency verified by a blockchain system everyone can trust.
On the other hand, most meme coins are not that useful in real-life situations. People created them as a joke, and they are only profitable in the short term.
Characteristics of meme coins
Cryptos like Bitcoin have a limited supply, but meme coins have a very high or unlimited supply. One reason is that they do not have a mechanism that burns or permanently destroys them from circulation.
As a result, the value of one meme coin is usually low compared to other cryptos. A buyer can get seven Dogecoins for one dollar ($1), and some meme coins are far cheaper. Their low price is why they are popular, and anyone can quickly buy a large amount of them.
Also, thanks to new advanced software, almost anyone can create a meme coin. It typically requires little effort, and one can develop them quickly to suit whatever topic is currently trending.
Popular meme coins
- Dogecoin (DOGE)
Software engineers Billy Markus and Jackson Palmer created Dogecoin in 2013. A Shiba Inu dog meme inspired them to create DOGE as a joke cryptocurrency to gain widespread attention. Although DOGE runs on a blockchain network, it has an unlimited supply.
- Shiba Inu (SHIB)
An anonymous developer named Ryoshi created Shiba Inu in 2020. Shiba is probably Dogecoin’s biggest competitor. Like DOGE, it takes its name from a Japanese dog breed. Unlike DOGE, SHIB has a limited total supply of one quadrillion tokens. Its creator burned half and donated the proceeds to charity.
- Dogelon Mars (ELON)
ELON is the third-most-popular meme coin after DOGE and SHIB, named after Tesla CEO Elon Musk and his company, SpaceX. ELON is based on DOGE and currently has about 557 trillion tokens in circulation.
- Akita Inu (AKITA)
AKITA is another DOGE-inspired meme coin. Its developers locked away 50% of its supply ad, gave the rest over to Vitalik Buterin, co-founder of Ethereum. AKITA has only 100 trillion tokens – one-tenth of SHIB’s total supply.
Potential risks in investing in meme coins
Unpredictable prices
Although meme coins are popular, it is still risky to trade and invest in them. First, the price of meme coins is even more unpredictable than what is considered usual for a cryptocurrency.
Unlike Bitcoin and other alternative coins (altcoins) like Ethereum, market factors of demand and supply do not determine the prices of meme coins. Instead, random factors like popular social media trends do.
The effect of this is two-sided because the value of a particularly meme coin may rise and crash very quickly. The latter happens when people lose interest in it and move on to the next trend.
Potential scams
Also, some people have created viral meme coins to scam people out of money. For example, SquidCoin increased its value by more than 86,000% in a week. This happened because of the popularity of the Netflix drama Squid Game then.
As soon as the value of the meme coin reached $2,000 per coin, the creators sold off all their units, causing the price to drop by 99%. Till now, holders have still not been able to sell off their tokens.
Not blockchain-based
Also, blockchains do not support many meme coins. Instead, current social media trends determine how developers build them and when they are valuable or useless.
Only a handful of meme coins run on verified blockchain technologies. DOGE’s technology, for example, was adapted from Litecoin (LTC), and SHIB runs on the Ethereum network.
No true value
Many meme coins also do not have value in the real world because no one accepts them as payment for goods and services. Since trends determine their existence, it is unlikely that most of the current meme coins will still exist in a few years. Even if they do, they likely would not have any real value.
It is possible to profit from investing in meme coins, but it is not a guaranteed outcome. Meme coins are even more unpredictable than other cryptocurrencies, and their value can fall dramatically overnight.
Investors need to conduct proper research before buying a meme coin. Some red flags to look out for include lack of tangible history or information; or an established ecosystem.
