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What Are Meme Coins and How Do They Work?

From Dogecoin to lesser known variants, learn all about meme coins and how to invest in them

Mar 11, 2022
Meme coins

As their name implies, meme coins are a kind of cryptocurrency inspired by memes, interesting, or funny ideas captured by an image, video, or other forms of media. Dogecoin and Shiba Inu are two of the most popular and well-known examples.

Key Takeaways

  • As many meme coins have an unlimited supply and their popularity is largely driven by pop culture, meme coins are highly volatile and subject to extreme changes in value over very short periods of time.
  • Meme coins work like any other cryptocurrency, taking full advantage of the blockchain and related technology. In particular, they’ve popped up on blockchains that use smart contracts like Ethereum and Solana.
  • Currently, Dogecoin and Shiba Inu are the leading meme coins, with USD 16 billion and USD 13 billion market caps, respectively, though there are hundreds of others available (as of March 2022).
  • Investing safely in meme coins requires verifying liquidity pools are tied to burn addresses, ensuring third-party audits have been completed on the project, and avoiding coins where any one entity owns more than 5% of the total supply.
  • While most meme coins in the past haven’t offered clear use cases, that’s beginning to change as some meme coins, like FLOKI, are also offering real benefits and uses. These coins are also known as utility meme coins.

What are Meme Coins?

Meme coins are cryptocurrency, like Bitcoin or Ethereum. But unlike those tokens, meme coins are normally designed as an homage to a meme, an interesting or funny idea captured in an image, video, or other forms of media. Like the memes they’re based on, meme coins are designed to go viral and be shared. 

Dogecoin, one of the biggest meme coins on the market, was initially created as a joke to mock Bitcoin and other mainstream cryptocurrencies. Its developers, software engineers Billy Markus and Jackson Palmer, didn’t intend for it to have any real use. And that’s true of most meme coins. Unlike utility tokens, meme coins generally aren’t used for joining a DAO, staking, or making purchases within a particular ecosystem. They exist to be traded.

Volatility & Value

Since meme coins lack a purpose other than to be traded, they’re incredibly volatile. While cryptocurrencies, in general, suffer from more drastic swings in value than traditional currencies, meme coins take that volatility to an entirely different level.

One of the reasons that meme coins undergo such extreme changes in value is because of the way they’re designed. Unlike fiat currencies and most cryptocurrencies, meme coins often have an uncapped supply, meaning there’s no limit to how many of them can exist.

Finally, the value of any meme coin is largely determined by how viral it has gone. When Elon Musk and Mark Cuban promoted Dogecoin, its value skyrocketed. But once the hype died down, it fell just as quickly.

Most popular meme coins

To summarise, here are the characteristics that differentiate meme coins from traditional cryptocurrencies:

  • Meme coins aren’t designed as a utility token but solely to be traded
  • Meme coins are highly volatile and subject to extreme changes in value over very short periods of time
  • Meme coins often have an uncapped supply (exceptions are e.g. Shiba Inu)
  • Meme coins’ values are driven by the current buzz surrounding the token
  • Meme coins normally have a very low value per token

And yet, crypto investors shouldn’t write meme coins off as if they’re a total waste. Fortunes have been made and lost in the meme coin space.

Consider the fact that someone who invested USD $1 in Shiba Inu coins in March 2021 could have sold them for USD 8,000 seven months later. Very few investments can offer that kind of quick return. And that’s why investors shouldn’t ignore meme coins completely, even if they’re only a minor part of their investment strategy.

The key to making money off meme coins is to be aware of what’s going to go viral before it does. By staying abreast of current and future trends, meme coins can be an incredibly valuable investment. This is especially the case since their value is so low, allowing investors to purchase a sizeable number for a minimal amount of money.

Even if you choose never to invest in meme coins, they’re an important part of today’s crypto market and something to be aware of. 

How do Meme Coins Work?

Meme coins work like any other cryptocurrency, taking full advantage of the blockchain and related technology. In particular, they’ve popped up on blockchains that use smart contracts like Ethereum and Solana. Today, there are over 200 meme coins floating around on these blockchains.

In the past, creating a meme coin took some technical know-how. But now, apps and sites have been developed that do all of the heavy lifting for you. DxLaunch, for example, offers everything you need to create and launch your very own meme coin. While this is good for accessibility, it also makes it possible for scammers to take advantage of less savvy investors.

Meme coins can be bought, sold, and traded like any other kind of cryptocurrency. Simply visit a marketplace like Crypto.com, download the App, and make your purchase. Buying meme coins is no more difficult than purchasing Bitcoin or Ethereum.

What can you do with your meme coins once you’ve purchased them? 

Unfortunately, most meme coins don’t offer clear use cases. Remember, they aren’t designed to be used in a DAO or as a staking token. Instead, you can look for opportunities to buy when the token is low and sell when it’s high. It is more of a pure investment rather than something you’re going to put to use.

Infographic C

While Bitcoin has been a topic of conversation among investors and the general public for years, meme coins have only entered the mainstream in the past year or two. The excitement around them surged in early 2021 when celebrities like Elon Musk, Mark Cuban, and Snoop Dogg backed Dogecoin, sending it soaring more than 800% in 24 hours.

Since then, Dogecoin has consistently leapt in value whenever Elon Musk has tweeted about it. And hundreds of other meme coins have entered the scene, including dozens based on the doge meme. 

Currently, Dogecoin and Shiba Inu are the leading meme coins, with USD 16 billion and USD 13 billion market caps, respectively. 

In the top ten meme coins with the highest market cap, you’ll also find:

  • Dogelon Mars, an offshoot of Dogecoin that specifically pays homage to Elon Musk and his SpaceX company
  • Banano, a meme coin that resulted from a hard fork of Nano coin in 2018 and which describes itself as ‘a feeless, instant, rich in potassium cryptocurrency’
  • Wownero, a meme coin that bills itself as a ‘privacy-centric memecoin’ with no premine, ICO, or Dev Tax
  • Loser Coin, a true meme coin that’s designed to ‘make losers great again’

Are Meme Coins Safe?

If you’ve read everything written here about meme coins, then you probably already know that they are not the most stable investment. Their high supply and volatility make them an innately more risky investment. While Elon Musk (or some other celebrity) could tweet about Shiba Inu and send its value soaring tomorrow, it could just as easily fade away into obscurity.

Remember, meme coins are based on internet memes. And as such, they share many traits with them, including the potential for going viral and for becoming quickly outdated.

However, it is possible to invest safely in meme coins – and to make an incredible amount of money in the process. But you’ll need to keep the following pieces of advice in mind if you’re going to avoid the scams and rug pulls out there just waiting for unsuspecting investors.

What to Keep in Mind When Investing in Meme Coins:

  • Verify that liquidity pools are held by burn addresses, so you don’t end up investing in a project that will take your coins and run, also known as a rug pull
  • Always ensure that a reputable third-party firm has audited the meme coin project
  • Be wary of any coin where developers hold most of the tokens. Ideally, no single person or organisation should control more than 5% of the token’s total supply

By keeping these things in mind and doing your own research (DYOR) on any coin you invest in, you’ll minimise unnecessary investment risks and have your best chance of succeeding with meme coins.

Meme coin performance

While meme coins skyrocketed to the moon during 2021, they’ve largely returned to earth since then. But that doesn’t mean that the fate of the meme coin has already been decided. There’s still plenty of uncertainty about the future of meme coins like Shiba Inu, Dogecoin, and dozens of others.

At the moment, it’s unlikely that they’ll enjoy the same kind of widespread adoption that more stable digital currencies like Bitcoin and Ethereum are approaching. However, that doesn’t mean that they’re on the way out. The main barrier for meme coins is the same as that for other cryptocurrencies: many people are still unfamiliar with them. But crypto awareness is only growing. And unless something dramatic happens, that awareness will continue to increase.

More Businesses are Accepting Meme Coins as Currency

This awareness has only been spurred on by several mainstream businesses which have expressed an openness to meme coins. Knowing Elon Musk’s appreciation for meme coins, it’s not surprising that the Tesla store has begun accepting Dogecoin for certain items.

But Musk isn’t the only businessman who’s been willing to open his cash registers to meme coins. GameStop, Newegg, and Nordstrom have already begun accepting meme coins like Dogecoin and Shiba Inu. And other businesses, including AMC, have announced their plans to begin accepting them in the future.

A New Wave: Utility Meme Coins

All of this adds up to one certainty. Meme coins aren’t going anywhere any time soon. Instead, we’re beginning to see meme coins move toward a more utility-focused model. One of the best examples of this is FLOKI, a meme coin based on Elon Musk’s dog that offers genuine utility, including a metaverse game, an NFT marketplace, and a crypto education platform. Ultimately, meme coins like this will likely be the ones that last since they fuse the entertaining meme culture that drives popularity with the kind of real benefits that cryptocurrencies can offer.

Whether you’re ready to start investing in popular meme coins like Shiba Inu or are looking to get in on the ground level with innovative coins like FLOKI, Crypto.com offers the ideal starting place for those interested in meme coins. Check their current coin prices on crypto.com/price or download the Crypto.com App to start investing for as low as a few dollars.

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