What Are Meme Coins and How Do They Work?

Key Takeaways:

• Meme coins, their popularity largely driven by pop culture, often have an abundant supply and are generally highly volatile.

• Dogecoin and Shiba Inu are the leading meme coins, though there are hundreds of others available.

• Having a thorough understanding of a meme coin requires verifying that liquidity pools are tied to burn addresses, ensuring third-party audits have been completed on the project, and confirming no one entity owns more than 5% of the total supply.

• Meme coins’ reputation of offering no clear use case or benefits is changing with the emergence of utility meme coins.

What Are Meme Coins?

Meme coins are cryptocurrencies, like Bitcoin or Ethereum, that pay homage to a meme, which is an interesting or funny idea captured in an image, video, or another form of media. Like the memes they’re based on, meme coins are designed to go viral and be shared. 

Dogecoin (DOGE), the original meme coin and category leader by market capitalisation, was created in 2013 as a joke to satirise the hype around Bitcoin and other mainstream cryptocurrencies. Its developers, software engineers Billy Markus and Jackson Palmer, intended for Dogecoin to be a fun and accessible altcoin, which is why it doesn’t have a capped supply.

Dogecoin was an instant success upon launch and surged in popularity on platforms like Reddit. The coin became a staple of the crypto space 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 had instances where it leapt in value when Elon Musk tweeted about it, and hundreds of other meme coins have since entered the scene, including dozens based on the ‘Doge’ meme. Despite its ups and downs over the years, Dogecoin has consistently maintained a passionate community and, at one point, surpassed Bitcoin in daily transaction volume.

Read our University article about Dogecoin to learn more about the meme coin that started it all.

Popular Meme Coins in 2024

The excitement around meme coins is unbroken in 2024, with new meme coins constantly entering the market. Besides Dogecoin and Shiba Inu, also known as ‘doge killer’ in the space, below are the top meme coins with the highest market cap as of August 2024:

How Do Meme Coins Work?

Meme coins work like any other cryptocurrency, taking full advantage of the blockchain and related technology. They’re often built on blockchains that use smart contracts, like Ethereum and Solana. Today, there are over 300 meme coins in existence.

Gaining Value Through Volatility

Since meme coins are community-driven, their value is considered to be speculative and volatile. For instance, when Elon Musk and Mark Cuban promoted Dogecoin, its value skyrocketed, but once the hype died down, its price fell just as quickly. Meme coins undergo extreme changes in value because of the way they’re designed: Unlike fiat currencies and most cryptocurrencies, meme coins often have an uncapped supply, making them inflationary in nature. An exception is Shiba Inu (SHIB), which has a total supply of 1 quadrillion tokens. 

While the financial risk of investing in meme coins is high, they’re still an important part of the cryptocurrency market. In fact, the market capitalisation of the top two meme coins, Dogecoin and Shiba Inu, is in the billions. Keeping on top of cryptocurrency trends requires an understanding of how meme coins work and how they’re changing. 

Below are the characteristics of meme coins that differentiate them from traditional cryptocurrencies:

• Meme coins are highly volatile and subject to extreme changes in value over very short periods of time.
• They generally have a massive or uncapped supply.
• Meme coins’ values are driven by the current buzz surrounding the token.
• They can have a very low value per token.

Why Do People Buy Meme Coins?

In its early days, Dogecoin was mainly used for ‘tipping’, which is the practise of rewarding people on the internet for doing a good deed. Now, people buy meme coins for a variety of reasons, driven primarily by the unique blend of humour, community engagement, and the speculative opportunity they offer.

Some meme coins offer utility or are now part of wider decentralised finance (DeFi) ecosystems. For example, Bone ShibaSwap (BONE) is the governance token of ShibaSwap, a decentralised exchange (DEX). 

Meme coins often gain traction due to their strong and often enthusiastic online communities. These communities drive the popularity of the coin through social media buzz, memes, and viral marketing, which can create a sense of belonging and shared identity amongst holders. The fun and lighthearted nature of meme coins appeals to those looking for a break from the seriousness of traditional finance, turning trading into a more entertaining experience.

Meme coins are also intriguing by the speculative potential they hold. Although initially considered to be of little intrinsic value, meme coins have, at times, seen extraordinary price increases, attracting speculative traders looking for short-term profits. Unlike traditional investments, meme coins are typically not backed by tangible assets or extensive development teams.

Instead, their value is largely driven by community sentiment and viral trends, which can sometimes lead to unexpected and substantial market momentum. For some traders, buying meme coins is a way to participate in a collective movement that challenges conventional financial norms, seen as a reflection of the power of decentralised and community-driven movements in the financial markets.

Are Meme Coins Safe?

The safety of meme coins is a significant concern for many traders, given the high-risk nature of these digital assets. Unlike established cryptocurrencies like Bitcoin or Ethereum, meme coins often lack a solid foundation in technology or utility, making them highly speculative assets. 

Their value is primarily driven by social media trends, community hype, and sometimes even celebrity endorsements, rather than underlying financial fundamentals.

This lack of intrinsic value can contribute to extreme volatility, where prices can surge rapidly but also plummet just as quickly, leaving traders exposed to potential significant losses. Remember, meme coins are based on internet memes. As such, they share many traits with them, including the potential for going viral and becoming quickly outdated. So while Elon Musk (or some other celebrity) may tweet about Dogecoin and send its value soaring tomorrow, it could just as easily fade away into obscurity. 

Consider also that many of these coins are created and promoted with little transparency, and some have been linked to scams or pump and dump schemes, where the creators or early adopters artificially inflate the price before selling off their holdings, leaving later traders with worthless tokens. 

However, while meme coins can be risky, they are not inherently unsafe if approached with the right mindset and risk management strategies. Traders should treat meme coins as speculative assets, only using money they can afford to lose. Diversifying their portfolio, setting clear limits, and avoiding the allure of ‘get-rich-quick’ promises are prudent approaches when dealing with such volatile assets. 

Common Meme Coin Scams to Watch Out For

When trading meme coins, it’s crucial to be aware of common scams that can lead to significant financial losses. Meme coins, due to their often unregulated nature and the hype-driven environment surrounding them, are particularly susceptible to various fraudulent schemes. Understanding these scams can help users navigate the risks and avoid falling victim to them.

Airdrop Scams

One prevalent scam in the meme coin space is the fake airdrop. In this scheme, scammers promise free tokens to users in exchange for their personal information, wallet details, or a small ‘activation’ fee. 

These airdrops are often advertised on social media or through phishing emails that mimic legitimate cryptocurrency projects. Once the scammer obtains the user’s information or payment, they may either steal funds directly from the user’s wallet or simply disappear, leaving the victim with nothing. It’s important for traders to verify the legitimacy of any airdrop and never share private keys or sensitive information.

Rug Pulls

Another common scam is the rug pull, where the developers of a meme coin suddenly withdraw all liquidity from the project, effectively leaving traders with worthless tokens. In a rug pull, the creators of the coin may promote it heavily, building hype and attracting traders, only to sell off their large holdings or drain liquidity pools once the price has peaked. This leads to a dramatic crash in the coin’s value, and traders are left unable to sell their tokens or recover their investments. To avoid rug pulls, scrutinise the development team’s credibility, the coin’s liquidity, and any unusual locking or trading restrictions.

Here is more information on rug pulls.

Pump and Dump Schemes

Pump and dump schemes are a frequent tactic in the meme coin market. In these schemes, a group of shilling traders artificially inflates the price of a meme coin by purchasing large amounts and spreading positive, often misleading information to attract more buyers. As the price rises due to increased demand, the original traders sell off their holdings at a profit, causing the price to crash. Latecomers to the scheme are left holding devalued tokens, often resulting in substantial losses.

To steer clear of pump and dump schemes, be wary of sudden, unexplained price surges and perform research rather than relying on hype or tips from unknown sources.

How to Know if a Meme Coin Is Legitimate

Determining the legitimacy of a meme coin requires careful evaluation and due diligence — what the crypto space calls DYOR, short for ‘do your own research’. While meme coins can be highly speculative, there are several key factors and steps traders can take to assess whether a meme coin is legitimate or potentially fraudulent.

1. Research the Development Team and Project Background

The first step in assessing the legitimacy of a meme coin is to research the development team behind it. Legitimate projects are usually transparent about the identities and credentials of their founders and developers. 

Look for information about the team’s experience in the cryptocurrency or technology sectors, as well as team members’ involvement in previous projects. Anonymity or a lack of transparency amongst the team members can be a red flag. Additionally, review the project’s white paper and roadmap to understand the goals, vision, and technology behind the coin. A well-documented plan and a clear use case indicate a higher likelihood of legitimacy.

2. Examine the Community and Social Media Presence

A strong and active community is often a positive indicator of a legitimate meme coin. Check social media platforms, forums, and community channels (e.g., Reddit, X, and Telegram) to gauge the level of engagement and sentiment amongst users. 

Legitimate projects typically have a vibrant community that engages in meaningful discussions, asks critical questions, and receives transparent answers from the developers. Be cautious of overly promotional content, exaggerated claims, or communities that discourage critical thinking. Also, beware of fake followers or bots that may artificially inflate a coin’s social media presence.

3. Analyse the Tokenomics and Market Behaviour

The tokenomics of a meme coin — how the tokens are distributed, used, and managed — can offer important clues about its legitimacy. Evaluate the distribution of tokens amongst the team, early investors, and the public. If a large percentage of tokens is concentrated in the hands of a few wallets, it could indicate a higher risk of a rug pull or market manipulation.

Additionally, analyse the coin’s liquidity, trading volume, and market capitalisation. Legitimate projects generally have adequate liquidity to support trading and avoid dramatic price fluctuations. Watch for unusual trading patterns or sudden spikes in price, which could suggest a pump and dump scheme.

While no single factor guarantees a coin’s legitimacy, a combination of thorough research and cautious scepticism can help traders avoid scams and identify projects with genuine potential.

Also read our guide on how to DYOR.

How to Buy Meme Coins

In the Crypto.com App, users can conveniently buy over 250 coins using Apple Pay, Google Pay, a credit/debit card, or one of more than 20 accepted fiat currencies.

Just follow these simple steps:

1. Download the Crypto.com App, available free on the Apple App Store or Google Play Store.

2. Complete the simple sign-up process.

3. Fund the account using bank transfer, Apple Pay, or a debit/credit card. Allow 1–3 business days for bank transfers.

4. Once funds hit the account, traders can start buying their favourite meme coin.

Here is a guide to the most popular meme coins in the Crypto.com App.

What to Keep in Mind When Buying Meme Coins

• Verify that liquidity pools are held by burn addresses to avoid buying a cryptocurrency that can face malicious activity, such 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.

Keeping these things in mind and performing research (DYOR) on any coin of interest will help to minimise unnecessary risks.

Future Trends for Meme Coins

At the moment, meme coins do not have the same widespread adoption as the leading cryptocurrencies. However, that doesn’t mean they’re on the way out. The main barrier for meme coins is the same as other cryptocurrencies: Many people are still unfamiliar with them. 

More Businesses Are Accepting Meme Coins as Currency

Several mainstream businesses, however, 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 businessperson who’s been open to meme coins. AMC, ExpressVPN, Tesla, and Twitch accept meme coins like Dogecoin and Shiba Inu.

Utility Meme Coins

We’re beginning to see meme coins move towards a more utility-focused model. One of the best examples of this is Shiba Inu, which plans to create the Shibaverse, a Metaverse for Shiba Inu community members. The ecosystem already includes ShibaSwap, a DEX where users can swap tokens.

Floki Inu’s developers, who have ambitions to dethrone Dogecoin as the most popular meme coin, emphasise the token’s utility as a way to differentiate it from the pack. The FLOKI ecosystem includes plans for an NFT gaming Metaverse called ‘Valhalla’, a merchandise marketplace, and a crypto education platform. 

Conclusion

While meme coins originated as lighthearted, humorous ventures within the cryptocurrency space, their role and significance have evolved. Initially driven by internet culture and community engagement, meme coins like Dogecoin and Shiba Inu have grown into powerful market forces, demonstrating the influence of social media and collective sentiment in shaping financial trends.

However, the speculative nature of these assets, coupled with their high volatility and lack of intrinsic value, makes them a potentially risky asset choice.

To navigate the risks associated with meme coins, it’s crucial for traders to conduct thorough research, understand the project’s background, and evaluate the legitimacy of the coin. This includes scrutinising the development team, analysing the tokenomics, and being aware of common scams like rug pulls and pump and dump schemes.

Ultimately, though meme coins can offer high rewards, they also come with significant risks. Approaching them with caution, a clear understanding of the market dynamics, and a strategy for managing potential losses is essential for anyone considering participating in this unique and often unpredictable segment of the crypto market.

Crypto.com offers the ideal starting place for those interested in meme coins. Check current coin prices on the Crypto.com Price page or download the Crypto.com App. 

Due Diligence and Do Your Own Research

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