What Are Meme Coins and How Do They Work?


What Are Meme Coins?

Meme coins are a type of digital currency that utilizes internet memes, which are comical or ironic media that spread swiftly across the web, to generate buzz and popularity. They are generally created as a spoof or imitation of established cryptocurrencies and are commonly linked to online trends.


Prominent meme coins include Dogecoin, Shiba Inu, and SafeMoon. Dogecoin, in particular, experienced a tremendous surge in popularity in 2021, largely attributed to endorsements from notable personalities like Elon Musk and Mark Cuban.


Volatility and Value

Meme coins’ value is exceptionally volatile and speculative due to their community-driven nature. For example, when Dogecoin received endorsements from notable personalities like Elon Musk and Mark Cuban, its value surged considerably.


However, the hype soon died down, leading to a rapid fall in its price. The way meme coins are designed is another reason for their extreme fluctuations in value. Unlike most cryptocurrencies and fiat currencies, meme coins often have an uncapped supply, which makes them inflationary. Shiba Inu (SHIB) is an exception, with a total supply of 1 quadrillion tokens.


Despite the high financial risk of investing in meme coins, they remain an integral part of the cryptocurrency market. In fact, the combined market capitalisation of the two leading meme coins, Dogecoin and Shiba Inu, is in the billions. Keeping up with the trends in cryptocurrency requires an understanding of how meme coins function and evolve over time.

How Do Meme Coins Work?

Meme coins operate similarly to other cryptocurrencies such as Bitcoin and Ethereum, utilizing blockchain technology to build a decentralized network that isn’t governed by any centralized authority or financial institution. Transactions are validated using a network of computers, and the transaction data is securely stored on an unalterable public ledger, rendering it transparent and immutable.


The key difference between meme coins and other cryptocurrencies is their creation process and intended use. Typically created as a spoof or parody, meme coins aren’t meant to be taken seriously as a form of currency. Instead, investors use them for trading and speculation, seeking to benefit from their increasing popularity.


Popular Meme Coins in 2023

The rise of meme coins is a fairly recent development. It wasn’t until early 2021, when high-profile individuals such as Elon Musk, Mark Cuban, and Snoop Dogg showed their support for Dogecoin, that meme coins became a popular topic. This endorsement led to Dogecoin’s value skyrocketing by more than 800% in just 24 hours.


Since then, Dogecoin has experienced multiple instances of surging in value whenever Elon Musk tweeted about it. Additionally, many other meme coins have emerged, with dozens based on the doge meme.

Are Meme Coins Safe?

When it comes to meme coins, their high volatility and supply make them riskier than other cryptocurrencies. While a single tweet from a celebrity like Elon Musk can send the value of Doge skyrocketing, these coins can just as easily fade into obscurity. As they are based on internet memes, meme coins share many traits with them, including the potential for going viral or becoming quickly outdated.


Before investing in meme coins, it’s important to keep several things in mind to reduce unnecessary risks. Firstly, verify that liquidity pools are held by burn addresses to avoid buying into a cryptocurrency that could be vulnerable to malicious activity, such as a rug pull. Additionally, always ensure that a reputable third-party firm has audited the meme coin project. Finally, be wary of any coin where developers hold most of the tokens, as it’s best if no single person or organization controls more than 5% of the token’s total supply.


By researching any coin of interest and keeping these factors in mind, investors can minimize their risks when buying meme coins.