What is a Meme Coin and how do they work?

They might not be as popular as the front runners (Bitcoin, Ethereum, Solana, LiteCoin) but they definitely do raise eyebrows whenever they pop up. One striking similarity amongst those coins is that they usually bear an animal figure head as a logo (Doge coin) or abstract objects (FreeCoin).

These are called Meme coins.

Now, what exactly are Meme coins and how do they shape up in the world of cryptocurrency?

A meme coin is a type of cryptocurrency derived from an online meme or a viral image on the internet. Some of these coins have become popular investment opportunities, their success largely driven by strong online communities and investors.

While many cryptocurrencies like Ethereum and Bitcoin highlight technical features like decentralization and anonymity, meme coins mostly do not follow this. Most of these tokens offer a value proposition primarily derived from their connection with a meme.

Some memes are humorous and serve as criticism of digital currencies or other aspects of internet lifestyle. For example, Dogecoin (DOGE), one of the top ten cryptos in the world, started as a “joke” by its originator. On the other hand, some memes are “fraud coins”, created only for quick money at the expense of others.

How Meme Coins Funcation

Meme coins may have a different and more lighthearted origin than other cryptocurrencies, but they function in the same way.

Meme coins and other cryptocurrencies, rather than being a valid form of currency, are assets that people attribute to stocks and other investments. These digital currencies use blockchain technology, which is a decentralized digital ledger that keeps track of transactions.

These coins, like other cryptocurrencies, are created through a process known as “Mining”. Individuals or groups, for example, mine Dogecoin by completing complex mathematical and algebraic formulas. Those who successfully mine new blocks are usually rewarded with cryptocurrency mining rewards.

Like most investment options, meme coins provide a medium for investment in cryptocurrency. These coins, as earlier explained, are usually made with no use cases so most investors put in money with the hope of a quick cash and grab.

Meme coins cannot be said to be a good holder of value as they are usually just community-driven and online hype-propelled.

Basic Meme Coin Features

Meme coins frequently have an extremely large or limitless supply. Unlike Bitcoin that was designed to have a limited number of units available for mining, meme coins most often have billions of units in circulation. These coins do not typically have a mechanism that “burns” or permanently removes coins from circulation, so the numbers continue to rise. 

Also, if a coin’s name contains the words “DOGE” or “SHIBA,” it’s most likely a meme coin. The project’s website is a good place to find out if something is a meme coin or not. If the creators spend very little time discussing potential uses for the currency and their page contains numerous references to Elon Musk and cute animals, it’s most likely a meme coin.

Are Meme Coins good holders of value?  

To a large extent, most of the value of meme coins is speculative. 

While some meme coins, such as DOGE, appear to have outlived their expected lifespan, most meme coins appear and disappear in a very short period of time, both intentionally and unintentionally. Moreover, unlike many mainstream coins, which attempt to demonstrate a use case, such as an alternative financial instrument or a method of exchange in a video game, meme coins typically have no practical use other than to be bought and sold.

However, not all meme coins are fraudulent. Some meme coins, such as FEGToken and Floki Inu have useful functionality and have predominantly used the “meme” aspect to boost user acceptance. Members of the community believe that meme coins are an important way to get people interested in crypto.

The investment risks of Meme Coins

Meme coin pricing is extremely volatile because it is largely determined by community sentiment and arbitrary outside influences such as celebrity tweets. While this means that the value of a specific meme coin may skyrocket, as it did with Dogecoin, it may also crash very quickly if and when the community loses interest and dumps it.

Many meme coins are also not supported by the same technology as widely accepted cryptocurrencies such as Bitcoin, nor do they have any defined ecosphere to back them up. Only two meme coins are currently in use: Dogecoin’s protocol is implemented on Litecoin, and Shiba Inu is built on the Ethereum blockchain. 

Most of them are also essentially worthless outside of the cryptocurrency world; for example, no one accepts SafeMoon as payment for goods and services. Because of their ephemeral nature, most meme coins are unlikely to be around in a couple of years. Even if they are, their worth is almost certainly negligible. 

Make sure you have a solid financial foundation before investing in crypto, particularly meme coins. You should have an emergency fund that can cover three to six months of living expenses as well as pay off any unsustainable debt, such as a credit card.

Investing in meme coins may be advantageous depending on your risk level. Meme coins can offer a low initial investment and substantial gains to investors who trade on a daily basis and have the time to closely monitor the markets. Nonetheless, investors should be aware of the risks involved and conduct their own research into each specific meme coin they wish to trade. Consider the possibility of losing nearly all of your initial investment.

Meme coins are not appropriate for those who want to invest in cryptocurrency as a hobby or generate income long-term, and it may be more reasonable to go with more stable cryptocurrency investments such as Bitcoin, Ethereum or Litecoin. There are several options to buy Litecoin Australia on verified exchanges seamlessly. Even these more established cryptocurrencies, however, are subject to significant volatility too.

Bottom Line

Meme coins don’t look like they are going away anytime soon and while they have skyrocketed investors to unprecedented wealth like Shiba Inu, some have absolutely wrecked people who put in money into these satirical coins, just like the Squid Game-inspired token did. 

The ultimate decision rests in the hands of a cryptocurrency trader; Will you snap up a few meme coins with the high risk of being “rug-pulled” or will you just play it safe?