The world of cryptocurrency has seen a remarkable evolution ever since the inception of Bitcoin. When only a few believers knew what Bitcoin was and what potential it had in the future, even they wouldn’t have guessed the financial revolution it would bring.
Among those limited number of people, only a few would have realized what sort of evolution they would see in terms of new tokens being introduced to the world.
While the introduction of different Altcoins intrigued the masses at first, with time, even their popularity grew exponentially. The importance of holding coins like Ethereum, Solana, Cardano, Matic, XRP, etc., hasn’t gone missing from anyone’s mind.
However, a new variety of tokens started to make noise in the market, which, at first, people would have thought was a joke, but they certainly didn’t go away like few predicted they would.
The intriguing phenomenon that captured the attention of the crypto community is called Memecoins. So the question arises: what are meme coins, and how are these digital assets, distinguished by their association with internet memes, not just a financial trend but a unique cultural expression within the broader cryptocurrency landscape?
What are Meme coins?
At its core, a meme coin is a type of cryptocurrency that derives its value and identity from the internet culture, memes, and online communities. Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, meme coins often lack a clear utility or purpose beyond serving as a form of entertainment and speculative investment. The rise of meme coins is intrinsically linked to the power of internet memes and the decentralized nature of blockchain technology.
The Rise of Memecoins
With the rise in the adoption of cryptocurrency and its growing popularity, meme coins have risen to prominence as not only a financial instrument but as a reflection of the dynamic interplay between technology and culture. There are many different meme coins available to trade in the crypto market.
The story of meme coins begins in 2013 with Dogecoin, the Shiba Inu-inspired token born from a viral internet meme. Initially intended as a playful jab at the surging cryptocurrency craze, Dogecoin unexpectedly gained traction, capturing the imagination of online communities and attracting the attention of celebrities like Elon Musk.
The unexpected success paved the way for a wave of memecoin creations, each drawing on popular internet culture and jokes. From Floki to Pepe, these often humorously named tokens thrived on community engagement and social media trends; their value fluctuates wildly based on the whims of the online masses.
Social platforms like Reddit and Twitter become vibrant spaces where enthusiasts engage in meme-sharing, discussions, and even grassroots marketing campaigns, fostering a sense of camaraderie.
At one point, Dogecoin’s market capitalization reached $85 billion, which shows that the rise of meme coins was a testament to a broader culture that embraced cryptocurrencies as more than just a financial instrument.
It signified a shift towards using digital assets as a form of self-expression, community engagement, and, perhaps surprisingly, humour.
Understanding the Technology Behind Memecoins
Just like most of the cryptocurrencies are based on traditional blockchain design, meme coins are also built on the same principle of being developed using blockchain technology. As we all know by now, blockchain technology is a decentralized ledger that ensures transparency, security, and immutability. Memecoins leverage these same features to establish trust and verifiability.
Blockchain enables meme coins to exist on a distributed network of nodes, each maintaining a copy of the ledger. The decentralized structure ensures that no single entity controls the entire network, mitigating the risk of manipulation and providing a level playing field for all participants.
Memecoin Issuance Mechanisms
Memecoins, much like traditional cryptocurrencies, have various mechanisms for issuance. Some meme coins are mined, a process where participants solve complex mathematical puzzles to validate transactions and add new blocks to the blockchain. The process, while energy-intensive, contributes to the security and decentralization of the network.
Another method to obtain meme coins involves staking. The process of crypto staking includes participants locking a certain amount of cryptocurrency in a wallet to support the operations of the blockchain. In return, participants may receive additional meme coins as rewards. Staking contributes to the security and stability of the network.
Memecoins can also be distributed through various mechanisms, such as airdrops, where coins are distributed for free to existing cryptocurrency holders, or through initial coin offerings (ICOs), where investors can purchase tokens at an early stage of the project.
How to Buy Memecoins?
The simplest answer to this question is going to any centralized crypto exchanges that have listed meme coins on their exchange. Top names like Binance, Coinbase, Kraken, and Bybit allow you to buy, sell, or trade meme coins. If you are more inclined towards using decentralized exchanges, then you would need a wallet that will enable you to maintain custody of the asset outside an exchange.
Can you create your own Memecoin?
With the relevant technical knowledge and skillset, anyone can create meme coins. Different websites have stated the steps to develop meme coins in just under 30 seconds. You can find one example on the Binance website as well. The process summarizes that you need to use a tool called OpenZeppelin.
OpenZeppelin builds secure smart contracts for the blockchain world. They offer pre-built, ready-to-use contracts and expert security services like audits and monitoring. The service helps developers build meme coins faster.
You need to name your token, select the circulation amount, and write the code that defines additional characteristics of your coin. List it on exchanges and market it if you want to drive its value upward. The risks associated with the creation of your coin should be known to you before you undertake this task.
The Unique Aspect of Memecoin Value
Unlike traditional cryptocurrencies that often have a clear use case or utility, meme coins derive their value primarily from the community’s perception and the strength of their memes. The cultural appeal and virality of memes contribute significantly to the perceived value of a memecoin.
It is pertinent to know that, unlike traditional cryptocurrencies, meme coins don’t serve a specific purpose.
Bitcoin, designed as a decentralized digital currency, serves the purpose of being a medium of exchange, a store of value, and a unit of account.
Ethereum, on the other hand, extends beyond a traditional digital currency by introducing smart contracts, allowing the creation of decentralized applications (DApps).
Binance Coin (BNB) primarily operates within the Binance ecosystem, reducing trading fees, participating in token sales on the Binance Launchpad, and facilitating transactions on the Binance Smart Chain.
Ripple (XRP) focuses on efficient cross-border payments, aiming to streamline international money transfers and act as a bridge currency between different fiat currencies.
In contrast, meme coins, such as Dogecoin and Shiba Inu Coin, often lack a specific purpose beyond serving as a form of entertainment and speculative investment. Memecoins thrive on community engagement and humorous content, with their value derived from community sentiment and the virality of internet memes rather than solving specific financial or technological problems.
Let’s look at an example of how meme coin values are affected by non-technological factors.
Elon Musk’s Doge Frenzy
On April 3rd, 2023, Elon Musk, having acquired X (formerly Twitter) by then, changed the logo of the Twitter social media platform from the famous blue bird to a Shiba Inu, which is the official logo of Dogecoin.
Many in the crypto world know that Musk is a big proponent of Dogecoin and has also held a significant amount of Doge in his crypto portfolio. So when Musk changed the logo from the famous Larry the Bird to Doge, many interpreted this as a big sign of endorsement from Musk to the meme coin.
It caused a market-wide frenzy among the crypto community, and people rushed to buy Dogecoin as a result of Musk’s action. The buying spree went so high that Doge’s value rose 30% in just hours. From trading at $0.077 at one time, Dogecoin’s value rose to a maximum of $0.1046 in just two hours, which is an astonishing 30% rise.
However, the excitement lasted only a few days, and eventually, days after Musk changed the logo, he reverted it to the original Twitter logo, and Doge’s price fell to the level at which it was trading before Musk pulled this stunt.
Now, many believe that Musk did what he did just to drive the value of Dogecoin to a desired level, at which he sold most of his stake in the currency, which is a sign of market manipulation.
While no one knew if that was indeed the case or if Musk just wanted to have some fun or gauge the reaction of the crypto world towards his favourite meme coin, it certainly solidified our understanding that meme coins don’t derive their value from serving any technological purposes. Rather, its values are highly dependent on the current market sentiment and ongoing trends.
Risks and Rewards
While we have seen how meme coin prices can be derived if you have the influence or if the market suddenly feels that a certain coin is gaining popularity, it still has an allure it that drives investors to invest in it.
The prospect of profits exists here, and the excitement of participating in a distinctive trend has always captured the attention of fans of meme coins.
Understanding the dynamics of investing in meme coins entails navigating a landscape where cultural engagement intersects with financial speculation.
In a sentiment-driven market, positive memes, endorsements from influencers, and social media trends can trigger surges in demand, resulting in price spikes. At the same time, negative sentiment may lead to sharp declines.
Memecoins often undergo hype cycles, characterized by a surge in interest and demand followed by a correction period.
And now we arrive at the point where we have to warn you about the potential losses if you are not careful. As discussed earlier, the sentiment-driven characteristics of meme coins make them a risky investment prospect.
Investing in established cryptocurrencies like Bitcoin, Ethereum, and other altcoins is in itself a risky endeavour, as the crypto market is notorious for its volatile nature and unpredictability on different occasions. A coin that derives its value largely from the sentiment of the market is a further riskier investment avenue to pursue.
While meme coins have the potential to significantly increase your profits if you have jumped the trend at the right time, their potential to equally dimmish your crypto portfolio if you have fallen into a sell-the-news event situation makes them a riskier investment option.
Memecoins’ lack of a clear use case or intrinsic value beyond their cultural appeal renders their valuation susceptible to shifts in market sentiment, trends, and social media activity.
Additionally, the decentralized and relatively unregulated nature of the memecoin space has given rise to fraudulent activities. Instances of rug pull, where creators exit the market with investors’ funds, and other scams emphasize the importance of due diligence in navigating the risks associated with memecoin investments.
Regulatory Challenges
As meme coins continue to captivate both crypto enthusiasts and casual investors, regulatory bodies worldwide are keeping a close eye on this trend. The lack of a clear utility and the speculative nature of meme coins raises concerns about investor protection, market integrity, and the potential for financial misconduct.
The decentralized and global nature of cryptocurrencies makes regulatory consensus challenging, with different countries adopting varied approaches to oversight.
Final Thoughts
Investing in meme coins adds an intriguing dimension to the cryptocurrency landscape, but it’s not without its share of risks. Investors should refrain from investing more than they can comfortably afford to lose.
While the majority should exercise caution, there remains a slim possibility that identifying the next significant coin before it gains traction online could lead to substantial returns, turning an investor into a crypto millionaire.
Therefore, when dealing with these high-risk meme coins, a prudent approach involves proceeding with caution and conducting thorough research before making any investment decisions.
