How Do Meme Coins Work?
There is a particular type of cryptocurrency (crypto) that I want to cover here, but first those of you who are not already aware should know about meme coins; they are a unique and often funny type of crypto in the crypto space. Many meme coins began as a joke added as a reference to a popular internet meme but have grown quickly, generating serious talks among people in terms of their value, viability as well leading questions on how they work with the broader cryptocurrency market. However, how do meme coins work exactly?
In this article, we will break down the mechanics of meme coins, explore their key features and how they operate in the Crypto Ecosystem.
What Are Meme Coins?
Cryptocurrencies labeled meme coins by definition have no intrinsic value or utility: they are primarily propelled by their connection to internet culture, humor, and online communities. The most prominent meme coins like Dogecoin, Shiba Inu, and Floki Inu started out as a fun project or a social experiment, and turned into big-dollar communities with billions of dollars in market capitalization.
While many of them began their lives with a joking origin, meme coins have risen to be a major part of the cryptocurrency ecosystem, buoyed by social media and influencer marketing — not traditional stasis such as decentralized finance (DeFi) or smart contracts.
Key Features of Meme Coins
Let’s start from the scratch of how meme coins work with understanding the main features that distinguish meme coins from other common cryptocurrencies.
1. Community-Driven
The biggest factor in the success of meme coins are the strength of their community and their ability to harness the power of their followers. Meme coins are different from other cryptocurrencies, in that they have a specific use case or some technological advancement that drives value, but they rely much more on social media support, community engagement and online hype. These coins are popularly rising because they get social media tendrils to go viral with memes, trends and influencer advertising integrated in them.
2. Limited Utility
Meme coins generally are usually not unique in terms of utility or real world use case like DeFi services or smart contract functionality. Meme coins, on the other hand, are usually considered to have a speculative value, as value is dictated mostly by demand and sociological trends as well as market sentiment.
3. Low Entry Cost
This makes many of those meme coins very cheap, which means most of the population of investors can afford to get involved with them. This low price point also serves to make coins seem affordable to people who might otherwise not buy quite so many coins, some even betting on a price surge. For instance, based on the $1 billion mark, Shiba Inu can be bought for millions of dollars — surely appealing to retail investors.
4. Celebrity and Influencer Endorsements
Celebrity and influencer onboard are major factors behind the hype of meme coins. Many high profile names have come out in support of the meme coins including Elon Musk, Mark Cuban and Snoop Dogg who have publicly shown their support with the Dogecoin. These endorsements often result in big spikes in demand and price, which can incite viral trends, campaigns on social media.
How Do Meme Coins Work?
Meme coins and regular cryptocurrency have quite a few things in common, but their value proposition and use case often differ significantly. Let’s look at the mechanisms behind how meme coins operate in the crypto world:
1. Blockchain Technology
Like any other cryptocurrency, Meme coins work on blockchain technology but blockchain is a decentralized and immutable ledger. That means most meme coins live on the Ethereum or Binance Smart Chain (BSC) to reap the rewards of existing infrastructure for creating and managing tokens.
For example, Dogecoin’s own blockchain is powered by its own blockchain, using a version of luckycoin for that, while Shiba Inu resides on the Ethereum blockchain as ERC20 token.
It protects meme coin transactions as secure, transparent and reliably verified without intermediaries by using the blockchain. Additionally, it makes it easy for meme coins to be moved from one wallet or exchange to another, which makes for their wide adoption and trading.
2. Token Creation
Tokenomics is a process whereby a cryptocurrency is created—the design of a cryptocurrency’s monetary policies and how to issue the token, total supply, and whether they’re deflationary or inflationary. Here’s how it typically works:
Total Supply: Total supply of meme coins are often right in the tens to trillions of tokens. The low per token price of the coin, combined with its low scalability, attracts people who would like to own large quantities.
Token Distribution: Usually, meme coins are distributed through airdrops, community giveaway, or early pre sales. Airdrops are distributing free tokens to holders of other assets and giveaways are used to increase community engagement.
For instance, Shiba Inu had such a large supply available and passed out a bulk of the tokens from them to Ethereum co-founder Vitalik Buteran who promptly and generously donated an enormous chunk of the tokens to charity.
3. Community Hype and Social Media
The community is all that exists for meme coins, they live, die by them. Hype and excitement are the driving factor of the value of the meme coin. Meme coins will, most likely, not succeed without social media platforms like Twitter, Reddit and TikTok. Whoever comes up with the idea of promoting the coin can get help from communities on Reddit (e.g., r/Dogecoin or r/cryptocurrency) to coordinate efforts to promote coins, share memes, and encourage new users to buy in, which pushes the price up.
Are Meme Coins Sustainable?
More often meme coins do not even have the technological backing and a real purpose behind them like some other more established cryptocurrencies. Inflationary meme coins (large supply) may see explosive growth heady on market hype but it remains to be seen if that early volume will last and whether the coin will retain long term value.
Maintenance of long term engagement can be tricky for community driven projects. It is possible that once the hype dies down or new meme coins gain the limelight earlier meme coins may lose their both value and relevance. Meme coins could be doomed to die if there isn’t some real world use case or innovation.
Conclusion
The meme coins universe is a wild and niche part of crypto, led in the main by community support, viral trends and social media influence. They’re a bit like other cryptocurrencies in that they operate on blockchain technology, but unlike most of those, there’s little to no inherent utility behind demand for them.
