Understanding Meme Coin Basics

Meme coins represent a distinctive manifestation of the intersection between technology and digital pop culture, with their value primarily driven by their ability to capture the essence of internet memes and viral trends. In this guide, we will delve into the basics and the key features of meme coins. We will compare them to traditional crypto coins and explore the most popular social media platforms that gave birth to most meme coins and influencers’ stances on them.

What Are Meme Coins?

Meme coins represent a distinctive phenomenon within the cryptocurrency landscape, characterized by a set of unique features that differentiate them from conventional digital currencies. A key aspect of these coins is their humorous essence, which is deeply entrenched in popular internet memes and cultural references.

Additionally, meme coins share several characteristics such as catchy and amusing names, referencing well-known viral trends. This gives them instant appeal and a sense of familiarity for younger audiences seeking a digital currency for fun without the need for extensive research into their fundamentals.

To learn more about the basic concept of meme coins, explore our “Introduction to Meme Coins” guide.

Meme Coins vs Traditional Crypto

Meme coins and traditional cryptocurrencies have several similarities, as they both use the same blockchain technology and operate in the same ecosystem. However, there are several fundamental differences worth noting.

What Do Meme Coins and Traditional Crypto Have in Common?

Firstly, both cryptocurrencies are based on blockchain technology, which provides them with similar characteristics such as decentralization, transparency, and security. Additionally, both are available for buying, selling, exchanging, and using for online transactions.

Secondly, a fundamental feature shared by both currency types is the crucial importance of their communities in driving their adoption and growth. While both rely heavily on the commitment and involvement of their communities, the traditional crypto focuses on technical development and protocol updates. In contrast, meme coins harness the power of virality to gain followers who are more interested in joining a fun trend rather than understanding the more complex aspects of blockchain technology.

What Makes Meme Coins Different?

Traditional cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC), among others, are based on solid technical and economic foundations. They have detailed technical documents (whitepapers), rigorous protocols, and dedicated development teams continuously working on their improvement and scalability. Additionally, these cryptocurrencies often have well-defined practical use cases, such as decentralized means of exchange, facilitating smart contracts, or enabling decentralized applications.

On the other hand, meme coins often lack these technical foundations and clear objectives. In many cases, they are created simply as humorous projects or jokes based on popular internet memes. While some meme coins have managed to build solid communities and develop some utility, their value and adoption remain tied to trends on social media and speculation.

Another key difference lies in tokenomics and crypto coin supply. Traditional cryptocurrencies often have limited supplies and predictable issuance mechanisms to drive their scarcity and long-term appreciation potential. In contrast, as explained earlier, many meme coins have extremely large or even unlimited supplies, which can lead to excessive inflation and significant price volatility.

Furthermore, traditional cryptocurrencies often have the backing of institutions, companies, and prominent developers working daily to improve and integrate them into the real economy. In contrast, most meme coins lack institutional backing, let alone a group of developers adding value to the project.

How Meme Coins Work: Supply Mechanisms

Supply mechanisms are essential in the tokenomics of meme coins. Most of them are deflationary tokens, meaning they have a predetermined maximum supply (which can be somewhat exaggerated in some cases like Shiba Inu (SHIB price) with a maximum supply of 999.98 trillion tokens) and no more tokens can be created after reaching that limit. This creates an illusion of affordability, making investors feel like they are acquiring large quantities of tokens at very low prices.

However, some notable meme coins like the first and most prominent one, Dogecoin (or DOGE), do not have a maximum supply, meaning they can continue to be mined indefinitely. This can lead to continuous inflation and a gradual decrease in token value in the long term if demand does not offset the increasing supply.

That massive supply has become a key feature to attract investors but has also contributed to driving their intrinsic volatility or extreme and unpredictable price fluctuations. Since the value of meme coins is primarily driven by speculation, market sentiment, and trends on social media, volatility is something none of them have been able to shake off.

Some meme coins also incorporate deflationary mechanisms, such as “token burning”. The latter is a process whereby tokens are permanently removed from the circulating supply. This is done to counteract inflation and create a sense of scarcity. To learn more, check our “Exploring popular Meme Coins” guide.

Distribution of Meme Coins

When it comes to the initial distribution of meme coins, there is no concrete rule or golden standard followed by projects, as they are carried out through various mechanisms. Some are distributed through an initial coin offering (ICO), where investors could purchase tokens at an initial price, while others are launched through airdrops, which are free distributions made to holders of other cryptocurrencies or those who perform certain actions, such as joining a social media group and promoting the project through them. This is basically a marketing strategy to increase adoption.

In addition to ICOs and airdrops, some crypto coins, like Dogecoin, allow meme coin mining activity similar to Bitcoin, where users or miners can obtain new tokens in exchange for validating transactions and maintaining network security.

Another characteristic is their potential to develop utility beyond speculation in the long term. Many meme coins that start without practical utility end up developing additional functionalities or long-term use cases. This can include integration with decentralized applications (dApps), governance systems, or collaborations with other platforms.

Virality: Social Media Meme Coins News and Community

Social media has played a crucial role in the rise and spread of meme coins, with platforms being catalysts for their adoption thanks to users’ ability and speed to spread information about their favourite projects. But which platforms have driven their adoption the most?

The social network that stands out as the main driver of meme coin popularity is Reddit. There, communities like r/CryptoCurrency and r/SatoshiStreetBets have served as meeting points for thousands of digital currency and meme coin enthusiasts, sharing information, memes, and investment recommendations. These subreddits have been key both for generating discussions and for fostering the adoption of coins like Dogecoin, Shiba Inu, Pepe meme coin (PEPE price), and the newest and most adorable of all, Dogwifhat (WIF), which as its name suggests only shows the image of an adorable dog with a hat.

X platform (formerly known as Twitter) has also played a crucial role. Elon Musk‘s social network is full of crypto enthusiasts with millions of followers, who have been driving many meme coins through tweets, mentions, and retweets. Even Elon Musk has demonstrated the power of his social network to boost market sentiment (and hence the price) of meme coins like Dogecoin through a few tweets.

Last but not least, Telegram has also become an essential tool for building strong communities around meme coins. It has become the favourite of many meme coin projects that are actively using it to share updates, answer questions, and encourage active member participation, maintaining enthusiasm around their projects.

Although TikTok will not be part of our top social networks that help drive meme coins, this platform has also contributed to their virality, thanks to short and fun videos created by influencers for a younger audience, perhaps with less knowledge of crypto investments.

Influencers’ Thoughts

Since their inception, meme coins have been drawing the attention of celebrities and influencers.

For example, Arthur Hayes, co-founder of BitMEX, stated that meme coins should not be quickly dismissed as “stupid” or worthless coins, as they can bring value to blockchain networks by attracting attention, new users, and engineers. He added that networks that can support this “culture”, such as Solana (SOL) and Ethereum, will be able to capture that attention flow and gain greater value.

Investment firm Franklin Templeton warned that while meme coins can present great opportunities for “quick gains”, they are also prone to risks due to lacking fundamental value or utility.

Vitalik Buterin, co-founder of Ethereum, pointed out that while he is not very enthusiastic about meme coins, as they only fluctuate in price without adding value, he suggested finding ways to make them useful or charitable instead of simply rejecting them. He proposed ideas such as creating “charity coins” where part of the tokens are dedicated to charitable causes, and “Robin Hood-style games” that are fun but also economically beneficial to low-income players.

DWF Ventures investment firm stated that projects like Shiba Inu have created utilities for their tokens (payments, DEX), leading to a beneficial situation where the token gains value and new ecosystem projects can attract users faster. Additionally, DWF Ventures finds it attractive to invest in projects with the potential to integrate large communities.

Conclusion

Meme coins have gained enormous popularity in the cryptocurrency ecosystem due to their humorous nature, catchy names, and the illusion of affordability due to their large supplies, attracting young audiences and investors seeking quick profits, regardless of solid technical fundamentals.

Additionally, success stories of traders turning hundreds of dollars into millions of dollars thanks to some meme coins experiencing significant price increases have generated a FOMO effect in the community, increasingly capturing the attention of new investors.

If you’ve weighted all the risks and challenges associated with investing in meme coins, jump straight into exploring the places to buy these digital memes.