What Is a Meme Coin?
A meme coin is a type of cryptocurrency that originated from an online meme or viral image. Some of these coins have gone on to be popular investment opportunities, with their success largely driven by online communities.
If you’re planning to invest in meme coins or any form of cryptocurrency, it’s important to understand what you’re getting into. Keep reading to learn more about what meme coins are, how they differ from other cryptocurrencies, and whether you should invest in them.
Definition and Example of Meme Coins
Meme coins are cryptocurrencies that were inspired by memes and other viral online images. While they operate similarly to other cryptocurrencies, they often have a more light-hearted origin. However, they also tend to be more volatile, with their success largely dependent on online communities and virality.
Perhaps the most popular example of a meme coin is Dogecoin, which is a cryptocurrency that features the image of a popular Shiba Inu dog that went viral as an internet meme. The dog in the meme was referred to as “Doge,” which became the inspiration for the name Dogecoin.
Dogecoin was created in 2013 as a fun alternative to mainstream cryptocurrencies, and for several years, its price remained well below one cent. However, online popularity in the past couple of years caused the coin’s price to surge. While its price remains below $1—it peaked at about $0.74 per coin in May 2021—it has seen incredible growth since its early years.
How Meme Coins Work
While meme coins may have a different and more light-hearted origin than other cryptocurrencies, they function quite similarly.
Rather than being a legitimate form of currency, meme coins and other cryptocurrencies are assets treated similarly to stocks and other investments. These digital currencies operate using blockchain technology, which is a decentralized, digital ledger that maintains transactional records.
Like other cryptocurrencies, meme coins are created through a process called mining. Dogecoin, for example, is mined by individuals or groups completing complex mathematical and algebraic formulas. Those that successfully mine new blocks usually receive mining rewards of cryptocurrency.
As with other financial investments, anyone can add meme coins to their portfolio through an online cryptocurrency exchange. You can buy and sell coins just as you would stock, and when their value increases, you have the potential to make money.
Meme Coins vs. Other Cryptocurrency
In many ways, meme coins aren’t all that different from the other cryptocurrencies on the market. They both operate on blockchain technology, can be mined, and are available to investors on cryptocurrency exchanges.
Some cryptocurrencies were formed with specific purposes in mind. For example, Bitcoin was created in 2009 to serve as a decentralized alternative payment system, removing any central authority. Ethereum was designed to improve upon Bitcoin’s blockchain technology, laying the groundwork for even more decentralized transactions through the use of smart contracts.
While some meme coins may have been created with a specific purpose or project in mind, others, including Dogecoin, were created simply to be a fun alternative to more mainstream cryptocurrencies like Bitcoin and Ethereum.
What It Means for Individual Investors
Meme coins are one of the many alternative investments available today. Like other cryptocurrencies, they may have some benefits, including a way to diversify your portfolio or earn above-average returns, especially if you get in early on a particular coin.
But both of these benefits come with a major caveat. First, it’s entirely possible to create a well-diversified portfolio without meme coins, or any cryptocurrency, for that matter. Additionally, there is no guarantee of future returns. And unlike with the stock market, there’s limited history to look at to see patterns or a proven track record of success.
And unfortunately, meme coins also have plenty of downsides. Even when compared to other cryptocurrencies, meme coins tend to have higher volatility. They, along with other cryptocurrencies, may also create more opportunities to fall victim to scams.
That being said, plenty of investors have chosen to add cryptocurrency to their portfolios. By the end of 2021, about 16% of adults report having personally invested in or used cryptocurrency. And you may be considering investing in cryptocurrency, including meme coins, as well.
Before you invest in meme coins, research the potential investment. Many digital currencies provide white papers where you can learn about the founders, the purpose behind the coin, and more information relevant to investors.
When you’re investing in highly volatile and speculative assets like cryptocurrency, it’s also important to limit the amount you invest.
Financial experts suggest limiting only 5%-10% of your portfolio to these speculative investments and only investing money you can afford to lose.
How To Get Meme Coins
Like any other cryptocurrency, you can add meme coins to your portfolio through a cryptocurrency exchange. To get started, simply choose a cryptocurrency exchange and set up an account. If you want to invest in a particular meme coin, check that the exchange you choose carries that coin.
Once you’ve chosen an exchange and signed up, you can simply search for the meme coin of your choice and follow the instructions to invest. You will have to fund your account before you can make a purchase. Depending on the exchange, you could buy meme coins either with funds from your checking or savings account, or even with other cryptocurrencies.
Key Takeaways
- A meme coin is a type of cryptocurrency that was inspired by an internet meme or viral image.
- Dogecoin is the most popular meme coin and depicts a popular internet meme of a Shiba Inu dog referred to as Doge.
- Meme coins work similarly to other cryptocurrencies in that they operate on blockchain technology, can be mined, and are available to investors on cryptocurrency exchanges.
- Meme coins tend to have higher volatility, even compared to other cryptocurrencies, largely because their success is community-driven rather than relying on the success of a particular company or project.
- Before adding meme coins to your portfolio, research the coin you plan to invest in, and allocate just a small portion of your portfolio to these investments.
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