What are meme coins? It all started with Doge.
Everything you need to know, from definition, to facts and more.
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Somehow we are already in December. To kick off the festive vibes, this month we will share articles that are more fun and diverse in topics.
So I thought, why not talk about meme coins? It blows my mind how far some of them have come, and even with the help of a bull market, the hype around them is quite amazing.
Turns out, there is a lot more happening here, so this is Article 1 of 2 dedicated to Meme Coins.
So what exactly are meme coins?
Well, the name says it all.
They are
cryptocurrencies
that are inspired by
popular memes
on social media or other humorous characteristics, usually as a
parody of ‘serious’ cryptocurrencies.
The first of them all is Dogecoin which is represented by a Shiba Inu dog meme. Most of the subsequent meme coins follow the same dog theme.
How did it all start?
Well, Dogecoin. The tail goes as follows…
Back in 2013, Billy Markus (Software Engineer from IBM) and Jackson Palmer (Marketing and Product expert from Adobe) created Dogecoin as a joke.
The original intent was to create a parody of all the ‘serious’ clone coins that were trying really hard to differentiate themselves, but all seemed pretty much the same.
So Dogecoin was supposed to be another one of these clones, but instead of taking itself seriously, it was meant to be just a joke.
This joke somehow became the top 10th cryptocurrency by market cap, initiating a trend of meme coins flooding the crypto world.
How is this possible? Let’s dive into it, but first things first…
What are some interesting facts about Dogecoin?
Most of the content about Dogecoin is related to its meme coin nature, but let’s have a look at its foundational elements as a blockchain and cryptocurrency.
Technically…
Dogecoin is a blockchain that runs in a Proof of Work consensus mechanism.
Technically, Dogecoin is based on Lucky Coin, which is actually a fork of Litecoin (a fork, put simply, is basically a diversification in the development of the original protocol).
Because of this, Dogecoin can be mined using the same hardware that’s used for mining Litecoin, which is an important leverage to sustain the network’s operation and security.
It allows for 30 transactions per second, at an average fee of 1 DOGE.
Within its first year of existence, 100 billion coins were mined:
Let’s recall that new coins are created when new blocks are mined (read more here).
Initially, Dogecoin had a random block reward structure, and some miners took advantage of this ambiguity and managed to mine blocks with really high rewards.
After this incident, the current block reward is fixed at 10,000 coins.
It’s currently coordinated by the Dogecoin Foundation, with an impressive advisor group including Ethereum’s founder Vitalik Buterin, as well as Jared Birchall who represents Elon Musk’s interest.
In terms of Tokenomics…
DOGE is the native cryptocurrency of the Dogecoin blockchain.
There is no maximum supply cap, with a circulating supply of over 130 Billion coins as we speak.
The coins distribution is rather centralized, with the largest wallet holding nearly 24% of all doge in circulation, which is a risky fact: if this person sells out his/her DOGE possession, the price will certainly get quite affected.
Today, DOGE is the top 10th largest crytocurrency by market cap, with over 1,000X growht since its creation.
If compared to its all-time high, that’s would be almost 3,000X growth.
Hence, various new memes were created around the theme “Dogecoin to the Moon”
Given this parabolic growth, a lot of Dogecoin wanna-bes have been created. The number of existing meme coins is definitely higher than I expected. You can take a look at the list here.
Does Dogecoin have any real use case?
If you have been reading my previous articles, you can get a sense that comparatively, Dogecoin has a rather simple technical foundation.
As a stand-alone blockchain, it really doesn’t offer smart contract capabilities which means developers can’t build projects on it, and therefore there won’t be an ecosystem around it. It also can’t be a store value given its highly speculative nature as well as lack of supply cap.
In terms of concrete usecase, it would probably narro down to a
Medium of Exchange:
We have seen Dogecoin community using it for fundraising purposes,
More merchants are starting to accept it as method of payment.
There is a high element of speculation thanks to an insane trading volume associated with Doge.
I do have to say though, even as a medium of exchange, other cryptocurrencies should be able to do this in a much better way, particularly those that are running on a more efficient consensus mechanism. Read this to understand why.
Given the limited use cases, why do people buy Doge?
There is really no straightforward answer to this. But this is also where it gets interesting, from a behavioral point of view:
I believe that the intersection of 3 main factors plays a critical role in enabling Dogecoin to be part of the top cryptocurrencies by market cap:
Meme Culture: memes are fun, instantly relatable, and easy to remember, so this simplicity makes it a lot easier to market a dog meme than a cryptocurrency with complex technical development.
Social Media: memes feed on themselves, and as societies, we immerse ourselves in a strong meme culture, with social media platforms amplifying and making memes go viral.
Elon Musk’s tweets are the best example of how someone with millions of followers can easily influence them to action.
Also, platforms like TikTok can easily get an entire young generation hyped up as well.Easy Access: Robin Hood does play a critical role in the rise of Dogecoin. As a non-crypto native exchange app, it provided people with a quick and easy access to buying and selling Doge. People really didn’t have an entry familiar related to getting familiar with a crypto exchange, figure out private keys, or any other logistics that come with crypto, so it’s quite a frictionless access.
Bubbles feed on themselves. The more people buy Doge, the higher the price, the more media attention, and there goes the vicious cycle of self-fulfilling prophecy.
Who are these people buying Doge?
Again, not a straightforward answer, but we can broadly identify 3 types of buyers/investors:
Some people are just having fun: the likes of Elon Musk, they are playing and having fun with the hype around it.
Others are rather opportunists: these are traders and/or people who are trying to make quick money, riding on the speculation bubble around these meme coins.
The rest are unaware buyers: they possibly don’t have enough understanding of crypto, and really believe Doge has actual potential beyond this hype.
Now, this last group of people is where normal retail investors like you and me will fall under. We find it fun, we see it on the news and media quite a lot, we see successful people like Elon Musk tweeting about it, and we believe this is the equivalent of a legitimate endorsement.
This, together with the fact that normally the price is just a few cents or in some cases, fractions of a cent, we think it’s cheap and go ahead and buy Doge and/or other meme coins.
So while all is fun and games, people are investing real money. This can be
highly risky,
especially if this is money you cannot afford to lose.
Final Thoughts
The hype around meme coins definitely contributed to the adoption of crypto. I know people who have started their journey into crypto by buying Doge or other meme coins.
However, this is a double-edged sword: if people blindly invest in some random meme coins and lose their money, then their experience with crypto will be definitely quite negative.
If you ask me, the parabolic growth is not exclusive to meme coins, it’s a common trait of crypto in general, characteristic of this nascent stage. so I personally prefer investing in projects with a strong foundation, real use cases, and a clear roadmap, and this would definitely be my suggestion to people in general.
Coming up next… Turns out, not all meme coins are the same. In some cases, there is more than meets the eyes. Subscribe if you don’t want to miss out!
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