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Memecoins explained

It is commonly believed that developers create new cryptocurrencies for the purpose of changing the global financial system and bringing a decentralised future closer. But sometimes they just want to have fun, and that's how meme coins were born.

Memecoins are cryptocurrencies inspired by Internet memes. The first meme coin, Dogecoin (DOGE), appeared thanks to Elon Musk's favourite meme with a Shiba Inu dog. Dogecoin traded at $0.0003-7 on cryptocurrency exchanges in late 2013, the coin first surpassed $0.01 in mid-2018 and briefly reached $0.74 in May 2021. Dogecoin's history has inspired developers to create a vast number of meme coins. But so far, none of them has managed to replicate its success.

Why meme coins are popular

Investors are interested in meme coins for a variety of reasons. Some find them attractive because of their ability to grow quickly. Others are because of the high volatility, which can be a good profit when trading intraday. Some are simply tired of the excessive seriousness of the crypto industry or collect items related to their favourite meme.

Source: CoinMarketCap

According to CoinMarketCap, Dogecoin and Shiba Inu are the most popular meme coins today. Let's take a look at them.

Dogecoin (DOGE)

Developers Billy Marcus and Jackson Palmer launched Dogecoin in 2013 as a fork of the Litecoin network. This distinguishes DOGE from another meme coin, which does not have its own blockchain.

Dogecoin is often criticised for not having a theoretical total supply limit. The number of DOGE tokens increases by about 2% per year — the network's validators receive these coins. For their part, supporters of the main meme coin argue that the lack of a token limit gives validators confidence in the project's future.

In 2019, Dogecoin began to promote Elon Musk. The businessman is now working with the coin's developers to help them improve the platform, adapt meme coin to pay for goods and services and reduce the carbon footprint of its mining.

Shiba Inu (SHIB)

Project Shiba Inu became widely known in 2021 when SHIB's market capitalisation briefly overtook DOGE. The self-proclaimed "Dogecoin killer" is an ERC-20 standard token issued on the Ethereum network.

The creators of Shiba Inu are working on a number of projects aimed at making SHIB more useful. These include the Layer 2 protocol Shibarium, the Shiba Inu meta-universe, a gaming ecosystem, and a ShibaSwap DEX.

What are the dangers of meme coins?

  • High volatility

Memecoin prices rise sharply and fall just as sharply. They are highly dependent on the mood of the crypto community or external events — for example, statements by major holders of the asset. This makes them highly unpredictable.

For example, Elon Musk's tweets of support for Dogecoin alone have lifted meme coin by 20,000% over the year. Investors who got their hopes up and bought DOGE at $0.75 are now suffering huge losses.

  • Rug pull

A "rug pull" is a cryptocurrency scam when developers pummel a new coin and then disappear along with users' money. Unlucky investors are left with a useless token that has no fundamental value and no future. That's what happened to the SQUID meme coin, based on the popular 2021 Netflix series "The Squid Game".

After the price spiked, the creators of SQUID cashed out of their coins and stopped communicating. The token lost 99.9% of its value, and its holders were blocked from selling it.

What the future holds for meme coins

Over the past few years, meme coins have gained widespread popularity with Dogecoin. No other project has yet managed to reach the same heights — but despite that, new meme coins keep appearing because they are easy to create.

Developers of top meme coins, on the other hand, will pay more attention to their usefulness, and application options — for example, in Web3-games — and expand the capabilities of tokens through new features. All this could change the nature of meme coins and lead this cryptocurrency category to an exciting future.