Introduction

Bitcoin lost 7.23 percent to $28,758.29 on May 12, a decrease of $2,241.68 from the previous session's closing. At one point, Ether, the second-largest cryptocurrency behind bitcoin, fell 11.56 percent to $2,071.46 at one point, $270.66 less than the previous session's closing.

Nevertheless, since Bitcoin appeared out of nowhere, cryptocurrencies have steadily gained global interest.

According to Brandessence Market Research, the cryptocurrency mining market reached $2,285.4 million in 2021 and is projected to reach $5,293.9 million by 2028, expanding at a CAGR of 28.5%.

In recent years, the tremendous demand for cryptocurrencies has been inseparable from the rapid increase.

Meanwhile, there are an increasing number of new cryptocurrencies, such as BNB, Ripple, Litecoin, Dashcoin, etc. Statistics indicate that by the end of 2021, the number of cryptocurrencies worldwide will exceed 15,000.

The rising meme currency

Recent trends indicate that meme coins are the most popular cryptocurrencies: of the top ten meme coins globally, five have soared by more than 3,000 percent in the past year, with DOGE increasing by about 50 times and SHIB coin increasing by more than 600,000 times.

But what are meme coins?

The term "meme" is a combination of the Greek words "mimime" and gene, signifying that it may be replicated and transmitted to others like a gene.

For instance, the culture of fan communities, demotivation, and some newly-invented abbreviations are all characteristics of memes.

The meme coins, which are cryptocurrencies based on this culture, originated for humorous and satirical purposes.

Like the founders of Doge, IBM engineer Billy Markus and Adobe software engineer Jackson Palmer, who were dissatisfied with the overpriced bitcoin by speculators in 2013, so they found a popular Shiba Inu emoji as the logo and set the issuance rules of 100 billion initial coins and 5 billion new coins issued each year without much thought. In three hours, they built a cryptocurrency by copying and pasting the coding of existing currencies.

This "nonsensical" idea was not anticipated to appeal to the tastes of young people; nonetheless, Dogecoin became popular on Reddit, and Musk subsequently tweeted, "No highs, no lows, only Doge," which thrust Doge into the limelight and caused its price to skyrocket.

Similarly, Shiba Inu token, which jokingly referred to itself as the "Dogecoin Killer," has gained traction on social media, and its price has increased in tandem with Dogecoin.

Why have meme coins become the most popular digital currency?

To answer this question, we need to look at those who support meme coins the most.

Although thought leaders such as Cathie Wood and Elon Musk are the focus, those young people who are anxious for rapid achievement but whose possibilities are diminishing are the driving force.

Meanwhile, according to research conducted by the University of Chicago, the typical digital cryptocurrency trader in the United States is 38 years old, with a considerable proportion (55 percent) lacking a college degree and 35 percent belonging to the lower- and middle-income classes.

African-Americans, Latinos, as well as gay, lesbian, transgender, and other minority groups, all expressed a preference for cryptocurrency as a new road to "wealth and equality", according to the poll.

The era of digitization is here, and the tendency is to "digitize" money. The sole difference is the evolution path: either a "non-sovereign cryptocurrency" like Bitcoin or Dogecoin, or a "sovereign cryptocurrency" created from top to bottom by central banks.

Those young people are more convinced that "decentralization" is a resistance against the decrepit old monetary order and are increasingly inclined to embrace "non-sovereign cryptocurrencies". Thus, the more fringe meme coins align closely with this urge to flip everything on its head.

Can I pay by cryptocurrency?

With "decentralization" as its core belief, will cryptocurrency disrupt the current monetary system and become the future's dominant currency?

Let us first evaluate the situation from a technical standpoint.

Currently, Bitcoin is the most developed and mature "non-sovereign cryptocurrency".

As we all know, the underlying technology of Bitcoin is blockchain, and its issuance and settlement are accomplished through "mining". When a user transfers money using a wallet containing a secret key, the transaction will be spread throughout the entire Bitcoin network. Any participant in it can act as a "miner," using their computing power to compete in solving a mathematical problem (finding a matching hash value) to verify and record (package) the transaction.

Every 10 minutes, on average, a proof-of-work system "elects" a miner with accounting powers, who then bundles up the transactions from the previous 10 minutes (into a block) and gets compensated for mining (with brand new bitcoins).

Thus, Bitcoin can avoid the issue of "double payment" without relying on a centralized entity.

Although Bitcoin's design is novel and corporations like Uber, Domino's Pizza, and Starbucks have begun embracing it in the United States, it is still utilized more as a marketing tool than as money.

This is primarily due to Bitcoin's total adoption of blockchain, which is faulty when used for transactions.

First, the blockchain lacks scalability.

For instance, if one person does ten arithmetic questions, it takes one minute for each problem and 10 minutes. It will take five minutes for two persons to calculate these ten problems, assuming they have equal processing capability and accuracy.  

Then, how about five persons doing it?

That is equivalent to two minutes. Scalability requires that efficiency must rise linearly when more processing power is invested.

In other words, scalability is the capacity to boost efficiency and performance by growing computing power by adding resources such as CPUs and servers.

In contrast, blockchain requires all nodes in the system to perform the total amount of calculations and data storage for each transaction.

In this manner, the computational power will not rise linearly with the addition of nodes. If the consensus method is not implemented correctly, low-performing nodes may degrade the performance of the entire blockchain.

 Therefore, if we utilize the blockchain to conduct payments, the whole process will be slow.

Typically, Bitcoin transactions take 60 minutes to complete. Some have joked that if you purchase coffee with bitcoin, it will be hot when you buy it but cold when you consume it.

Second, blockchain presents a storage issue.

As discussed previously, each node must store all transaction data in the system, necessitating a large quantity of data storage.

For instance, ether now requires a node to be capable of storing 50G worth of data. Bitcoin nodes must now be able to hold more than 100 GB of data.

Keep in mind that Bitcoin is still only used by a tiny number of people. The estimated number of Bitcoin users is 18 million, which is less than 0.2% of the world's population (7.5 billion), showing that only a small proportion of current transactions have reached this level of storage.

Moreover, the blockchain has difficulty with settlement finality.

What is the finality of settlement?

The Bank for International Settlements has discussed a notion in the Principles for Financial Market Infrastructures, namely, the need to define the moment at which each transaction is finalized. And this implies that the time of the transaction's full completion may be set, with no possibility of cancellation.

It will result in several legal and economic complications if there is no definite date.

According to the bankruptcy rules of several countries, if a corporation declares bankruptcy today, transactions that happened from the beginning of the day the bankruptcy was filed are void and susceptible to clawback.

However, it is difficult to identify legally when a transaction is considered finished when using blockchain for payments. Before the voting nodes are updated, the precise location of that instant in time cannot be determined.

In reality, the cryptocurrencies becoming payment instruments are not the identical "blockchain" that fanatics believe in. For instance, Facebook-owned Diem has a layered hybrid platform that mixes centralized distributed architecture with blockchain technology.

In other words, Diem is tiered; the bottom layer of transactions is handled centrally, so the processing speed will be very rapid, and the top layer, the ultimate settlement layer, is a blockchain. There will be few nodes since the greater the number of nodes, the slower the performance.

In addition to technological considerations, an additional significant aspect makes it difficult to replace existing currencies with "decentralized" cryptocurrencies like Bitcoin.

Historically, the currency has served primarily as a unit of account (or a measure of value). Bitcoins, however, are entirely decentralized, meaning they are not tied to any fiat currency, and their value is decided by the underlying blockchain and consensus, making their price very volatile.

According to data, the daily volatility of the A-share market and GEM in the last month of 2021 was 0.6% and 1.1%, respectively. However, bitcoin's daily volatility was 11.4%, the daily volatility of Dogecoin was 20.3%, and the daily volatility of SHIB coin was 49.2%.

Even though cryptocurrencies are referred to as "currency," there is a growing agreement that "non-sovereign cryptocurrencies" possess more asset attributes than currency properties.

Moreover, given the price volatility of cryptocurrencies, Janet Yellen, former chair of the Federal Reserve, characterized cryptocurrencies as extremely speculative assets.

Perhaps this feature has contributed to the ongoing expansion of non-sovereign currency control by governments beginning in 2021. Once legislation is strengthened, there will be more significant uncertainty over the future of cryptocurrencies.