A meme stock, also known as a crypto stock, is a company that operates on the blockchain and sells shares/tokens in itself. Shares can be bought through Bitcoin or other cryptocurrencies and can then be redeemed for dividends or sold later to make a profit.
What Makes Them Different from Traditional Companies?
Traditionally, companies float on an exchange such as the NASDAQ and allow investors to buy their shares. While these companies still exist – indeed Amazon has just floated – “crypto” companies offer greater benefits than those of traditional shares:
1) Greater Transparency
Every transaction made using Bitcoin is logged onto the blockchain. This means that all money flowing between parties is publicly available, making it easy to ensure that no funny business is going on. Indeed, most crypto stocks will allow investors to look at company accounts before they decide to invest.
2) Greater Flexibility
Investors in traditional shares are essentially putting their money in the hands of a board of directors who make decisions when taking the company forward. However, when investing in a crypto stock, this role is taken by “shareholders” (who may or may not be employed by the company), and their voting power means that all major decisions go through a democratic process. If you like having a say in how your investments are run – and we’re sure you do! – then, crypto stocks have much greater leverage than regular companies.
3) Greater Potential for Profit
If you’ve done any investing, you’ll know that the value of shares often fluctuates with supply and demand. We know that “shares” are essentially a form of currency, seeing as investors use them to buy goods/services, but they’re also worth something in themselves. Nowadays, most companies will have several share classes, giving some profit-making rights to non-“ordinary” shareholders. Crypto stocks usually work the same way, with “ordinary” shareholders receiving slightly less profit than those who hold additional tokens – called dividends – which give them increased voting power or access to more revenue streams. This is because crypto stocks are newer than traditional companies, and people are still exploring how best to use them. That means that there’s a much wider range of potential for profit than with companies who have been around for years and, as such, limited room for growth. Check out Meme Scout to learn more.
What Type of Companies Are They?
The best way to think of crypto stocks is as the cryptocurrency equivalent of an IPO (Initial Public Offering). This is where a company first lists on an exchange and first makes its shares available to buy. Like IPOs, crypto stocks allow all sorts of different companies and projects to raise funds. Some examples include:
– Art – Fishing Sites – Internet Providers – Movies/Films – Pizza Parlors – Video Games – Wine Shops
As you can see, any company or project can “go public” using crypto stocks. However, it’s worth noting that this isn’t quite the same as crowdfunding, where investors get something extra in return for their money (such as a t-shirt or early access to a product). Rather, crypto stock investors are putting their money “on the line” while receiving dividends on top of that.
Companies can also do more than just list shares on an exchange. Companies have always been able to pay dividends in the form of physical goods if they so choose, but this is usually done at the discretion of management and has no real benefit other than guaranteed profits to existing shareholders. Cryptocurrencies allow companies to take this one step further by sending out payments without any human input. This makes it possible for a company to pay out dividends based on the number of “Likes” a post receives or the number of cups of coffee sold. These sorts of payments can be automated and go straight to shareholders’ wallets, meaning that crypto stocks still offer greater transparency.
How Do They Work?
Investing in crypto stocks is straightforward:
1) You buy tokens from the issuer,
2) The issuer sends you your dividend payment every so often,
3) When you eventually sell your tokens, you receive a lump-sum payment equivalent to your original investment plus any profits earned through selling said tokens. However, there’s more going on under the surface than this.
– Who Issues Them? All crypto stocks are issued by smart contracts on the Ethereum blockchain. This means that investors can see exactly what’s going on with their investment, even though the company only has to reveal how it works if they want to. In fact, all of the information for a given company or project is publicly available online, including things like administrative costs, salaries, profits made from each revenue stream, and so on.
– How Do They Give Dividends? The issuer creates a “dividend smart contract” within their own blockchain network that acts as a bank account of sorts. Investors send money into this and specify who they want to pay it out to, i.e., the shareholders. The issuer then sets up a rule that means whatever percentage of each transaction goes to each shareholder – e.g. if one million coins are sent in, and you own 10 coins, then every transaction is marked down as transferring ten coins to yourself. You can read more about how dividend smart contracts work here.
– How Are They Valued? This is perhaps the trickiest question of all. Cryptostocks have value because people believe they have value, making them like fiat currencies or commodities such as gold. In other words, crypto stocks are valued on speculation alone. If investors think a company has potential for growth and development, they might invest their money by buying its crypto stocks, which pushes the price up and reduces the number of tokens issued per share. These tokens can then be used to earn dividends from the said company when it eventually starts paying out dividends.
– How Long Does It Take? Cryptostocks can take anywhere between a few days and a few months to list shares on exchanges, after which investors can begin buying and selling them as they please. Of course, this depends heavily on how popular the exchange is in question and how much demand there is for the particular crypto stock (i.e., whether or not people want to buy it). It also involves software developers/investors working together to write new code that makes buying and selling these tokens easy for users, which is a difficult enough task on its own.
– Is This Legal? In most countries, yes, although some exceptions ban the creation of new currencies. For example, in the UK, crypto stocks have been declared legal and have no restrictions placed on their use. However, they must be registered with the Financial Conduct Authority, so people trading in them know they’re not unregulated securities. You can read more about which countries crypto stocks are banned from here.