All The Details About Premining

What Is Premining?

The question that is often asked regarding premining is what it is that the experts refer to as premining. To explain it, premining is the mining or creation of several cryptocurrency coins before the cryptocurrency is launched to the public. Therefore premining should not be confused with Premine, an alternate cryptocurrency with the currency symbol PMC.

How Premining Works

The next question is about how it works. Here premining refers to the process of creating coins for an inside group before a cryptocurrency’s initial coin offering as well as the practice of reserving coins for the developers of the coin. Thereby several reasons are there why a cryptocurrency might go through a premining phase. Here is that a coin could be premined to pay for further development of the coin. However coins that have an ICO may be premined for pre-sale to its investors and supporters. Therefore premining could occur due to unscrupulous and unfair practices of the developers or the cryptocurrency market exchange platform. Thereby premining is similar to the practice of offering equity stake to the employees of a startup before that company’s initial public offering as the coins that are set aside eventually will create value for their holders and later those coins become tradable.  

The Premining In the ICO Era

In this context premining has acquired a negative connotation in the world of cryptocurrency whereas during the ICO era, from 2017 to 2018 many private developers were mining and allocating several coins to themselves before releasing the open-source code of the currency to the public. Hereafter this practice led to distrust among cryptocurrency investors and fostered a lack of transparency in many digital currencies.

It was then found that by not disclosing that there are premine , unscrupulous developers sought to create high demand and inflate the price of their coins before the ICOs. Here the ICO s are there with developers and other insiders releasing the coins back into the market and of course once the coins had been released back into the market, the price would plummet and cause financial loss to outsiders.

It is observed that whereas the corrupt premining is also that which is sometimes done for those currency exchanges where the regulators of these exchanges demand that the developers give them some of the coins as payment before a cryptocurrency is listed on the exchange. Also thereafter as regulators have their concern as also should it be about the technological capability of the cryptocurrency or whether it is a currency created for legitimate purposes. It is then that in instances of corrupt premining, their interest is in any quick and easy profit that can be made if the price of the cryptocurrency increases after it is listed on the exchange.  

What Are The Advantages Of Premining

There is also the chance that hereafter those advocates for premining argue that without these rewards in place, there will be less incentive for developers and early miners to build new cryptocurrencies and mining networks. Therefore the cryptocurrency developers also use premined coin as a method of payment for other developers and programming experts to further develop the coins for efficiency, effectiveness, anonymity, etc. thereby in this respect, the premining comes similar to a startup company that rewards its early workers with stocks instead of cash hoping that the company will grow to a stage where the stock value will go up.

To take into account another legitimate reason for premining occurs before a new cryptocurrency project plans to launch an ICO that is similar to how a stock’s IPO includes a presale to affluent investors and institutions who get a priority position for investing in the stock as early investors of a cryptocurrency receive any number of premined coins according to their respective contributions to ICO project. 

The Premining Versus Instamining

Here premining is different from instamining although sometimes they are incorrectly used interchangeably. The Instamine occurs when blocks of cryptocurrency are released to the public but are mined at a faster rate than intended by just a few miners within the first couple of hours or days of launching. 

The fact is that therefore a cryptocurrency that has been released and that has been premined or instamined which should be surely scrutinized by an investor before they decide to invest in it to ensure that the developers behind the coin are not just trying to make money. It is here that they should be committed to creating a sustainable alternative currency for use in online market places for the long term. 

An Example of Premining

Further on Ethereum is one of the noteworthy cryptocurrencies that premined a large number of coins before going public through ICO as Ethereum is the second-largest cryptocurrency by market capitalization as of 2020. Here Bitcoin comes as the first largest as of 2020.