What is a Pre-Mined Coin?

What is Premining?

  • Premining is the act of mining or the creation of a quantity of blockchain-based tokens or “coins” before a cryptocurrency is launched to the public
  • Premining is associated with initial coin offerings (ICOs) as a way to reward founders, developers, or early investors into the project
  • Premining is both the process and the practice of creating coins for an inside group prior to a cryptocurrency’s Initial Coin Offering (ICO).
  • Premining is similar to the practice of offering equity stakes to the employees of a startup before that company’s Initial Public Offering (IPO)
  • A pre-mined coin is essentially a coin that was created and owned by the developer before the coin is released to the public

If you are unfamiliar with ICOs, read this quick article: A Simple Introduction to ICOs

Disadvantages to Premining?

  • Many private developers would mine and allocate a number of coins to themselves before releasing the open-source code of the currency to the public
  • By not disclosing that there was a premine, unscrupulous developers sought to create high demand and inflate the price of their coins before the ICOs
  • This leads to pump-and-dump schemes where many developers launched new coins hyping them with the guarantee of outrageous returns and dump them when the price reaches a height
  • Pre-mining occurs where developer pre-mine coins, creating a larger share of the currency for themselves. This pre-mining can be a negative signal, with those coins headed for default having an average of 1.5% of the total coins pre-mined, whereas the level was under 0.5% for the default group.
  • In short, coins with lower controlled supply seem to have greater longevity

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Ricky Young

My belief is that financial freedom cannot be obtained by just a 9-to-5, but a combination of smart investing and passive income. This is my journey to achieve financial freedom.

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