The cryptocurrency industry uses such terms as Instamine and Premine. They are often equated with each other, but in fact they have a somewhat different nature. In this article we will figure out what the term Instamine means, when Instamine occurs, and the consequences of Instamine arising in a crypto network.
Instamine is the process of the relatively fast issuance of a significant volume of crypto coins, which happens at the launch of a new cryptocurrency, when the mining of coins in the first few days or hours is carried out too quickly. As a rule, this arises due to errors in the program code, where the dynamically changing difficulty is adjusted incorrectly. Thus, the most well-known manifestation of instamine is the case with the Dash cryptocurrency, when 500,000 Dash were mined in the first hour of the launch, and after 8 hours the number of mined coins already amounted to 1.5 million. Ultimately, 32% of the total issuance was mined after 2 days had passed. The reason in this case was an error made in the code, due to which the difficulty was erroneously converted, and its incorrect parameter was calculated when computing the reward for miners, which in the end led to the instamine.
However, some developers, when issuing their coins, resort to instamine deliberately, being the first to mine many coins at the very beginning, and then simply dumping them on the exchange. And in such a case it is essentially already a fraudulent scheme, in which coins are mined at the very beginning, when coins are mined fairly easily — the creators of the cryptocurrency mine a large volume of digital coins early on, which leads to the rapid increase of mining difficulty, and as a result an unfair distribution of the currency occurs at the early stage of issuance. In addition, some developers, when creating their digital tokens, pre-mine a huge amount of the new currency in advance, after which they go to the exchange and sell their existing reserves. Such behavior threatens a decline in trust toward digital money and a slowdown in the growth of its value.
When instamine occurs, the miners who mined the coins are waiting for the price to rise. As soon as this happens, the virtual money is "dumped". New altcoins fall in price, and the creators of the cryptocurrency, holding a small volume of coins at a low price, are forced to abandon the project or pause its development. In the case of the instamine with Dash, almost all the cryptocurrency that was on hand was sold off through exchanges at a "throwaway" value. But the creators' efforts to control the process were crowned with success — they managed to avoid the collapse of the project. And the miners who were selling 20-50 thousand coins made a mistake and did not appreciate the gift. After all, back then no one could assume that over time the cryptocurrency would rise in price and bring profit to its holders.
In the case of the Dash cryptocurrency, the error in the code initially had a negative impact on the development of the project, because investors invested more money, but later the distribution proceeded without difficulties, and the Dash cryptocurrency, despite the instamine, has excellent prospects. Moreover, the initial coins, sold and bought at a "throwaway" price, have long since been evenly distributed among users on various crypto exchanges, because in practice it is impossible to engage in mining and hold on to cryptocurrency mined as a result of instamine for a long time.
Another coin that was accused of instamine is NXT. It is important to understand that NXT works with the PoS algorithm: the more coins owners have, the greater the chances of accumulating more. In the case of NXT, the initial distribution of a billion coins was among 70 people, since at that time, in 2014, the crypto community did not know about ICOs. NXT was one of the first in the world to turn to public support.
Today, assumptions arise about the relevance of issuing a large volume of coins at the start in order to avoid inflation in the future. After all, as is known, the issuance of cryptocurrency leads to a decline in the exchange price. And in the case of Dash, instamine played a positive role — later the cryptocurrency managed to reduce the level of inflation to the lower threshold. This is explained by the fact that a large batch of digital money had been issued by that moment. And if you compare the inflation of Dash and other coins over a specific period, in the case of Dash it was lower. As a result, it turns out that instamine guaranteed the stability of the coins and resistance to inflationary processes. Other cryptocurrencies required large infusions of Bitcoin to achieve such results. In the case of Dash, there is no need for this. Therefore, when issuing a new cryptocurrency, one can take two paths — either mine the cryptocurrency for a certain period and then switch to PoS, or continue mining on PoW but reduce the premium to participants for a mined block.
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