In a recent article we already talked about such a term as Instamine and what it means in the cryptocurrency industry. In this article we will look at what the term Premine means, and when and for what purpose Premine is used. It is worth noting that because Premine and Instamine both refer to a way of easily mining crypto coins when a new cryptocurrency is launched, Instamine and Premine are often equated with each other, although in reality they have a somewhat different nature.
The very definition of Premine points to a phenomenon such as mining coins before the official release. However, despite the name, premined coins may not even be mined at all, but embedded into the zero block, into the algorithm, or these coins may be mined before the official launch of the cryptocurrency by the developers or other select people, i.e. a certain number of blocks and coins are mined at low difficulty, and then the currency goes public. This makes it possible to mine coins quickly and cheaply, which can later be used to manipulate the market. With premining, developers manage to concentrate a certain volume of tokens in their hands and use them for personal enrichment through subsequent sales on exchanges or to carry out manipulations with the market price of the tokens. Such actions are classified as fraudulent and have an extremely negative impact on the coin's standing in the community.
However, it is worth noting that not every premine is purely negative in nature. For example, there is a practice of reserving a certain volume of coins for the subsequent payment of various bonuses, such as bounties or airdrops, paying for specialists' services, and so on. Some developers try to make the use of premine funds more transparent. All transactions are publicly available, and information about such reserves is usually provided openly on the official websites.
It is also worth noting that a 100% premine is needed for coins whose emission is carried out all at once and distributed among the contributors. This includes all PoS coins. But a small premine under PoW is the most controversial. It means that the developers already hold a large share of the mined coins from the very start. For example, 3% of the coins held by the team means that if only 10% of the coins have been mined, the developers hold 30% of the market capitalization.
And although a premine is not an entirely negative phenomenon, unfortunately, in most cases a premine is used by developers for personal gain, and it concerns such an aspect as "trust in the developers".
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