Fair distribution of wealth has nothing to do with mass adoption. Of course USD is not distributed fairly but it is the most widely accepted currency. But what about Cryptocurrencies? They are decentralized but are they fairly distributed? Even with Bitcoin, Litecoin and many other top cryptocurrencies only the extreme minority controls them. It doesn’t mean they aren’t fair. Both the creator of the coin and the early adopters deserve it for working hard and making smart decisions. Here the term fair is quite subjective. Bitcoin may not be equally distributed but it is of course fairly distributed and it has got a large number of active users. But what about coins in which a large portion of coins are Pre-mined / Insta-mined by a small group of people? Do you call it fair?
Head to coin market cap and you’ll find thousands of crypto coins. Some of them are old and dead and some of them are new which not many people are aware of. Out of all more than 70% of the projects are premined or intsa-mined to a certain extent. Premines and Instamines in cryptocurrency are one common way in which the coins get released. They both are slightly different and among the community they both are highly controversial. So what is a Premine and what is Instamine? What is the reason for pre-mining coins and how it is done? What are the cons of premined coins, why is pre-mining considered bad and what are some top coins that falls under this category? Let’s take a look.
What is Pre-Mine?
Crypto Mining: It is a process in which the transactions are verified and added to the blockchain. Also it is a means in which new coins are released to the public. This process involves computational power and with growing number of miners across the network the difficulty keeps rising. As a result the cost of mining and electricity consumption also increases. So what is pre-mining?
Pre Mine: Pre-mining is a process in which the developer or the development team mines a certain amount of currency for themselves before the project gets officially launched. So how do they premine and what is the reason behind pre-mining.
How premine works?
It is the developer of the coin that determines the rewards in blocks, coin supply, how and when the coins should be distributed. If you can develop a coin you can set your own rules. You can code a major portion of coin supply in 1 block and mine it all by yourself before the chain goes live to public.
Premining also known as private mining or self mining which is a way of accumulating a large number of coins. This process is done internally by the developers in a short time frame with low difficulty level set (difficulty=1). That is they can mine all the total coin supply in genesis block and credit it to their address or they can mine a particular number of coins till a certain block height. All the rules are set by the developers and whole pre-mining thing is done before the source code is released to general public. So why do developers pre-mine and why do they wish to control a portion of their coins?
Why coins are premined?
There are many reasons for a developer to premine coins and one of the most obvious reasoning is exchange listing. Most cryptocurrency exchanges are corrupt. They don’t care whether the project is legit or any of the technical aspects of the coin. All they care about is making gains. In order to list coin at its early stage the exchange regulator demands payment. This is done by encouraging coin developers to premine and share a portion of their coins as a fees.
Apart from exchange listing fees this premine coins benefits both developers and the project in many ways. Some developers consider this premine coins as a bonus for developing the project. Some on the other hand use it to fund the project. They do not sell these coins. Instead to support the community and to maintain a healthy ecosystem the core team locks the premined cons and use it whenever necessary. For example they use it to reward the development team, for future developments, promotions and bounty programs to encourage user adoption.
Aside from this a premine can occur if a project model is designed in such a way. For example there are some proof of stake cryptocurrencies that are 100% premined and released to general public. Then there are ICOs (Initial Coin Offerings) in which the only way to reward the early investors is with the native tokes which the development team premined.
Okay, now what is insta-mining and how it is different from pre-mining?
Insta Mining explained
There is a difference between both Premine and Instamine. Pre-mine, as the name suggests it is mined before the actual launch and only developers can do that. Whereas with Insta-mine the blockchain is already released to public but a large portion of coins are mined during the first few hours from its launch. Insta-mining can be done on purpose where the first few blocks have high rewards or it can happen accidentally if the coin is poorly coded.
Instamined coins are also known as unfairly launched coin because a large holdings of total supply of coins end up in the hands of both creators and the early miners. This is why in most alt-coins you’ll come across a feature called insta-mining protection where the first few blocks have little to no block rewards.
So does Bitcoin falls under any of this category?
Was Bitcoin premined?
Bitcoin was not premined. However some estimates suggests that the creator of Bitcoin (Satoshi Nakamoto) is said to have mined about a million coins during its early stage. So to some extent Bitcoin also considered to be instamined but Bitcoin is exceptional.
Bitcoin (BTC) is the first cryptocurrency and when it was at its early stage it has got no value at all. The only person that cared about Bitcoin is its creator and he was the only one kept mining continuously. Moreover for bringing in such revolutionary technology the developer of Bitcoin deservers every single Bit.
But, Today it is completely different. There are thousands of cryptocurrencies. Most coins that you find are either a fork of Bitcoin or they are a copy of some other coins. These coins don’t have any value at all and they are simply being released only with an intention of making a quick buck. What happens is devs take the source code, clone a project by changing few values, premine a certain amount and release it to the public. Then they create hype around the project, pump the coin’s value and dump all of their pre mined coins for Bitcoins.
This is a common occurrence with a lots of Altcoins and this is what most ICOs (Initial Coin Offerings) are all about. Due to this unethical and unfair practices pre-mines in cryptocurrency are often considered to be bad. Below are some of the few ways in which premined coins tend to scam its users.
Cons of Pre-mined coins
Pump and Dump: Developers that involved in Pump and Dump schemes have a large amount of coins premined. To build trust first they create a roadmap with full of moon shot promises. Then they get their coin to some top exchanges. Once it is there the hype builds up and as a result the coins value soars. Once it has attained greater profit the developers starts selling and earn Bitcoins in the process.
The same goes with ICOs but instead of Bitcoins they earn Ethereum (ETH). Once they have raised necessary funds they either quit or just don’t show much progress.
Masternode presale scams: This has become more common in the recent times. Developers involved in masternode scams usually clone popular masternode coins such as Dash or PIVX. But here instead of dumping it on exchanges they dump it directly on users. First they create hype around the project and they make an announcement on auction. Then they start selling masternodes at a price of 0.5 BTC per node. Once their goal is complete that is once they sold out enough nodes they just abandon the project.
Taking advantage of Proof of Stake: In Proof of Stake system the one who holds a large number of coins wins. So in PoS coins only the developers and the early miners who’ve premined or instamined will largely benefit.
If Ethereum ever switches to Proof of Stake then it not only destroys decentralization but with 12 million coins premined it becomes one of the most unfair system. Now let’s see some of the top cryptocurrencies that premined.
List of top premined coins
Before we see the premined coins lets know the ones that had not done any pre-mining or insta-mining. Some of the popular alt coins with no pre-mines are Litecoin (LTC), Monero (XMR), ZCash (ZEC) (has founders rewards), Dogecoin (DOGE), Vertcoin (VTC), Ravencoin (RVN), Siacoin (SC) and Pirl coin (PIRL). Previously in CoinMarketCap there was an option to filter premine coins but that option has been removed. Anyways we gathered few information and following are the popular coins with pre-mines.
|Coins / Tokens||Premine / Instamine amount|
|Ethereum (ETH)||12 Million|
|Ripple Inc (XRP)||100% coins / currently holds >60% (no mining involved)|
|Stellar (XLM)||> 90 Billion|
|Dash (DASH)||2 Million Insta-mine|
|Tron (TRX)||100 Billion|
|Neo (NEO)||100% Premined|
As you can see, almost all top coins have premined a portion of their coins / tokens. It doesn’t mean all these coins are scam. However before mining or investing one of the most important thing which you must take into account is the premine numbers.
If the coin is legit the developer mentions the premine amount or you can find it in their white paper. But even though if the developer is transparent what you must note is that most brand new altcoins with pre-mines have no future and no foundation. So if you ever come across coins where a large amounts are premined then do yourself a favor and kindly stay away.
“Decentralized coins / tokens become centralized if a large amount of coins are in a very few hands.”
With large percentage of coins one can easily manipulate the market and this is what mostly happening in crypto space. Cryptocurrencies are founded with decentralization and equality in mind so do not give opportunity for people to dominate.