What Is Pre-Mine?
Pre-mining is the creation of a certain amount of cryptocurrency before the digital currency is made available to the public.
In the crypto world, pre-mining is similar to selling a company’s stake to employees before the enterprise goes public via an initial public offering (IPO).
In the case of a digital currency, the coins created beforehand — and set aside prior to the currency being launched — will create value for their holders after becoming tradable.
In most cases, these first coins would go to ICO investors, developers, and team members that helped give birth to the project.
Pre-mining Debate
Some blockchain users are against pre-mining, while others believe it is legitimate.
Supporters argue it is fair to reward developers and employees who take part in the designing and modeling of the project, and that it incentivizes their participation.
A Deceptive Practice Undermining Trust
However, pre-mining remains a dark practice for many, as it generates distrust among users.
Many developers would pre-mine and set aside a large number of coins before the ICO, without releasing this information to the public.
Then, when the cryptocurrency is launched and prices are inflated due to the lack of coins available, these developers would take their pre-mined coins back into the market, causing a steep decline in their price and damaging outsiders.