When some or all of a coin’s initial supply is generated during or before the public launch.
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 a similar practice to selling a stake in a company 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 currency.
Ethereum, the second-largest digital currency by market capitalization, is an example of a cryptocurrency that saw a large number of coins being pre-mined ahead of its ICO.
Unlike Bitcoin, for instance, pre-mined coins are usually held by a centralized authority, such as Ripple (XRP.) This digital currency was created for a centralized payment system that provides faster and cheaper ways to transfer funds in partnership with banks. Nevertheless, a large chunk of this cryptocurrency is owned by Ripple itself.
Some blockchain users are against pre-mining, while other believe it is a legitimate practice. Supporters argue it is fair to reward developers and employees who take part in the design and modelling of the project, and that it incentivizes their participation.
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 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.
Pre-mining should not be mistaken for Premine, a cryptocurrency with the currency symbol PMC.
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