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With the expansion of the crypto market, more and more people and companies are getting interested in cryptocurrency mining, but have you heard about pre-mining?
Did you know that it is possible to mine coins even before they are released to the public? Here we will understand what cryptocurrency pre-mining works.
Knowing Cryptocurrency Pre-Mining
Cryptocurrency pre-mining is the act of mining and distributing a certain amount of cryptocurrency prior to its official launch, that is, prior to its initial offering on an exchange.
It was created with the intention of rewarding the developers and investors of the blockchain project, acting as a reserve of developers. In this way, a cryptocurrency with a specific protocol for the blockchain is created and sent to the team of founders, developers and initial investors.
After a period of time, the coin is released to the public and other miners.
What are the advantages and disadvantages of cryptocurrency pre-mining?
As we’ve already mentioned, pre-mining is a reward for the team, it works very similar to a company that releases a portion of its shares to employees. The main advantages are related to team encouragement and marketing support.
A team that feels rewarded for their work will be more motivated to continue evolving and improving the project, and this same team will also be, in a way, promoting the cryptocurrency, since they have already received pre-mined tokens.
This strategy can lead to collective enthusiasm by raising the values of the coin as soon as it is released.
The big disadvantage presented by pre-mining is related to its reputation, many people judge it as a pump-and-dump scheme, as a small and select group gains privileges capable of generating a currency appreciation.
Those same people who are able to leverage the currency during bull periods can sell their assets at big profits, driving down the currency’s price.
This practice is seen by many within the crypto community as a kind of injustice and lack of transparency.
Are pre-mined coins reliable?
Despite the bad reputation presented by some cryptocurrencies that were pre-mined, it is also possible to find large coins that are hot on the market and that were pre-mined, this is the case of Ethereum, which had 20% of its coins pre-mined before the official release to the public.
Other examples of coins that were pre-mined are Cardano, which launched a presale event, and IOTA, which had 100% of its coins pre-mined.
The practice of pre-mining raises questions about ethics and trust among its founders, developers, investors and the general public, but it is still seen by many as a good marketing strategy.