Premining

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Premining
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Premining is a rather controversial deed practiced by the developers of some of the alt-coins. It is the act in which one or few of the developers which created the particular cryptocurrency save a big portion of the coins for themselves, before they are launched to the public market[1]. Although it is not the only definition. We may call cryptocurrency premined when all of the coins have been mined already, and it is not possible to obtain them to mine them anymore. Those premined cryptocurrencies are also called nonmineable[2].

Altcoins

As Bitcoin's source code is widely available because of its open-source policy, many altcoins have been created. Altcoins are generally cryptocurrencies created using a copy of Bitcoin's source code, although other cryptocurrencies, which are created independently, such as Ripple, have been called altcoins[3].

Goals of premining

The usual official goal of premining is said to be for the premined cryptocurrency to act as kind of a guarantee for the developers. These coins may also be used to upkeep and further develop the cryptocurrency. Premined currency may also work as kind of a payment, rewarding work of the developers[4].

Threats of premining

The biggest threat of premining is when developers use the premined currency to make a quick profit instead of expanding the currency. They do that by promising features for the currency that never come to life and thus, making the price rise. Then when it is high enough they sell all of their coins and usually stop supporting their project[5]. Premined cryptocurrencies might also be considered "unfair" due to the bigger control by the developers, unlike the more "decentralized" coins which are in bigger control of the market[6].

Examples of premining

There are many many examples of premined cryptocurrencies, in which premining has been used for different purposes. Some of the most notable are[7]:

  • Ripple, also known as XRP is the most well-known example of a premined cryptocurrency. As of 2019, Ripple is the second biggest cryptocurrency, right after Bitcoin. At the foundation of XRP, the 20% of the 100 billion Ripples were held by the developers. Currently, 60% of the Ripple is not in circulation,
  • Stellar is another cryptocurrency that has been premined. 2% of the total 100 billion of Stellar was owned by Stripe at the foundation. As of 2019, it was the fourth biggest cryptocurrency.

Footnotes

  1. Franco P. 2014 p. 171
  2. Kent P., Bain T. (2019) p. 26-27
  3. Au S., Power T. 2018 p.36-37
  4. Franco P. 2014 p. 171
  5. Au S., Power T. 2018 p.39
  6. Kent P., Bain T. (2019) p. 301
  7. Kent P., Bain T. (2019) p. 26-27

References

Author: Kacper Klimek