No matter how long you’ve been in the space, there’s always something new to learn.
Gaining a deep understanding of the cryptocurrency universe is something that simply requires quite a lot of time and effort.
It seems like every day there is some new terminology, new concepts, new projects and the list goes on and on…
If you’ve been around a while, then you probably came to realize this quickly.
However, if you’re a newbie, it’s probably a good idea to have a base understanding of a few things before continuing on with this article…
So, we suggest, if you haven’t already done so, you may want to ‘complete Cryptocurrency 101’ by reviewing these posts first:
Welcome To The Next Crypto Level
Please forgive the gaming metaphor… BUT…
The longer you delve into blockchain and crypto, the more it seems like you’re moving through different levels of knowledge inside the space at ‘warp speed’…
YES, we realize we’ve mixed our metaphors…
So, once you learn what cryptocurrencies are, how they work (and likely come to the conclusion that they are better than fiat currencies), you’ll inevitably come across a project you like… something that you will want to ‘sink your teeth into’… and then you’ve hit it…
THE NEXT LEVEL OF CRYPTO
As you explore this next level, you might start running into terms such as ‘premined cryptos,’ ‘significantly premined cryptos’ and ‘instamined cryptos.’
It’s easy to get confused at first by these terms and with understanding the ‘how and why’ of each. Not to mention how they can affect a cryptocurrency…
Don’t worry, you are not the only one… and if we do our job here today, you will leave with a better understanding.
These terms are certainly something worth exploring and learning about. It will help not only with your overall understanding of the space, but it will also give you perspective when evaluating a potential cryptocurrency investment.
Let’s get started…
Premined & Significantly Premined Cryptocurrency
Simply put, a premined cryptocurrency is one where the coin or token developer makes the decision to allocate all or a certain portion of their coin’s supply.
This generally means that these coins are held in a single or small number of wallets. Thus a limited number of people have control of at least a majority of the coin supply.
This is something that is done before the coin is offered to the public, meaning that it happens before the token sale or Initial Coin Offering (ICO).
Of course, the coin in question does not have to be 100% premined. The actual percentage of premined coins is usually left to the developers’ discretion, hence for those less than 100% premined, we have the term significantly premined coins.
Premining is sometimes referred to as self mining or private mining.
This is because the developer is the usually the coder and the initial miner. With a premined cryptocurrrency the complete block reward is usually mined in the genesis block, by the developer or small group who are aware of the project before the public.
Reasons For Premining
Generally speaking premining is usually done in order for the project to have capital on hand for expenses. Some examples would include to pay for exchange listings, project funding and marketing.
This form of release is generally considered to be an unfair coin release. This is due at least in part because a small number of people control all or a majority of the supply.
Then, there are instamined cryptos, which is similar to premined ones, but with a few important differences.
We mentioned how with premined coins, the mining is done before the launch of the coin, however with instamined cryptocurrencies, their blockchain is already released to the public.
Its initial blocks have massive rewards. This is usually done by design, but sometimes a coding error is to blame.
For the developer, who is usually the initial miner, they garner a large portion of the supply. This can also be the case for investors who have a fore knowledge of the release and begin mining immediately.
The amount of rewards in these initial blocks is often enough to make the owners instant millionaires.
Perception of Premining & Instamining
Generally, these types of models are not seen in a positive light. As a matter of fact, most cryptos that don’t use these methods are usually given a higher rating almost immediately upon release.
This perception is likely because this generally creates a ‘centralized’ supply, which as we know is the complete opposite of the decentralized design of the cryptocurrency space. This can allow for price and project manipulation.
Some postulate the argument that it is in the best interest of the majority holders to act in the best interest of the coin or project. While this seems to make sense, this means that any investors have to trust that these holders will actually do what is best.
This is in direct opposition to another core tenet of the space, being ‘trustless’.
Pulling It All Together
Premining and Instamining have certainly become more prevalent in the space over recent years.
While there are positive arguments for this model, very often the potential drawbacks can outweigh them.
The bottom line is…
Not all cryptocurrency is created equal.
Having knowledge of these differences gives you a ‘leg up’ when researching before investing in a crypto project.