Wybo Wiersma – a 40-year-old Oxford University graduate – has been sentenced to four and a half years in prison after scamming over $2 million in crypto from unsuspecting victims. Following his arrest in 2019, the Dutchman was extradited from the Netherlands back to the United Kingdom (UK) in 2021. Following a five-year investigation by the South East Regional Organised Crime Unit (SEROCU), he pled guilty on January 26 to the Oxford Crown Court. A Five-Year Investigation As reported by…
What is a Crypto Premine?
A premine is a term used in the cryptocurrency space to refer to the process of generating and distributing a certain number of coins before a cryptocurrency network is made publicly available. This process is typically done by the developers or founders of the cryptocurrency, and the premined coins are often distributed in various ways, such as through an initial coin offering (ICO) or as a reward for early adopters or developers.
The reason for premining is that it allows the developers to raise funds for the project’s development and allows them to have a certain amount of control over the distribution of the coins. However, premining can also be controversial, as it can be seen as a way for developers to enrich themselves at the expense of other users.
The way premine works are typical; the team will mint out a certain % of the coin in advance and often distribute it to themselves, the dev team, or the company. This can be controversial, as the developers will have a large percentage of the coin’s total supply, giving them a significant degree of control over its price and direction.
While some people argue that premining is necessary to fund development and ensure the network’s security, others argue that it can be used to give developers an unfair advantage and negatively impact the decentralized nature of the cryptocurrency.
Good Projects that Had Premined Tokens
While premined tokens have often been associated with scams, there are also legitimate projects that have used premines responsibly and transparently. Some examples include:
- Ethereum: Ethereum is a decentralized platform that enables the creation of smart contracts and decentralized applications. The Ethereum foundation premined a large percentage of the total Ether (ETH) supply to fund the platform’s development. The distribution of these premined coins was done through a crowdsale, and the funds were used to pay for the platform’s development and to reimburse the costs of the crowdsale.
- Stellar: Stellar is a decentralized platform for creating digital assets and facilitating cross-border payments. The Stellar Development Foundation premined a large percentage of Stellar Lumens (XLM) supply to fund the platform’s development. The distribution of these premined coins was done through a series of giveaways and partnerships, and the funds were used to pay for the development of the platform and to promote financial inclusion.
- NEO: It is an open-source, non-profit blockchain platform that utilizes blockchain technology and digital identity to digitize assets, automate digital-ass management using smart contracts, and create a “smart economy” within the platform. The NEO foundation premined a large percentage of the total supply of NEO to fund the platform’s development and support the ecosystem.
- Cardano: It’s a smart contract platform that aims to provide a more secure and sustainable ecosystem for the development and execution of decentralized applications and contracts. Cardano has a treasury system where a small percentage of block rewards are reserved for the development fund, which the Cardano Foundation holds.
These examples demonstrate that premines can be a legitimate way to fund the development of a project and that they can be used responsibly and transparently. Although, it’s important to note that projects that have a premine usually have a plan for distributing it, which can be found in their white paper or on their website; it is also a good idea to investigate how the development funds are being used and if the team is transparent about their spending.
Crypto Premine Scams
There have been several examples of premines that have turned out to be scams in the cryptocurrency space. Some examples include:
- BitConnect: This high-yield investment program promised up to 40% per month returns. It turned out to be a Ponzi scheme, and its value collapsed, leaving many investors with significant losses.
- PlexCoin: This was another Ponzi scheme that promised returns of up to 1,354% within 29 days. The founders premined a large percentage of the total supply of PlexCoin and used the funds to finance their expenses.
- BitClub Network: It was a Ponzi scheme where members could earn money by purchasing shares of BitClub Network’s mining pools. The club collected investments from members and then used these funds to pay off earlier investors.
- Bitpetite: This cryptocurrency investment platform promises up to 15% daily returns. It became a Ponzi scheme, and many investors lost significant money. The founders premined a large percentage of the currency’s total supply and used the funds to finance their expenses.
- DavorCoin: This was another Ponzi scheme that promised returns of up to 48% per month. The founders premined a large percentage of the total supply of DavorCoin and used the funds to finance their expenses.
- GAW Miners: It was a Ponzi scheme that promised returns to investors who purchased hash lets, a mining contract. The company premined a large percentage of the currency’s total supply and used the funds to pay off earlier investors.
- BitSharesX: It was another Ponzi scheme that promised huge returns on investments made in cryptocurrency. The founders premined a large percentage of the total supply of BitSharesX and used the funds to finance their expenses.
- Bitcoin Plus: It was a Ponzi scheme that promised returns of up to 360% per year but failed to deliver. The founders premined a large percentage of the total supply of Bitcoin Plus and used the funds to pay off earlier investors.
Premine does not necessarily mean that it is a bad project; it all depends on how it is executed; for example, if the dev team is transparent about their premine and uses the funds for development and marketing, it might be a good thing. On the other hand, if the premine is hidden, not used for development, and creates a conflict of interest, it may be a red flag. Remember to research and keep an eye out for other red flags, such as unrealistic returns, anonymous developers, or lack of transparency. Be skeptical of any investment that promises high returns with low risk.
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