What is a Crypto Premine?

What is a Crypto Premine

Content provided by various contributors. DYOR.

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.

Conclusion

Bitcoin live price
Btc
Bitcoin
$23.885
price
3.35846%
price change
TRADE NOW

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.

Read more from author

Editor's picks

What Is Crypto Historical Data and How to Use It in Trading

Crypto historical data refers to past information related to cryptocurrencies such as Bitcoin, Ethereum, and others. This data includes various metrics such as price, trading volume, and market capitalization. Crypto historical data is useful for several purposes in crypto trading. First, it helps traders and investors make informed decisions by comprehensively understanding the crypto market's past performance. Crypto Historical Data Use Cases Here are some of the ways crypto historical data is used in crypto trading: Technical Analysis: Traders use…

How to Effectively Predict Crypto Prices

Predicting crypto prices is a complex task and requires a combination of technical analysis, fundamental analysis, and market sentiment. Here's a guide to help you effectively predict crypto prices: Technical Analysis: This involves studying past market data, including price and volume trends, to identify patterns and predict future price movements. Use charting tools, such as candlestick charts, to visually represent this data. Fundamental Analysis: This involves analyzing the underlying factors that may impact the value of a cryptocurrency, such as…

Guide to Value a Cryptocurrency

Valuing a cryptocurrency can be difficult and subjective, as many factors contribute to its worth. However, here are some steps and considerations for valuing a cryptocurrency: Market capitalization: This is the total value of the cryptocurrency in circulation. It is calculated by multiplying the total number of coins by the current market price. Adoption and usage: The more people use cryptocurrency, the more valuable it is likely to become. This includes individuals and businesses using it for transactions or as…

The Best Crypto Portfolio Trackers (Coin Trackers)

Crypto portfolio trackers are apps or websites that allow users to monitor their cryptocurrency holdings across multiple exchanges and wallets in one place. They connect to users' exchange and wallet accounts through APIs (Application Programming Interfaces) and automatically track the user's cryptocurrency holdings and transactions. The tracker updates in real-time and provides an overview of the user's total portfolio value, asset allocation, and returns. This allows users to track their investment performance and make informed decisions easily. What Should The…

An Overview of Different Cryptocurrency Scams

Cryptocurrency scams are fraudulent schemes that are becoming increasingly common as the popularity of cryptocurrencies continues to grow. They can take many forms and are often designed to appear legitimate investment opportunities or exchanges. Unfortunately, these scams can cause significant financial losses for individuals and harm the reputation of the cryptocurrency industry as a whole. It is crucial for anyone considering investing in cryptocurrencies to be aware of the various types of scams and to take steps to protect themselves.…

What Are Crypto Data Aggregators?

Crypto data aggregators gather data from multiple sources to provide comprehensive and real-time information about the cryptocurrency market. They pull data from various exchanges, trading platforms, and other sources to centralize the information and present it in a user-friendly format. The data includes cryptocurrency prices, trading volume, market capitalization, news, and other relevant information. Crypto data aggregators use algorithms to clean, process, and normalize the data to ensure accuracy and consistency across multiple sources. The information is then presented in…

What Is CoinGecko?

CoinGecko is a cryptocurrency data aggregator and tracking platform. It provides information and insights on the cryptocurrency market, including price, volume, trading activity, developer activity, and community growth. How CoinGecko Works Data Aggregation: CoinGecko collects crypto data from various cryptocurrency exchanges, wallets, and blockchains to create a comprehensive database of cryptocurrency information. Calculation of Metrics: CoinGecko calculates several metrics, such as market capitalization, trading volume, liquidity, and community growth, to provide a comprehensive overview of the cryptocurrency market. Display of…

What Is CoinMarketCap (CMC)?

CoinMarketCap (CMC) is a website that provides information about the cryptocurrency market and tracks the capitalization of various cryptocurrencies. It was founded in 2013 and has become one of the most popular cryptocurrency data providers. CMC aggregates information about the prices, volume, and market capitalization of cryptocurrencies from various exchanges and calculates the average value. Furthermore, the website displays this information in real-time, giving users a comprehensive overview of the cryptocurrency market. CMC tracks over 22,000 cryptocurrencies, including Bitcoin, Ethereum,…

What Are Crypto Pyramid Schemes?

A crypto pyramid scheme is a fraudulent investment scheme where returns are paid to existing investors from funds contributed by new investors. It's called a "pyramid" because it typically has many new entrants at the bottom, with each layer representing fewer investors. Example: John starts a pyramid scheme and invites five friends to invest 1 Bitcoin each. John promises to return 2 Bitcoins to each participant in a month. John needs 10 Bitcoins to fulfill his promise, so he invites…