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What are Premined Coins?
A premined coin is considered as a cryptocurrency that sways a little away from what we know as the traditional method of crypto distribution and mining.
Where the term premined meaning, a coin that was mined before its official launch and distribution. This is made possible, as the developers of the particular cryptocurrency usually specify a particular number of coins to a specific address which is not released to the open community.
At times, the way a premined cryptocurrency gets released and distributed is not considered to be fair. Usually, some allegedly untrustworthy exchanges try their best to convince the developers to allocate a share of the premined coins for a listing. Scenarios like these are considered unethical, due to the fact that technological merit will go ignored. This strategy falls under the ‘pump and dump’ schemes that are generally illegal. In formal terms, ‘pump and dump’ can be considered as a securities scam in which false comments are used for artificial inflation of the price of owned stocks so as to sell the cheap stock at high prices.
Pros and cons of premining a coin
- Highest rewards are set for big risk takers: The biggest benefit of a premined coin goes to those people who remain involved with the particular currency right from the beginning. This includes the developers and early miners. This also allows a huge number of coins to become a part of the market immediately. After all, the sooner the buying/selling process of a cryptocurrency begins, the better it is for the consumers.
- Destroys decentralization: This is perhaps one of the most obvious disadvantages of a pre-mined coin. Since premining can result in a few number of people holding a large number of coins, the decentralized coin will more or less, take a centralized form. This goes against one of the most basic aspects of cryptocurrencies in accordance to which all cryptocurrencies are developed and marketed, which is decentralization. Many rumors have also been circulating around, according to which cryptocurrency exchanges are alleged to offer listings of tokens in return for a share of the total number of the pre-mined
- The unfair advantage in proof of stake systems: Premining may also give many large coin holders an unfair advantage over the new miners in proof of stake systems. This is because according to a proof of stake algorithm, the one who holds greater coins can easily mine and accumulate more in comparison to the rest.
- Premining is superior to ICOs: In a way, it could be said that premining is superior to ICOs due to the fact that it reduces the risk of the team running away after raising the funds for development through ICOs. Furthermore, in order to make premining possible, it is important to have a cryptocurrency token that is functional (at least to some extent).
- Pump and dump: Often at times, those companies that are involved in pump and dump scams premine more than 50% of their tokens so as to gain greater profit and hold. Hence, it is quite difficult to place trust in companies that are alleged to have premined large chunks of their crypto tokens.
Premined coins list
Here are some of the most well-known coins that are premined:
Ripple >> Ripple is RTGS (real time gross settlement) system and a currency exchange network that is developed by the Ripple company. The native cryptocurrency tokens that are used within this network are called Ripple XRP coins, which are quite volatile in the market. Usually, the developers of a cryptocurrency tend to own only a fraction of the cryptocurrency through the premise. Ripple Labs, however, still owns about 60% of all the XRP coins initially issued. This has significantly affected the reputation of the XRP token in a negative way, with many people dismissing it as a premined scam-coin.
Cardano >> Cardano is an open-source and decentralized public blockchain application that runs the ADA cryptocurrency. Mining of the Cardano ADA is primarily done through the Proof of Stake algorithm. However, since a good number of ADA tokens are premined, many experienced investors usually hesitate to place their full trust in the platform. After all, a good number of Cardano tokens lie in the hand of unknown entities. While Cardano ADA has not been as volatile as Ripple XRP, its reputation has certainly suffered a little due to its premining.
Stellar >> Stellar is an open source framework for distributed payments. The main focus of the Stellar platform is to build a connection between people, banks, and other payment systems. It makes use of the XLM cryptocurrency to allow multi-currency transactions with ease. Stellar is, however, one of the few organizations that chose to premine a big part of their crypto assets. Apart from that, many people also consider it to be a pump and dump coin. Together, both of these factors have certainly contributed a lot to its overall not-so-appreciable reputation. As far as its price volatility goes, it turns out a quite a volatile cryptocurrency since it has constantly been drifting lower.
EOS >> EOS is more like an operating system that is based on the blockchain technology and is decentralized. It is designed with the specific purpose of supporting commercial decentralized applications by giving all the relevant functionalities hence allowing businesses to develop block-chain applications. While the rumors might state otherwise, the EOS tokens that run on the EOS operating system were not set to be pre-mined. In fact, they were not meant to be mined at all. Rather, they were set to be distributed and produced through alternative means right from the very beginning. Hence, EOS tokens have not suffered as much due to the few rumors of it being a premined
NEO >> Essentially, NEO is a 100% pre-mined coin which is built on a proof of stake algorithm. As it is a fully premined coin, it followed an alternative distribution mechanism. NEO had distributed its tokens through crowdfunding events. This issuance of tokens without any mining process means that NEO is highly centralized. This destruction of the decentralization is one of the many factors that put some investors off. Out of the 100% NEO tokens that premined, 50% have been kept for further development by the NEO council while the rest of the 50% was sold through crowdfunding.
As implied by its name, a premined coin is the one that is mined before its official launch. This is a strategy that is employed by many major cryptocurrency developers. Many people, however, deem pre-mining as something unacceptable.
While pre-mining is not necessarily something that has to be bad. Many major cryptocurrencies such as Cosmos and Ethereum have had some amount of their coins pre-mined before release so as to fund their development. The concept of pre-mining is already well-accepted in the community out there.
However, the major problem arises when more than 50% (or quite a significant amount) of the token/coin is pre-mined before its release, or if a major share of the premined coins is allocated for a certain entity/authority. This is when decentralization is destroyed, and to the community out there, it looks like the developers behind the curtains do not care about the product yet exist only for the profits.
We hope this article helped you to get a better idea about premined coins. Make sure to visit our website for more information related to cryptocurrencies.
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