When some or all of a coin’s initial supply is generated during or before the public launch.
Pre-mining is the creation of a certain amount of
cryptocurrency before the digital currency is made available to the public.
In the crypto world, pre-mining is a similar practice to selling a stake in a company to employees before the enterprise goes public via an initial public offering (IPO.) In the case of a
digital currency, the
coins created beforehand — and set aside prior to the currency being launched — will create value for their holders after becoming tradable. In most cases, these first coins would go to
ICO investors, developers and team members that helped give birth to the project.
Ethereum, the second-largest digital currency by
market capitalization, is an example of a cryptocurrency that saw a large number of coins being pre-mined ahead of its ICO.
Some
blockchain users are against pre-mining, while others believe it is a legitimate practice. Supporters argue it is fair to reward developers and employees who take part in the designing and modeling of the project, and that it incentivizes their participation.
However, pre-mining remains a dark practice for many, as it generates distrust among users. Many developers would pre-mine and set aside a large number of coins before the ICO, without releasing this information to the public. Then, when the cryptocurrency is launched and prices are inflated due to the lack of coins available, these developers would take their pre-mined coins back into the market, causing a steep decline in their price and damaging outsiders.