The Risks Of Premined Cryptocurrency
Previously covered were the benefits of premined cryptocurrency, so here are some of the risks. Like most things, there are both pros and cons to premining. Perhaps one of the most noticeable risks of premining, as well as instamining, is that it can put the entire concept of decentralized currency, for that coin, at risk early on.
When a smaller number of people control the vast majority of coins, the coins are essentially centralized in many ways. Crypto is based on principles of decentralization and equality. When a few people control most of the currency, the backbones of these two principles are eliminated, at least for a time. Not only this, but a huge advantage can appear in some cases for people that have premined, including the developers. This can be a problem with both Proof of Stake systems and with Proof of Work systems.
This is not the only negative, however. Another is the possibility of premines increasing the likelihood of the development team cutting deals with exchanges. There are rumors that exchanges have pressured teams to do some premining and pass tokens their way. If this is happening, it is a negative. If exchanges can press teams to give them tokens to list their coins, it could create many issues and conflicts of interest.
All in all, there are many pros and cons to most things, and premining is no different. There are many variables to consider when deciding if it a good idea for a team to utilize it. Each coin, team, and market have an impact on if premining is the right choice. Considering the strengths is essential, and as a potential buyer or miner, knowing this information, both the pros and cons, is useful when deciding which coins and tokens to invest your time and money in. Make sure to take the time to compare premining with the pros and cons of ICO; it is worth the time researching.