The Benefits Of Premined Cryptocurrency
When a currency is launched, some early adopters and development teams mine large quantities of coins, either on purpose or by accident. The term for this is “instamine.”
Before a currency is launched, a premine can be used to mine vast quantities of coins. It is considered controversial but does have benefits.
One of the benefits of premining is that the people that are most invested in the coins or tokens can benefit from it quite a bit. They are, after all, the ones that have the most risk. The miners and the developers are the people that are there from the beginning and will benefit the most from premining. With new tokens released every day, many of them unsuccessful, using valuable mining power on it means that that power is not being used elsewhere. The possibility for great profit is there, but so is the risk of no benefit at all.
As a point, premises could also provide better incentives for development teams, preventing teams from disappearing once a big payday happens. Some say premining is more work, and that may be true. More importantly, it means that a functional token must be created. There is a working prototype before investors decide to jump in. After that, the coins are initially worth zero, and developers and preminers may be more likely to put in the work to grow their value. The likelihood of a premine, versus an ICO, being a rip-off could be lower because of this.
Premining can also help the coins ecosystem. When developers have the coins to use in advance, they can use them for incentives. This can help employees and prospective employees become more invested, they will have another foothold in the ecosystem and can help it grow. As an incentive, it is a strong one and adds more people to the early adopter crowd. As the coins gain value, these other early adopters also see the benefits. Of course, some say this is only a good thing when the incentives provided are good enough, which is another factor to look at before obtaining them.
An additional benefit of premining is having more crypto available at launch. People have to use a currency for it to be viable, both selling it and buying it. For enough people to be doing these things, enough has to be in circulation.
There are risks of premining as well, which will be covered in another blog, make sure to look for it.