What Is Pre-Mining of Cryptocurrencies and How Does It Work?

Did you know that a cryptocurrency can be “pre-mined?” prior to its initial public offering? Numerous cryptocurrencies are pre-mined prior to being made available to the general public.

What Is Pre-Mining of Cryptocurrencies?

Three crystals encircle a single Ethereum coin.

Pre-mining is the process of mining and distributing a cryptocurrency prior to its public release. Pre-mining occurs prior to the launch of an initial coin offering (ICO) on an exchange in order to “reward” blockchain project developers and investors.

Is There a Step-by-Step Process for Pre-Mining?

A computer network is depicted

Typically, developers are the ones who conduct pre-mining. Once a cryptocurrency is created for a particular blockchain protocol, its creators, developers, and investors send it to those individuals’ addresses or wallets. The cryptocurrency is made available to the general public or other miners following the ICO or launch date.

Cryptocurrency Pre-mining

Pre-mining is considered a viable option as a reward for those involved in the launch of a new cryptocurrency project. Prior to an initial public offering, a company rewards loyal employees with stock.

Because developers devote a significant amount of time and effort to developing a cryptocurrency prior to its public release, it makes sense to reserve a portion for them. This practice compensates the project’s team financially for their efforts. If they are rewarded, they are more likely to continue developing and perfecting the technology over time.

As a result, pre-mining is a form of marketing. Pre-mined tokens for a new cryptocurrency project generate excitement, which may result in the coin’s value increasing prior to its official launch.

The Drawbacks of Pre-mining Cryptocurrency A man in a hoodie is working on a computer in a dimly lit room.

Pre-mining has received a bad rap in the cryptocurrency community since its inception. This is because scammers view it as an easy way to execute a pump-and-dump scheme, in which they hype up a low-priced cryptocurrency in order to artificially inflate its value. They then pull the rug out from under their feet and profit handsomely by selling their assets at a premium price.

Read More: UK Cryptocurrency Exchanges Face 2% Tax

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