In the world of bitcoin and cryptocurrency, there are some concepts that are considered to be highly controversial. An instamine and a premine are two types of coin distributions altcoin developers should avoid at all costs. While some people think an instamine and premine are exactly the same, there are some subtle differences between the two concepts. Let’s take a look at what makes these concepts so controversial and how they are different from one another.
As the name somewhat suggests, an instamine refers to a distribution of coins in an unfair manner. In most cases, an instamine revolves around issuing a large supply of all future available coins during the first hours of days of the cryptocurrency’s launch. This can either be the result of nefarious coding by the developers, or a problem with the mining difficulty readjusting in unforeseen manners.
One of the more famous instamines in the world of cryptocurrency comes in the form of Dash’s initial coin distribution. About two million coins were issued over the first 48 hours due to a mining difficulty readjustment issue. Two million coins represent between 10 and 15% of the total Dash supply ever to be issued. Most of these coins were sold across exchanges at very low prices, though, nullifying the threat of a “very large bagholder dumping at a high price”.
While the Dash team did everything they could to make sure the instamine had no negative effect on the ecosystem, other altcoins aren’t always so lucky. An instamine can occur on every new coin launch, and in most cases, the owner of said coins will wait for a major price spike before selling them. Once that happens, most new altcoins will see their value reduced significantly, eventually leading to projects being abandoned by the developer.
It is evident a premine is a more deliberate act of trying to create a new currency and selling coins quickly for a big profit. Most altcoin projects that have no intrinsic value had a premine of some sorts, which allow developers to control a portion of the total supply from day one. Once their coins hit the exchange, the developers will start selling the premined coins and earn quite a few bitcoins in the process.
Another nasty side effect of altcoins is how some greedy exchanges actively advise developers to create a small premine. They are then asked to send over part of these funds to the exchange owner in return for having the coin listed on the platform at an early stage. Such type of behavior is completely unethical, yet far more common among altcoin developers and exchange owners than one might think.
However, not all premines are necessarily bad. A premine can also occur when a new project plans to launch an Initial Coin Offering or an ICO. Since investors have to contribute money to the ICO, they will be rewarded with native coins or tokens based on the amount of money they contributed. Without a premine, such a business model would be impossible to maintain, and the developers have no way to reward investors for financial contributions.
One of the most biggest cryptourrency ICO’s in history is none other than Ethereum, raising over $18 million in funds. It ranks at #6 in the highest funded crowdfund projects. Furthermore, The DAO comes in at #1 after raising over $150 million in funding.
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