Premining (Pre-mining, premine) is a situation in which a certain amount of a cryptocurrency's coins is mined by its creators before the public launch of the network, that is, mining effectively begins not from the very first publicly available block. As a result, part of the issuance ends up with the developers before ordinary participants join the network.
Premining in itself does not always mean dishonesty. Sometimes teams use the pre-mined coins transparently and reasonably: to fund development, pay for audits, form reserve and grant funds and community reward programs. In such cases the volume of the premine and its purpose are disclosed in advance.
When premining becomes a problem
Risks arise when the creators conceal the fact or scale of the pre-mining. Having concentrated a large share of the coins in their hands at an early stage, they can later sell them on the market after interest and the price have risen, which leads to a sharp drop in value and losses for buyers. Therefore, when evaluating a project, it is important to check whether there was a premine, in what volume and how transparently the coins are distributed.
