What is a premine?

What is a premine?

When a new blockchain is started, a lot of rules for that chain are coded in to the wallet. One of these rules can create a lot of coins in the first block, the premine.

The wallet code is often a copy of the bitcoin wallet , or a copy of wallets that have already been modified by other people. (This process is called a fork)

Some part of the code decide how many new coins are created within a new block. The value can change in every new block. It is just code. To give the team an amount of coins at the start of project , they can create the amount of coins they like in the first block. This first block will of course be created / found by the team or developer who is starting the project.

When the chain is running, the team have access to the coins made in the first block, and they can use it to get an exchange listing, buy marketing , reward new users for activities, give some coins away in faucets to make people feel comfortable using a cryptocoin.

So far so good, as described above someone can do a lot with a pre-mine to grow the number of users, and get people connected to the project. But what we have seen in the past is a lot of abuse with this pre-mines. People started a project, then dumped the premine on an exchange and disappeared with the bitcoins they got there.

When the first coins were made using Proof of Stake , and these days with the new coins made with masternodes, premines are commonly used.

So if you notice a new project with a premine , in 90% of the cases this is what will happen. Be careful out there !!!!

Some older masternode coins that have been started without a pre-mine are Dash and Monetary Unit.