The act of mining or allocating a portion of cryptocurrency coins before the blockchain is publicly launched or officially released to the general public.
Premining refers to the practice of creating or allocating a portion of a cryptocurrency's total supply before the blockchain is publicly launched or before public mining begins. This allocation typically goes to the project's founders, development team, early investors, or into a foundation treasury. Premining establishes the initial distribution of tokens and can significantly influence a cryptocurrency's long-term tokenomics and governance structure.
"Ethereum conducted a premine where approximately 72 million ETH (about 60% of the initial supply) was created before public mining began. This premined ETH was distributed to early contributors and sold in a public crowdsale to fund development."
"Unlike many modern cryptocurrencies, Bitcoin had no premine. Its creator, Satoshi Nakamoto, only began mining after publicly releasing the software, establishing a model of fair distribution that many subsequent cryptocurrencies aimed to emulate."
Premining serves several legitimate purposes in cryptocurrency ecosystems:
Development funding: Allocating tokens to pay developers and cover operational costs.
Investor compensation: Rewarding early backers who provided initial capital.
Ecosystem building: Creating grants, incentive programs, and liquidity for the new network.
Treasury reserves: Establishing governance-controlled funds for long-term sustainability.
Initial distribution: Facilitating token sales, airdrops, or other distribution mechanisms.
"The Zcash premine (called the 'founders reward') allocated 20% of all mined ZEC for the first four years to the developers, representing a transparent approach to sustainable funding while still allowing 80% of newly created coins to flow to public miners."
"Bitcoin Cash, as a fork of Bitcoin, inherited Bitcoin's distribution model and didn't have a traditional premine. However, some might consider the snapshot-based distribution of BCH to existing BTC holders as a form of pre-allocation, though it's more accurately described as a chain split distribution."
Different cryptocurrency projects implement premining in various ways:
Percentage-based premines: A fixed percentage of the total supply is allocated before public launch.
Absolute amount premines: A specific number of tokens are created upfront.
Genesis block allocation: The first block contains special allocations, as seen in many Bitcoin forks.
Development taxes/rewards: Ongoing percentages of newly mined coins go to developers.
Hybrid models: Combinations of upfront allocations and ongoing development funding.
"Zcash implemented a hybrid model with an initial founders' reward that allocated 20% of mining rewards to developers for the first four years, followed by a new development fund with 20% of emissions for the next four years after a community vote."
Premining remains one of the most controversial practices in cryptocurrency. Critics argue that excessive premines create unfair advantages for insiders, lead to centralization of wealth and power, and potentially enable pump-and-dump schemes. The size, transparency, and purpose of a premine significantly impact how the community perceives the project's legitimacy.
"Critics of premining point to cases where development teams allocated large percentages of the supply to themselves, only to sell these tokens shortly after launch, causing price crashes and abandoning the project—a practice colloquially known as 'rug pulls' in the crypto community."
"The absence of a premine in Bitcoin has been cited as a key factor in its perceived fairness and decentralization. When Bitcoin Cash forked from Bitcoin in 2017, it maintained this aspect by not introducing any new premined coins, instead just continuing the existing Bitcoin distribution at the point of the split."
Transparent disclosure of premining details is considered essential for cryptocurrency project credibility. This includes information about:
"Projects with responsible premining practices typically publish detailed tokenomics documentation specifying exactly how premined tokens are allocated and implement vesting schedules that align team incentives with long-term project success rather than short-term price manipulation."
Different distribution models reflect varying philosophies about fairness and sustainability in cryptocurrency:
No premine (e.g., Bitcoin): Maximizes perceived fairness but may limit development funding.
Small premine (e.g., Litecoin): Modest allocation for initial development with majority through mining.
Moderate premine with transparency (e.g., Zcash): Balances development funding with public distribution.
Large premine (e.g., many ICO tokens): Prioritizes funding but raises centralization concerns.
Fair launch alternatives (e.g., Liquidity Mining): Newer models attempting to balance fairness and sustainability.
"Bitcoin Cash inherits Bitcoin's fair launch approach where no coins were premined, while implementing protocol improvements like adjustable block sizes. This contrasts with many newer cryptocurrencies that premined large percentages of their supply for development and marketing."
"Unlike ICO tokens which are typically 100% premined and sold, mineable cryptocurrencies like Bitcoin, Litecoin, and Bitcoin Cash create new coins through an ongoing process where anyone can participate by contributing computing power to the network."
All terms and definitions may update as the Cryptionary improves.