Premining is a process in which a portion of cryptocurrency tokens is created or mined before the official launch of the project. These tokens are usually given to the project's developers, early investors, or other important stakeholders involved in the creation and development of the cryptocurrency.
How Does Premining Work?
In most Proof of Work (PoW) blockchain networks, like Bitcoin, new units of cryptocurrency are generated through mining. Mining involves solving complex mathematical problems to validate transactions and secure the network. Premining, however, skips this mining process by creating a certain number of tokens before the project is publicly launched.
Steps Involved in Premining
Development phase: During this phase, developers decide on the total supply of tokens and how many will be premined. This planning is crucial to ensure that there is a clear understanding of the distribution and use of these tokens.
Token creation: Before the project goes live, the agreed-upon number of tokens is created. This means that a certain portion of the total token supply exists before any public participation.
Distribution: The premined tokens are usually distributed to developers, early investors, and advisors. Some tokens may also be reserved for future uses, such as marketing campaigns or forming partnerships.
Launch: After premining and distribution, the blockchain project is launched to the public. By this time, the premined tokens are already in the hands of the designated parties.
Learn more: Premining.