Pre-Mining is a coin mining process carried out by the creator of a crypto asset before the coin is released to the public. Mining was done long before the general public knew the advantages of this coin so they were not interested and also did not have the opportunity to mine the coin. Usually this technique is used for Scamcoins, although not all coins that are mined using the Pre-Mining technique actually lead to a fraud room.
Pre-Mining is usually a developer backup. They create cryptocurrencies for specific blockchain protocols, then send them to the addresses or wallets of the team of founders, developers, and cryptocurrency investors. After a certain period of time, the cryptocurrency is released to the public or other mines with the ICO or launch date.
Cryptocurrency pre-mining is seen as a way to reward those involved in launching new cryptocurrency projects. Distributing pre-mining tokens can be considered similar to a company giving stock to its employees prior to an IPO.
Developers devote a lot of their time and effort to creating cryptocurrencies, so it makes sense to order some before public release. This practice also serves as a financial incentive for the team behind a project. If they receive an award, they will be more motivated to develop the technology further and make it work in the long term.
Pre-Mining can also be seen as a marketing activity. When investors and proponents of a new cryptocurrency project receive a mined token and talk about it, it creates excitement, potentially driving up the price of the coin before launch.
Disadvantages of Pre-Mining:
Over the years, Pre-Mining has earned a negative reputation in the cryptocurrency community. This is because it is seen as an easy channel to set up a pump-and-dump scheme, in which an initially cheap cryptocurrency is hypnotized by scammers to increase its price. Then, when the price is high, the scammers pull the rug and sell their holdings for a huge profit.
The fact that a select group of people have exclusive access to a limited number of coins also highlights the injustice within the cryptocurrency community and the lack of transparency.