Pre-mining refers to creating a cryptocurrency or digital currency before it is launched and made available to the general public during an ICO(Initial Coin Offering) event. The pre-mined coins are often issued to early investors, developers, and individuals who helped developed the project in its early stages. Hence, they possess a large number of coins before its official launch.
Unlike Bitcoins that are mined every 10 minutes by validating transactions and adding blocks to the network according to its protocol, some crypto assets are pre-mined. For example, Ripple (XRP) is a pre-mined coin. The company holds a majority of the crypto asset and controls its supply.
Pre-mining cryptocurrencies may seem like a fair method of rewarding early participants of a cryptocurrency project (similar to how traditional companies offer stocks to early employees), crypto start-ups are often wary of pre-mining a large number of tokens as this is considered a red flag by the crypto community and may cause distrust among cryptocurrency investors due to the ICO bubble of 2017/2018.
Pre-mined coins are also issued by a centralized authority which some in the crypto community believe defeats the purpose for which Bitcoin was created.
Is Ethereum pre-mined?
Ethereum – the second-largest cryptocurrency by market capitalization – was heavily pre-mined and issued to developers, early investors, and employees in 2014 prior to its ICO launch.