Premining has a negative connotation in the cryptospace due to the ability of developers to privately mine and allocate a number coins to themselves before releasing the open source code of the currency to the public. This usually leads to a feeling of lack of transparency for the digital currencies offered to the public and to an unfair distribution of them.
Are ICO sold coins premined? Are all premined coins a SCAM?
Yes, coins that have an initial coin offering (ICO) are also premined. This is a requirement becauses this way the coins are availble for pre-sale to the investors and supporters.
In very rare cases, a premine can really target to the further development of the project with the raised funds from the premined coins and ICO sales. However the buyers and investors should be always very careful with every project which has premined coins because it is very hard to distinguish the very few which constitute the exception of the rule.
How premine benefits the fraudulent founders of a Project exactly?
In the usual scenario where premining is used for unfair practices, the developers of these crypto scams will usually either mine a huge number of the coins before launching it to the public (instamining) or they will have a big percentage % of the total supply of the cryptocurrency allocated to their addresses before the official launch. After this, by hyping and advertising the coin as the new ‘super’ coin, crypto users are likely to create a high demand for the currency which inflates its price. Once the price has been hiked, the original developers sell off, “dumping” their coins in the market. Of course this way the coin’s price plummets, causing financial loss to the users or those who speculated on the increase of the coin’s value.