The controversy surrounding premining does not seem to end soon, and it surely does not help matters that Vitalik Buterin, the creator of Ethereum, is one of the key figures to endorse the process.
Matt Odell, popular podcast host, and Bitcoin supporter has recently entered a heated dispute with Buterin on the subject of premined cryptocurrencies.
It started with the Ethereum’s creator involvement in a thread on twitter where his influence in Premining was being discussed. Vitalik’s comment read:
I personally am really proud to have helped set the precedent of small premines being legitimate. It’s an appalling idea that people operating boxes burning huge piles of electricity are somehow the only ones who should be allowed to gain from crypto seignorage revenue.
Matt returned with a sharply barbed response. He wrote about Vitalik’s comment:
- Admits to legitimizing the premine/ICO model.2. Still doesn’t understand(or feigned ignorance) mining economics or the unique value of distributed permissionless PoW.
It is safe to assume Vitalik does not seem a tad bit bothered with his name being associated with premining, which is not surprising given premining has its own tons of benefits. For one, his favoured Proof-of-Stake mining is much better economically and environmentally, compared to the Proof-of-Work.
What is Wrong with Premines?
The main problem with premining is its tendency towards fraud and unfair distribution. By mining a cryptocurrency early before it is launched, it allows a certain intended number of people to possess an amount of the cryptocurrency before the source code is released. Take, for example, the Ripple (XRP) which is currently the third largest coin. Before its launch, 100 billion tokens were created. 20 percent of the tokens were given to the founders, while the remaining 80 billion were given to the Ripple Corporation, to fund development. This way, founders could easily manipulate the price and influence major decisions because of their exorbitant shares. Ethereum too is no exception.
With about 102 million ETH in circulation today, and 72 million already mined before its launch, the Ethereum set the pace to become the first widely accepted premined cryptocurrency.
The choice of premining cryptocurrencies, however, is not always for fraudulent purposes, as investors and early supporters deserve to be encouraged while developers can also be argued to need a reward for their hard work. Hence, it highly unlikely that it is outlawed. Not that there is a law anyway!