Pre-mining is when the founder of a cryptocurrency “mines it themselves” and keeps a portion of the newly created cryptocurrency for themselves before it is released to the public.
Founders (usually developers) claim that pre-mining gives them the financial independence they need to focus on the actual work of building and scaling decentralized systems. However, if a small number of people hold large reserves to begin with, then new users will actually be affected by the financial strength of the founders. These large shareholders can immediately sell their holdings, causing large price swings.
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