Instamine
Instamine is a term in the cryptocurrency world that refers to a situation where a substantial amount of coins are mined during the initial phase of the coin's existence, shortly after it's launched. This usually occurs in the first few hours or days of a cryptocurrency's life. While this may initially seem beneficial for those early miners, it often leads to issues including imbalanced distribution, initially high coin value, and subsequently a significant drop in value.
How Instamine Occurs
Instamine usually takes place when the mining difficulty of a cryptocurrency is set to a low level at the onset. To understand this, it's important to know that the mining difficulty is a measure of how hard it is to find the next block in the blockchain. When this difficulty is low, it means that a block is easier to find, thus more coins can be mined more quickly. Typically, a cryptocurrency's developers set the initial mining difficulty. If set low, a large number of coins can be mined rapidly in the initial phase, leading to instamine.
Drawbacks of Instamine
Instamine can lead to several challenges, including:
- Imbalanced distribution of coins: With a substantial amount of coins mined in the early phase, there is a high risk that a small number of people hold a large proportion of the total coins. This imbalance could lead to unequal wealth distribution and potentially allow manipulation of the coin's value.
- Inflation and subsequent deflation of coin value: High initial supply can inflate the coin's value. However, when more people start mining and the coin becomes more accessible, the value may drop significantly due to the increased supply.
- Loss of trust: If the public perceives that the instamine process is unfair or that it benefits only a few, it could lead to a loss of trust and a tarnished reputation for the cryptocurrency in question.
Instamine vs Premine
Instamine should not be confused with "premine," another term in the cryptocurrency world. Premine refers to when a cryptocurrency's developers mine a certain portion of the total coins before the public coin launch. While instamine and premine can both lead to inequality in coin distribution, they are different concepts.
Overall, understanding the concept of instamine is crucial for anyone venturing into the world of cryptocurrency, as it has consequences on the coin's value and distribution. Be sure to research whether a coin was subject to instamine before investing or mining.