Recently, podcast host and Bitcoin supporter Matt Odell entered a heated exchange with Ethereum creator Vitalik Buterin on the topic of premined cryptocurrencies.

Vitalik’s original comment came in a thread where he’s influence was being discussed. He said:

Matt’s response was:

To summarize: Vitalik is seemingly happy to have popularized the premined initial coin offering (ICO) model that took over the cryptocurrency space in 2017. He also expressed concern over Proof-Of-Work (PoW) mining and its energy consumption, which aligns with Ethereum’s shift to Proof-Of-Stake (PoS) mining.

The Problem With Premines

Matt’s argument is that premined cryptocurrencies are inferior compared to Bitcoin. When Bitcoin was launched, there was no premine. Satoshi Nakamoto – its pseudonymous creator – announced when mining would begin, and published the software beforehand. That way, no one could have had an unfair advantage by starting their mining early.

This is what’s called a “fair launch” – when 100% of the cryptocurrency has to be mined by the people.  Premines, on the other hand, do the opposite. By design, premined cryptocurrencies create a share of the supply at launch, in the first block. The premine is often distributed to developers, team members, and ICO investors.

When Ethereum launched, 12 million ETH were created for the developers, and 60 millionETH were premined for ICO participants to buy. Consider there are 102 million ETH in circulation today, that means 71% of the existing supply was premined during Ethereum’s launch.

Before Ethereum, any coin that had a premine was instantly rejected by the cryptocurrency community. Ethereum was the first mainstream premined coin, and after that, premines became widespread.

The criticism of premines is that they centralize control of the cryptocurrency’s supply.  For example, take XRP. When it was launched, 100 billion tokens were created. 20 billion were given to the founders, and 80 billion were given to the Ripple Corporation, in order to fund development.

By holding all of those coins, the founders could easily manipulate the price, or influence governance decisions thanks to their large share of the coin. For these reasons, many in the cryptocurrency community believe premines are scams.