Are you ready for a great counterexample to your "knowledgeable" friend's claim?
Look at Ethereum on CoinMarketcap.com.
Next, find Counterparty.io on CMC. You'll have to scroll to page 2.
What you'll notice is Ethereum is worth over $100,000,000,000 today while Counterparty is worth about $100,000,000. It's a difference of 1000X.
Importantly, Counterparty wasn't premined whatsoever (wow!!11). Conversely, 70%+ of all ETH which will ever exist was explicitly premined by the Ethereum Foundation and investors in the Ethereum ICO. At this point, in retrospect it would've been WAY better for the founders of Counterparty to premine the coin and ICO it to smithereens. At least then they'd have millions in capital to hire people with, while the founders would be heavily vested in the coin.
But this didn't happen, and since then we've learned real world investors don't care at all about fairness in coin distribution. It isn't like any coin, to include Bitcoin, is "fairly distributed" by any reasonable definition of fair. Something like 90% of all BTC is controlled by less than 10% of all Bitcoin holders, meanwhile billions of people don't own any BTC whatsoever.
Of the top 10 coins on CMC, 70% are premined: Ethereum, Ripple, Cardano, NEM, Neo, Stellar and IOTA. Of the top 20 coins, 75% are premined.
IMO the only conclusion we can draw from this is cryptocurrencies are de facto bearer share companies, and investors in these companies actively seek out coins where the founders of the company scoop up a good amount of the pseudo-equity for themselves. It vests the founders in the project, and gives them a source of funding, if indirectly.
While I for one really do wish your "knowledgeable" friend was correct, alas.
Pre-mining is unpopular because when the first Bitcoin forks appeared, it became the modus operandi of scammers abusing the markets and the honest miners burning resources to operate the network.
I think it is a complete different story when a project has a pre-mine that is held by a formed legal structure with a fiduciary duty to spend the resources on the project's development. Obviously in pure proof-of-stake systems, a "pre-mine" is de facto the only path you can take.
Fairly distribute tokens is a problem that lacks a completely satisfying solution. It should be noted that "fairly" doesn't mean "evenly".
A fair distribution is one that lets the demand shape the final supply of tokens. In other words, you let people take the position and degree of investment they want to take without manipulating the supply to force pressure the demand.
Writing this comment gave me pauses, I hope that I conveyed my points clearly. Let me know if you need me to clarify anything.
> Obviously in pure proof-of-stake systems, a "pre-mine" is de facto the only path you can take.
It's very possible for project founders to forego a premine, even in pure proof-of-stake systems. All they need to do is determistically distribute coins in proportion to the funds raised in an ICO. Ofc, this would mean the project founders themselves have to fund their own ICO with their own money, and so in practice this is exceedingly rare.
Premining has a very simple technical definition: premining is the act of hard-coding the distribution of coins into a distributed ledger prior to the ledger's public debut.
Unfortunately there are plenty of prolific high-ranking members of the cryptocurrency community who accuse coins which are explicitly NOT premined by any technical definition, of being premined. Many of those coins can only be accurately described as "ninjamined" or "cripplemined" or "instamined".
Admittedly, some do consider ninja/cripple/insta-mining as being on the same spectrum of a premine, in that the end result is essentially identical. But this is a bit of a slippery slope, in that it opens up all coins to "premining" accusations, and then the simple technical definition above loses all meaning.
For example, many have speculated Satoshi Nakamoto must've been running a network of 20-50 Bitcoin mining servers prior to the launch of Bitcoin, given the blockchain evidence we have of Satoshi's hashrate maintaining consistency from Block 0 onwards. Is this a ninjamine? If a ninjamine = a premine, then Bitcoin is arguably premined by this definition. So you can see it's not very meaningful to diverge from purely technical definitions.
Ethereum epitomizes the technical definition of premining: their ICO raised BTC on Bitcoin's blockchain, and the founders of Ethereum initially hard-coded all ETH owed to their Bitcoin-based ICO backers into their blockchain prior to its public debut. The Ethereum Foundation premined still more coins on top of this.
But this doesn't necessarily mean all ICOs are premined, although I don't personally know of any ICO which doesn't exhibit some amount of premining; at minimum the project founders usually scoop coins in a premine on top of an ICO, Ethereum-style.
> So then is AAPL stock a shitcoin because it was 100% pre-mined (the founders started with 100% of the equity)? That logic make no sense.
Of course not. Judging by the fact 75% of the top 20 coins on CMC are premined, the only people who have an issue with founders premining the coin are delusional.
Even if you did want to launch a coin with no premine in today's market, due to the insane amount of interest in cryptocurrency, it's virtually impossible for founders to mine their own coin en masse (per Satoshi). In the absence of an explicit premine, industrial scale miners effectively "premine" the coin in lieu of the founders premining the coin.
And typically, coins that claim they aren't premined have a checkered history of ninjamining or cripplemining or instamining etc; while the founders tout "no premine" to noobs, in reality they just played games to get around the (pointless) stigma of it.
Verge is one of the biggest path-finding shitcoins around. One of their selling points is "no pre-mine", but in terms of community, technology, dev team, and so on, it has little to no value in the context of other projects. Eerily, new coins are emulating Verge's model, most notable of which, at the moment, is Tron.
A great heuristic that will cut a lot of the chaff is: how organic/productive is their community, and is the technology there/actually possible? A more formal method is SpacesuitX which is a method of breaking projects down into categories and rating them based on personal research. http://SpacesuitX.org
> If you confuse cryptocoins with stocks and shares in Companies with real world assets and obligations like Apple you're in for a dear surprise.
> Cryptocoins are reproducible software databases. Production and minting of the supply is trivial.
Educate me then; because when it comes to tech stocks, and especially pure software based tech stocks like TWTR which pay no dividend that I'm aware of, I'm unsure what investors really think they're getting which is meaningfully different from cryptocurrency.
When you invest in Bitcoin, you're investing in Greg Maxwell and the usual suspects of Bitcoin-land. When you invest in Ethereum, you're investing in Vitalik Buterin and the usual suspects of Ethereum-land. Maybe it's a bit more dynamic than this given the lack of official titles and the ability for new actors to come and muscle out old actors, but ultimately there's always a mutually shared profit motive and organizational structure behind any given cryptocurrency.
The coins you buy are effectively bearer shares on steroids, because they're exactly like traditional bearer shares in spirit and in form.
IMO it isn't very useful to pidgeonhole cryptocurrency as a mere software database, when investors are in practice investing in the teams backing the software (see: above). The leadership/management team behind the coin develops the coin's ecosystem, and spearheads user adoption. It's basically like a startup.
To this end, one standout example is the cryptocurrency Decred, which features a passive income stream component for investors along with a shareholder voting component. Decred's coins can be thought of as publicly traded shares in a company like Stripe, only in bearer form and built on the blockchain.
The more applications built on top of Decred, the higher the transaction volume on Decred, the more valuable Decred becomes. Is this really so different from how tech stocks work?
> and especially pure software based tech stocks like TWTR which pay no dividend that I'm aware of, I'm unsure what investors really think they're getting which is meaningfully different from cryptocurrency.
They're getting a claim to part of the companies assets, which will be liquidated and distributed if it goes bankrupt (after paying the debtors). They can overpay for that right, of course, but they're not getting 0 out of the deal.
Investing means you would make money from the activity of an underlying enterprise, but with cryptocoin software you're simply buying a number in a database that someone else already created. With each new block the supply inflates more. Sometimes the supply is premined. Often blockchain "startups" tokenize their service, which would be like if Gmail started asking for payments in gift cards but worse because the service or product doesn't even exist yet.
Most of these database tokens were created for little to no effort (see the 10,000BTC pizza).
Risks like Bitfinex/Tether [1] collapsing, or the unregulated exchanges manipulating prices along with those large stake holders cashing out could easily evaporate the price far below what the last few weeks have seen.
Market confidence could be lost and it would be incredibly hard to regain because database coins have no inherent value beyond the hope that you'll find another buyer.
Unless you're trying to claim that AAPL is supposed to be decentralized I don't think they're comparable at all.
By all means make a "Ripple Company" and own 100% of its stock, but if you grab a massive supply of the tokens for yourself you can't claim to have an interest in decentralization.
