Instamine

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21 Aug, 2024

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Instamine in blockchain refers to a situation where mining leads to excess coins released in the crypto market. The sole purpose of this mining is to either attract potential investors or exploit the algorithm to gain extensive block rewards. It can occur either deliberately or unintendedly.

The situation usually occurs during the initial period from the launch of the crypto project. These coins get created in bulk quantities. As a result, a large number of coins entered the market. However, such events can cause massive distortions in the supply of the coins.

What Is An Instamine?

Instamine is a term used in the cryptocurrency space to describe a situation where an excessive number of coins are rapidly mined and introduced to the market, potentially leading to a future decrease in demand.
It typically occurs immediately after a cryptocurrency project's launch, providing a limited window of opportunity for miners and investors to exploit the situation for profit.
The occurrence of an instamine can be accidental, resulting from technical glitches, or intentional, where developers release a significant number of coins to attract customers.
However, it is important to note that the excess supply of coins in the market due to an instamine often exerts downward pressure on token prices.

Instamine Explained

Instamine is an occurrence within the world of cryptocurrencies, characterized by the sudden release of a substantial number of coins into the market. This event can be triggered by a minor glitch, or a deliberate action taken by developers or miners. It results in the accelerated production of numerous coins within a short timeframe, particularly during the early stages of a cryptocurrency project. Consequently, an oversupply of coins floods the market, leading to heightened price volatility. It can lead to an inequitable distribution of tokens among investors, often for concealed gains. The consequences of instamine largely depend on the motivations driving this phenomenon.

At times, developers intentionally orchestrate an instamine period, such as by releasing a substantial number of coins immediately after a project's launch to generate a lucrative effect. During these periods, investor interest tends to be high, increasing the likelihood of investment. On the other hand, instamines can also occur due to unintended glitches within the consensus mechanism. For instance, if an algorithm error emerges during development and goes undetected in the testnet phase, it can inadvertently create an opportunity for exploitation by malicious actors.

Furthermore, a lack of exposure for a project can serve as another incentive for instamining. It may result in a limited pool of miners who exploit the mining protocol to obtain multiple coins in one go. Since instamines often coincide with a project's launch, a surge of tokens enters the market, potentially disrupting existing demand. Additionally, such occurrences may negatively impact the future prices of the cryptocurrency and even pave the way for double spending attacks.

Examples

Let us look at some examples of instamine to comprehend the concept better.

Example #1

Suppose ABC Ltd is a project that wishes to raise $15 million for its blockchain solution. Sam, John, and Kevin share the ownership as founders. The project has many exciting features that can boost the investment appeal. As a result, they decided to release 20% of the tokens after the launch. However, this was just an idea which still needed to be executed. In the later stages, they released an agreed amount to the investors. But, after three weeks, due to a technical glitch, more than 30% of the ABC tokens flooded the market. It greatly impacted the token's price after a month.

At this point, the project team seemed confused with the excess supply. However, after extensive research, the error was detected, and the team decided to burn a lot of tokens to maintain a neutral balance. As a result, the prices normalized from $0.34 to $0.1. Yet, it was a beneficial point for the investors. They bought at $0.06 in the early stage and sold at a premium ($0.35).

Example #2

Charlie Lee, the creator of Litecoin, offered insights into Dash's mainnet launch, which initially faced challenges involving the rapid mining of a significant portion of its total coin supply within 24 hours, often described as an instamine. In response to some initial backlash, Lee deleted his tweet and took to Reddit to clarify that Litecoin's instamine had occurred due to unexpectedly high mining activity on the launch day, accounting for less than 1% of the total supply.

It is worth noting that such situations aren't exclusive to Litecoin; Lee highlighted that many cryptocurrencies, including Bitcoin, encountered similar considerations in their designs. The instances of instamines in both Dash and Litecoin underscore the importance of appropriately adjusting difficulty rates during launches. Notably, Dash's launch resulted in the issuance of 1.9 million DASH coins in the first 24 hours, constituting 10 to 15% of the total supply.

Evan Duffield, Dash's creator, later acknowledged the instamine issue and suggested potential improvements for future launches, emphasizing the value of thorough pre-launch testing and alternative initial distribution strategies.

Benefits

Instamining events can offer certain advantages to investors. Let us explore them:

The attraction for potential investors: Instamining can pique the interest of potential investors. When coins are released early, investors may acquire a significant quantity at a discounted rate. Subsequently, they can sell these tokens at a premium after the official launch, potentially resulting in substantial profits.
Accelerated mining: In the case of an unintentional network glitch, users may experience faster mining and access to multiple rewards during this period. This situation creates an opportunity for miners to validate transactions at an increased speed, resulting in the acquisition of more tokens. For example, if a miner can typically mine 0.004 tokens in three seconds, the instamining period may enable them to mine 0.08 tokens at the same rate, consequently increasing potential profits.

It is important to note that while there are potential advantages to instamining, it often raises ethical concerns and can lead to questions about the fairness of coin distribution. Additionally, many in the cryptocurrency community view instamines with caution due to their potential for unintended consequences and reputational risks.

Criticisms

In contrast to the benefits above, there are specific drawbacks to the concept of instamine. Let us delve into these limitations:

Excessive supply: A primary critique of instamine blocks lies in the mass release of coins, which can disrupt the delicate balance of supply and demand in the cryptocurrency market. This oversupply can reach levels that far exceed the actual demand. For instance, during the Dash cryptocurrency launch period, as much as 15% of the total Dash supply was introduced to the market.
Disrupted token volatility: Alongside the surplus coin supply, the volatility of the token tends to surge. This increased volatility makes the governance token more susceptible to abrupt price fluctuations. Consequently, it has a ripple effect on demand, contributing to significant price fluctuations.
Price depreciation: Due to the instamine effect causing a decline in demand, it can lead to a decrease in token prices. It's worth noting that this not only impacts the token subjected to the instamine but can also affect other cryptocurrencies in the market. For instance, if the token is built on the Ethereum blockchain, such a drop may also have a cascading effect on the value of Ether.

These limitations underscore the challenges and criticisms associated with instamines, which can have varying degrees of impact depending on the specific circumstances of each instamine event.

Instamine vs Premine

Although instamine and premine include the same process, they have a minor distinction in the time involved. So, let us look at their differences:

Basis	Instamine	Premine
Meaning	It refers to an event where there are excess coins supplied in one go.	Premine is a situation where huge coins are mined before the launch date.
Occurrence	This event usually occurs right after the project launch.	It happens before the token is released on the market.
Intention	It can be deliberately done or may happen accidentally.	The developers already decide in advance if they wish to provide pre-mined tokens to exchanges.
Examples	In 2014, the Dash cryptocurrency went into an instamining period due to bugs in the mining activity.	An example of such an event includes Ethereum tokens in 2014.

Frequently Asked Questions (FAQs)

1. Is Low Mining Difficulty a Form of Instamining?

Low mining difficulty and instamine are distinct concepts and should not be used interchangeably. Low mining difficulty typically arises from a need for more interest in a cryptocurrency project. An example is BitcoinZ, which struggled to gain exposure but attracted miners due to the ease of obtaining rewards. In contrast, instamine, in some instances, may contribute to a lower mining difficulty.

2. Was Classic Bitcoin Instamined?

While claims have been made regarding the instamining of Bitcoins by its creator, Satoshi Nakamoto, there is no substantial evidence to substantiate these claims.

3. How to Prevent Instamine?

Below are strategies to mitigate instamine risks in the cryptocurrency space for both developers and investors:
- Conduct comprehensive testing during the testnet phase to detect and rectify bugs.
- Carefully control the initial supply to maintain market volatility.
- Develop a robust consensus mechanism to ensure fair and secure coin distribution.
- Implement regular coin burning to reduce excess supply and maintain a healthy token ecosystem.