One of the factors that you want to consider before you invest in a new coin has to do with mining. You want to avoid coins that developers mine in secret or pre-mine before launching an initial coin offering.
Transparency is one of the reasons why bitcoin is so popular. With bitcoin, you can visit a website such as https://blockchain.info/ and get all the information about the network and its blockchain, including the height of the current block (the height is the distance of a block from the Genesis block), the time it took the network to create the block, the number of transactions that the block includes, its size and weight. On https://blockchain.info/ you can enter a number for any block that is less in height than the latest block and see all the transactions, the hash, and other information.
The first block of the bitcoin blockchain was called the Genesis Block. It appeared on the network in 2009. Modern versions of bitcoin software consider it to be block #0. Early versions of the software counted it as block #1. The genesis block of a new blockchain network is almost always a result of hand coding because the first block can’t reference a previous block.
With pre-mining, developers keep the blockchain and the blocks in secret for at least some period of time. When you see a blockchain, yet can’t access all the information about the network and its blocks the way you can do so with the bitcoin network, it is possible that you are dealing with a scam or pump and dump scheme. For this reason, you want to stay away from coins that developers pre-mined.
At first, you may have a hard time identifying such coins. Watch the trends for a few days and things will become clearer because typically pre-mined coins and pump and dump schemes go together. Developers start with adding such a coin to an exchange and creating a lot of excitement and hype. Because of this, the price of the coin starts going up. When it reaches a certain threshold, developers start dumping the coins that they have pre-mined and the price drops down, leaving early investors with a worthless coin.
A price of a coin may be going up and down for legitimate reasons, which is why you want to take a look at the white paper, learn more about technologies behind the coin and compare its wallet to the bitcoin core wallet. A good sign is when a wallet of a new coin is very different from bitcoin core.
Diligent research usually takes some time, which is why it may be not a good idea to invest in a coin quickly and do so at the very beginning of an initial coin offering. While there are great advantages to getting in early with one of the biggest ones being able to get the coin at a very low price, there are a lot of scammers in the market and in the long run you will be better off if you do your research and approach each investment very carefully than if you invest quickly hoping to find the next big thing. Spend a bit of time to see what happens to the coin and its behavior before you invest your money into it.
Instamine, or instant mining, is a trap similar to pre-mining. Instamine is a flaw in the code of a coin that developers willingly or unwillingly have in their product. This is yet another reason why the reputation of developers is so important in the cryptocurrency world.
Instamine allows the mining of a large number of coins to happen very quickly, in a matter of hours or days, which means that developers can essentially hack the project. It is important to notice that if the code has a flaw, anyone can take advantage of it, not just the developers. However, no matter who gains the advantage of the instamine, the result is the same: unethical developers will profit and innocent investors will lose their money.
You can see instamines on the chart of the coin supply. The progression during the first hours or days of the coin existence is very slow and almost non-growing, yet then at some point, the distribution starts to skyrocket almost vertically. This means that the supply of the coin is growing very quickly.