The cryptocurrency market has been able to raise a total of $1,252,676,352 through ICOs for the period ending in July 2017. This was raised within a 7-month period. The cryptocurrency market has become a billion-dollar industry having a market capitalization of more than $100 billion. Of course, as it is to be expected, this has attracted the interest of many people; those who want to make quick money and also professionals who have raised questions about transparency in this market.
What is an ICO?
An ICO can be compared to an initial public offering (IPO), except that in this case, you will be buying coins and not shares in a company. However, the bottom line of these two issues is the same; their main aim is to use crowdfunding to get capital for running a company. As a reward for the investments that the investors make, investors are given assets that are connected to the value of the company.
In an IPO, you are given shares of the company, while in an ICO you are given digital coins of the company. The only thing you get is the digital coins issued by the company. You don’t get any equity or rights to vote in the company. In some scenarios, the value of the coin will be determined by the worth of the company, for example, in case it is used within the networks of the issuing company, such as KIN and Unikoin Gold.
The basic concept of both ICOs and IPOs is the same. They are intended to raise money that will be used to run a new company, to allocate worth to the capital asset and to give investors a capital asset that will hopefully increase in value over time as the business becomes more successful.
In summary, an ICO can be defined as an unregulated way of crowdfunding where a new digital coin is issued at an initial cost. This provides a different way of crowdfunding over traditional ways of raising capital for a new company.
What is a Token?
Investors who take part in ICOs are usually given tokens. That’s why you should know what tokens are. The term token stands for cryptocurrency tokens. This means that a token is also a cryptocurrency and a cryptocurrency is a coin. Therefore, this means that all cryptocurrencies are tokens. For instance, Bitcoin tokens are cryptocurrency that has been built on the Bitcoin platform, and Ethereum tokens are cryptocurrency that has been built on the Ethereum platform. The fascinating thing is that unique tokens can use the Ethereum platform to create their token network from it. That is what about half of the ICOs that have happened between 2017 and 2018 have done.
If you decide to participate in an ICO that has been built off the Ethereum platform, you will be trading using ‘ether tokens’-Its symbol is ETH-for the ICOs specific custom branded Ethereum based cryptocurrency tokens. You can compare this with trading Bitcoin for Bitcoin Cash-which is an exclusive token that has been built on the bitcoin platform or trading Ethereum for Ethereum Classic. Even though the new cryptocurrency has been built on the Ethereum platform, they are unique currencies that have their unique market value.
- Democratization — This process is open to anyone who wants to do an ICO. You do not have to go through a bureaucratic process the same way you would if you were to raise money through venture funding and ask banks or venture capitalists to invest in your company. For this reason, ICOs are high-risk investments. However, it makes it possible for anyone to raise a huge amount of capital, the same way the big companies would be able to do through venture capital.
- Huge Potential Profit — A lot of people are interested in investing in the next big wave when it comes to cryptocurrency, with the hope of earning big returns by buying the coins for pennies and then later on selling them for dollar amounts. A lot of ICOs have not much proof of what they are going to do apart from what has been stated in the whitepaper that they produce. Due to the high-risk that investors take, there is potential for high return rates in case the venture ends up being successful.
General Advice on ICOs
ICOs are generally risky ventures. Due to this, if you want to be cautious, the best thing would be for you to wait until the ICO has been listed in an exchange or two before you decide to buy it. In most cases, the price of the coins will dip before they go up. However, there are those few cases where you might lose out a big deal if you miss the ICO as the price may go up after it has been listed. But these cases are rare. In most cases, the price of the coin will stagnate for a while for many months before any significant changes to the price happen. If you are an expert, you might consider buying the coin through Ether Delta, but if you are on the intermediate level, you can wait until the coin gets listed in an exchange. Doing this can make you a great offer in regard to the price of the ICO, but it can also prevent you from getting the headache of tying up your funds. Before you invest in an ICO, you need to take various factors into consideration.
What to Do When Investing?
- Research on Future ICOs
Check out different sources that normally have information about the latest ICOs. This gives you time to familiarize yourself with any upcoming ICOs so that you can carry out due diligence before you invest in them, particularly when it comes to ICOs that have a whitelist. In a whitelist ICO, you should register early for you to be allowed to participate in the initial coin offering. This is often done in cases where there are only limited coins to be offered.
Here is a list of sources where you can get information about ICOs that are coming up.
List of websites that list upcoming ICOs
- Top ICO List
- Smith & Crowns
- ICO Alert
- ICO Rating
- ICO Tracker
- ICO List
Forums where ICOs are usually discussed
- Bitcoin Talk
Perform Due Diligence
You must investigate to find out whether this is a good investment to make or not. There are a couple of things that you must consider if you want to evaluate an ICO effectively. Some of the major factors that can help you know whether you are investing in a good coin or not have been outlined in our free Fundamental Analysis Checklist.
You also have the option of looking at appraisals and studies that other people have done to validate the potential that the ICO has. From our analysis, some of the best ICO resources are:
- Crush Crypto: This is a website whose main goal is to analyze ICOs by analyzing its fundamentals.
- Reddit: There are certain sections that are dedicated to ICO discussions by various community members, for instance /r/Cryptocurrency, /r/icocrypto, /r/ethtrader.
- Know the Team and Idea
A lot of people are carried away by the hype that comes with investing in a company and forget to check even some of the fundamental details of the company. Do not be one of these people. Before you invest in any venture, ensure that you know what it is about and who the team behind the company is. When you invest blindly, it will be as if you are throwing your money out into the unknown.
How can you know more about the team?
Check out the website of the ICO. In most cases, there are basic details about the investment and the team behind the company listed on the front page of the website. On this page, the information posted here is usually in simple and easy to understand language. The information usually includes details about who exactly is on the team and a little more information about them. If the team looks good, then you can move on to reading the whitepaper.
Read the Whitepaper
Everything you need to know will be in the whitepaper. This includes all the technical information in regard to the company, the concept behind it and the cryptocurrency that you are purchasing. The paper will also include details on why the money is being raised and how it is going to be used.
I cannot emphasize enough how important it is for you to read this whitepaper. I have come across a whitepaper that explained that the tokens you purchase would be completely useless and not good for anything. Why would anyone want to buy such a token? People who invest as a result of hype and not knowledge can find themselves in such a situation.
How to Participate in an ICO
- Open an Exchange Account
Once you have done your due diligence and you have determined that you would like to take part in an ICO, open an exchange account in a cryptocurrency platform that accepts fiat currency. This will allow you to convert the fiat currency into Bitcoin or Ethereum.
- Set Up Your Wallet
This will allow you to participate in the ICO. Your exchange account –for instance, Poloniex/Bittrex/Kraken- is not considered to be your wallet since you do not own its private keys. You have to send bitcoins or ether from your private wallet since if you send it from the exchange site, you will not get your tokens.
- Follow the ICO Instructions
Most companies will provide step by step instructions on what to do if you want to get involved in their ICO. Make sure that you adhere to the guidelines given. Also, it is advisable that you join the company’s official communication channels, either on Slack or Telegram. You can even get to ask the developing team any questions that you might have.
Exchanges Where You Can Trade ICO Coins
If you have faith in the tech, then you can hold onto the coins for some time, until the price has gone up significantly and then you can sell it. If you prefer to flip, then buy the coins at the ICO and then sell them the moment they start trading in an exchange. If you didn’t participate in the ICO, then purchase the coins once they get listed in an exchange.
Here are the top exchanges that list ICO coins:
- Ether Delta: This site is usually among the first to list ICOs. It can be a bit complex for beginners to start trading here, so it is best not to use it if you are trading for the first time.
- Liqui.io: There are almost 200 coins that have been listed here.
- Bittrex: Every big blockchain company desires to be listed here, as it has the biggest exchange volume. Fiat currency is not accepted here.
- Poloniex: It is the second biggest when it comes to the exchange volume; fiat currency is not accepted here. Only a few coins are listed here since there are tough guidelines to be met if you want to be listed.
- Binance: New coins are listed based on demand. It’s China-based and the 10th largest regarding trading volume.
Avoiding ICO Scams
There are a lot of ICOs that get stopped as a result of scams that take place. For instance, the InsureX’s ICO had to be stopped as a result of a con job where their users’ money was being taken.
There are so many different types of scams. These include phishing scams, where a con artist makes a replica of the company’s site and deceives investors that the replica is the original site. Always cross check the site’s URL with their social media accounts, such as Facebook page, Telegram, Slack or Reddit.
Another way to get scammed is when you end up sending Ethereum to the wrong address. Only send crypto to addresses that you have cross-checked from the official website and not random addresses that you have found on the internet.
You can make lots of profit; whether you invest in Ether, Litecoin, Bitcoin or any other cryptocurrency, therefore, there’s no need to invest in every ICO that you come across. Just pick a few ICOs, follow them do your due diligence and invest in them. By following the guidelines outlined here, you will greatly minimize your chances of getting into a bad investment.