It’s the greatest wealth creating machine in 2017.
An Initial Coin Offering, or ICO for short, is similar to an Initial Public Offering (IPO). But instead of getting shares of stock in a company, when users invest their funds into ICO’s they are rewarded with tokens.
Tons of great ICO’s are popping up all over the place at an alarming rate. Celebrities and high profile businessmen like Floyd Mayweather, Jamie Foxx, and Mark Cuban are getting behind the hype. ICO’s are heavily marketed to the mass public as an excellent way to invest cash that has been gathering dust without use.
However, are ICO’s really as juicy as they are put out to be? Well, yes and no. There have been a ton of situations during which ICO’s have gathered huge sums of money, and then the team behind the project falls completely flat, burning through gathered funds, or simply go into hiding whilst stealing a nice chunk of investments.
But, aren’t there laws put in place to protect investors? The short answer is not yet. ICO’s aren’t fully regulated by any established financial authorities. These are ecosystems that don’t have to adhere to a lot of requirements at the moment.
Just take the Mycelium ICO for example. Mycelium launched a fundraiser campaign claiming that they needed money to support updates. They also offered investors the opportunity to become stakeholders. Well, the first thing the team behind Mycelium did after raising over $3 million was go on a nice vacation to Spain using investor money.
Investors received only a 5% ownership of the whole company for their money. How does one discover new and exciting ICO’s? It’s quite simply really. There are a ton of websites on line that list current, past, and future ICO’s, such as CoinSchedule for example.
Therefore, you are fully responsible for the safety of your investments. In order to ensure the safety of your money, you have to conduct some research.
And this post is aimed at providing you with some tips.
Let’s take a look at what noobs need to know before investing in an ICO in order to not get burned. One wise thing to remember is that you should never invest more than you are ready to lose.
Understand what an ICO is and research the project
This is how an ICO works…
A developer team announces their desire to go after a certain project or service. The team writes up a whitepaper which is a business plan discussing all of the details behind the ICO. Developers find some professionals to act as advisors for their project.
The team then creates a cryptocurrency tied to their project that is used for fund raising purposes. These ICO cryptocurrencies are known as tokens. The project is then marketed to the public through Facebook, Twitter, Reddit, and etc. Eventually the ICO crowd sale event is launched and interested people have an opportunity to invest.
But before sending any of your hard-earned money over to the team behind the ICO, do some research. Go on the ICO’s website and dig around a bit. Read up on the project, and definitely check out their whitepaper for more details.
If an ICO’s website is utter crap as well as their whitepaper, consider dodging the investment. If there is no whitepaper at all and the project is already being marketed, run.
By the way, don’t be afraid to reach out to the team members behind the project via social media and ask them as many questions as you need. It’s pretty common that ICO’s advertise themselves through telegram groups, bitcointalk posts, and subReddits.
Get on there and ask the questions you want. If the team is hesitant or provide you with some dodgy and unclear answers. Consider this to be a red alert.
If your programming skills are high, check out the ICO’s GitHub account. Some ICO’s make their code open source. By evaluating the code on GitHub you can figure out how far the project is coming along and if whether or not there is any stagnation.
Figure out the structure of the ICO
By reading the whitepaper of the ICO and the website, you should definitely be able to understand the timeline behind the ICO. Figure out when the pre-sale, token launch, auction listings and a variety of other important things are supposed to happen.
The whitepaper should contain all of the ICO’s plans for the next few years to come. As well as plan’s for creating a social media standing and attracting investors.
Stay in the know by connecting with the ICO’s slack and telegram groups. As the team members of the projects are pretty active in answering any questions and concerns that investors may have prior to a launching event.
If the team members are deliberately avoiding your questions in their groups or are acting strange, consider avoiding the ICO entirely as it may just be a scam. 4Chan is also a great place where you can get some useful information regarding your ICO of choice.
Before investing in any tokens released by an ICO, figure out if the token can provide you with any perks. Are there any early bird investment bonuses? Like extra tokens? Typically, ICO tokens are divided into two categories. There are usage tokens, which pretty much act like currencies on the ICO’s platform. They can probably be exchanged for other tokens or even hard monies like dollars, pounds, yen, or euros.
There are also work tokens, which are very similar to shares. Work tokens may allow investors to exert influence on new projects and areas that the ICO may want to explore as well as vote.
Some ICO’s have a cap on the number of tokens and coins that they plan on releasing. A cap, or a limited supply of tokens and coins influences demand, driving the price per coin/token up.
After you have done some more research on your ICO of choice and its structure you should be able to answer these important questions.
- Is there potential for the value and price of the ICO’s tokens to increase over time?
- Is there a chance for you to make a profit?
- Will you get any bonuses out of this?
- Does this ICO even need to exist?
- Are there alternatives for it that don’t require to be built around the Blockchain?
Snoop out the people behind the project
It’s really important to take a look at the team members and advisors that are involved in the project. If you want to be really anal, google each member and read up on them. If you can find a lot of information, consider this to be a good sign. If you can’t find anything, or what you find doesn’t match up at all with the team information provided on the ICO’s website or whitepaper, run away.
The team members should have profiles on Facebook and LinkedIn for the most part. Anything else like Bitcointalk and Reddit accounts are a major plus and show that they really care about their campaign. If an ICO team is too large, proceed with caution.
ICO teams take some people on board that act as advisors and provide guidance for their project as well as marketing campaign and etc. However, an ICO with a lot of impressive advisors doesn’t actually mean that they play a major role in the ICO.
It’s quite possible that they maybe consulted the team behind the project a few times and that’s it. Do your due diligence where necessary. Just because Mark Cuban or Jamie Foxx hopped doesn’t mean it’s going to be a raging success automatically.
Now it’s time to create a cryptocurrency wallet
Many are overwhelmed by the process of investing in an ICO(s). However, it is very easy.
The first thing you need to do is create either an Ethereum wallet or a Bitcoin wallet. These wallets act as a storage unit for cryptocurrencies.
Imagine something similar to a bank account, but instead of storing fiats like Dollars or Euros you are storing digital assets. We recommend visiting MEW or Electrum, and going through the process of creating your Bitcoin and Ethereum wallets.
Start of Complicated Tech Talk…
For an Ethereum wallet created through MEW you will have to generate a password and download a UTC/JSON file. Don’t lose your password or your UTC/JSON files. You will need to use them every time you want to access your Ethereum wallet.
Bitcoin wallets require you to create a password as well as write down and safely store away a combination of words which make up a SEED file. This file acts as an extra layer of security for your cryptocurrencies. It will also be used for potential recovery purposes as well restoring a lost wallet. Treat your SEED file with care and never disclose the phrases that were used to create it. If your SEED file falls into the wrong hands, your wallet as well as your assets can be compromised or stolen. Users can also enable two factor authentication for their wallets as an added security guarantee.
Google Authenticator will need to be used in order to establish two factor authentication. You can use your SEED file to recover your Google Authenticator access codes if they are ever lost or if you lose access to your mobile device. Each wallet has a private and a public key.
The private key is used to sign off on transactions while the public key allows other to verify the authenticity of a transaction.
By the way, never disclose your private key.
Once you have created your wallet(s) it is now time to acquire some Ethereum, Bitcoins, or other cryptocurrencies. This can be done by visiting reputable exchanges like Coinbase, Kraken, or Coinmama and going through the platforms registration processes. Users can use their credit/debit cards or their bank accounts to purchase cryptocurrencies and have them sent directly to their wallets.
…End of Complicated Tech Talk
Your ICO(s) of choice will always provide you with the required information you need in order to invest and acquire tokens/coins. Let’s take a look at Enjin Coin. By visiting their site, one can see that Enjin has provided an address to which you can send cryptocurrencies to from your wallet as well as other valuable information such as fees, time limits, and etc.
Generally, ICO’s don’t have minimum buy-in amounts because they want to crowd fund as much as possible. However, most ICO’s have a cap on the total number of tokens and coins that they are planning to release.
For example, Enjin’s cap is set at 800 million units. Meaning that if you are filthy rich you could acquire a majority of the coins released. Allowing you to effectively corner the market and steer it in a specific direction.
Conclusion
Investing in ICO’s is definitely risky business. However, if you can pick the right one and go through with it to the end, you can definitely turn a major profit. Imagine buying the bitcoin back in 2011 when it was going for $1 a piece. Currently its trading at $4,300. By investing only $10 dollars in 2011 you could have effectively earned over $40,000 and would probably be at the car dealership right now buying a new Mustang.
So, is there a possibility to get a great return on your investment through ICO’s? Yes. However, if you are planning on investing for the long run and want to support the project for a little while, don’t be surprised by the value of your coins/tokens fluctuating. After all the cryptocurrency industry is relatively new, but quite wild. It’s always a great idea to go with an ICO that isn’t offering a solution to some minor problem, but providing a proprietary and unique solution.
And remember, never, ever invest more than you are comfortable with losing and can live without. This rule applies to all investment endeavors, not only ICO’s!