In this article, you will get a hands-on guide on how to participate and invest in an ICO, how to buy the right type of ICO tokens. It also describes procedures on how to choose the right ICO in the market. If you’re a naive user, the guide will teach you how to get the right type of information on Initial Coin Offering and how to exercise due diligence to avoid being scammed.
Are you planning to invest in cryptocurrency or blockchain technology? ICO crypto-system has been the current discussion in the world. It is being considered as the future of fundraising for projects and over wide financial benefits to project supporters.
What is an ICO
ICO (Initial Coin Offering) is a fundraising mechanism in which supporters purchase crypto tokens in exchange for bitcoin and ether. ICO campaigns used for raising funds on new cryptocurrency include digital coupons or tokens issued in the distributed ledger.
Startup companies use ICO as a way to avoid strict regulations of raising capital from banks and venture capitalists. Investors take advantage of this opportunity to benefit from the expanding cryptosystem.
Just like in an IPO where the stake is sold to raise capital, an ICO campaign oversees the sale of cryptocurrency in return for other cryptocurrencies like Bitcoins and ether. ICO deal with supporters like in crowdfunding processes, however, ICO supporters are motivated by their investments.
When you buy the company’s ICO, you receive tokens as the trading mechanism compared to an IPO where you receive the shares of the company. The tokens allow you to get the product of the company and rather than its equity inform of shares
A token is a device used to authorize access to a network service and is in the form of a smart card or embedded key in commonly used objects.
Participating in ICO
1. ICO Research
You need to do more research on the upcoming ICO to properly plan for your participation especially with ICOs that use a whitelist. In whitelist, you have to sign up in advance for you to participate.
2. Due Diligence
Carried out to determine whether it will be a good investment or not. Determine its potentiality through the analysis provided by other investors.
3. Participation process
Open an exchange account for converting your currency into cryptocurrencies like a bitcoin or ether. Once you create the exchange account, open your own wallet account to allow you to participate.
Follow all the ICO guidelines and instruction mostly pinned on their telegram channel
4. Trade your ICO
After keeping your coins for a specified time, you can exchange them for more profits.
How to invest in ICO
1. Purchase a Bitcoin or ether
You can buy a bitcoin or ether from the Coinbase. You can use your credit card or bank account to purchase the coins. It will take you a maximum of one week for the transaction to be completed. If you’re using a credit card, a transaction fee of 3.99% incurred as opposed to bank transactions which incur a 1.49% fee.
2. Set up Coin wallet and move the coins to your wallet
Once your ether and bitcoin transaction go through, you need to move them to a controlled wallet account. You can’t participate in ICO with the Coinbase account. Coinbase is a centralized system and doesn’t generate a personal private key to your coin. If used as a means of exchange, you will only enrich the coinbase.
Using your own wallet will allow you to receive tokens back to your address. ICOs work by sending smart contract tokens back to your address once you send them your ether or bitcoin.
To create your own wallet, go to My Ether Wallet if using ether coin and transfer the ether from the Coinbase to your ether wallet. If you bought bitcoin, Blockchain.info site will help you in creating a wallet.
You can also use Parity technique if you believe the ICO will sell within seconds. Parity technique enables you to invest in an ICO at an exact time it is sold.
Once the ether or bitcoins are transferred to your wallet, a private key is sent to you and you can use it to control your wallet. You will also receive tokens into your address for any transaction created.
3. Exchange your coins to tokens
This is done by sending the crypto to the given address. In any ICO sell, a token address is provided where the money will be collected within a particular window time frame. Make sure you send your coins to the token sale address to avoid any scam.
4. Securely store the coins in a USB hardware wallet
Once you buy the coins use the cold wallet to securely store your ether or bitcoins. The cold wallet like Trezor and Ledger are not connected to the internet and can be used to securely store your crypto tokens. Plug the cold wallet to a USB port then transfer the coins to the hardware address attached to the wallet. Unplug it for safe storage away from the computer.
5. Storing coins not supported by your hardware wallet.
Coins not supported by your hardware can be created by using an encrypted text file on your USB drive. You can come up with a piece of paper with all the information needed for the re-creation of a private key. Each coin comes with a manual on how to recreate the private key.
You can also store the coins on an exchange. When you use this method, ensure you use 2-factor authentication through google authenticator or Yubikey.
Types of ICO Tokens
Before investing in ICO, it is important to know the different types of token available for you to make the right buying decisions. Not only knowing the importance of different types of tokens but also need to know how each token works.
1. Utility Tokens
These tokens provide the user with blockchain access to the platform. The token allows you to enter into a transaction via the platform e.g. you can use ether tokens to pay for a particular product or enter into any contract. They grant you access to any transaction carried out.
2. Digital Currency tokens
They are the most common crypto-tokens in the market. They use distributed ledger technology to enable easy transfer of peer to peer transaction. The transactions are in the form of bitcoin cash, dash or the Litecoin.
3. Asset tokens
These tokens represent claims to an underlying asset. They are used as security in the physical asset market. They are less used because the price of the token is equivalent to the price of the physical asset used e.g. in Goldmint project.
4. Equity tokens
These tokens represent ownership of the project. If you buy equity token, you will have a say in decision making and receive dividends on that project. Equity tokens represent your digital shares in a company. They are under the SEC and subject to US federal security laws. Be careful when investing in this type of tokens.
5. Reward/Reputation tokens
You can receive this kind of tokens as a reward for something good you have done. When you participate in a blockchain platform transaction, you can receive reward tokens for your trustworthiness and transparency in the transaction. E.g., a platform like Steem gives members reward tokens.
How to buy the Tokens after the ICO
1. Get the bitcoin or ether
2. Transfer the coin to crypto exchange with the coin you want to buy.
Once you get the exchange with your token coin, create your account to obtain an exchange address. Copy the address and paste it into send box in coinbase site. The money will appear in your exchange account within few minutes.
3. Secure your account with two-factor authentication
This step is very important to secure your coins. Google authentication app automatically creates new codes linked to each service at a certain interval or use Yubikey to ensure your wallet is secure. Do not use your phone as an authentication method. Hackers can tap into your mobile phone and divert all the messages meant for you to go to their phone. They can lock you out and use forget password feature on your accounts then change the password. Once they have access to your account, the transfer your coins to their wallet.
4. Exchange the coin for the tokens
Once you secure your wallet, you can go ahead to exchange your ether or bitcoin. Find the coin you want to use in the prediction market, and how many you need for you to buy a certain number of tokens.
5. Store the tokens in your hardware wallet
If not selling the tokens immediately, transfer them to your hardware wallet. You can put the hardware wallet in safety deposit box either in a bank or in a secure place.
How to determine the right ICO Company for investing.
When planning to invest in an ICO, do not throw your money randomly. Do a lot of research to ensure the company’s ICO is legit, whether they have the right product or the market fit and if the company will be in a position to achieve its ICO campaigns.
You also need to look at the following aspects
1. Basic concept:
• Are you able to understand the value of the token to receive through the provided information?
• Is the information easy to explain and to understand?
• Who is the person or people behind the ICO?
• Do they consist of real people?
• Do you know their background information?
• What is their location?
3. Interest or the Hype
• Determine their hype rating on the ICO drops
• Determine the number of followers in the telegram channel or in any other social media account
4. Read more information on ICO’s white paper. Other sources include;
• ICO Drops – It gives you information of active and upcoming ICOs in the market. The site classifies ICOs based on the rate of hype or interest.
• ICO Alert
• Coin Schedule
• ICO rating
1. When planning to invest in a popular ICO you need to set a gas price limit
2. When investing in popular ICO, timing is very important. Depending on your location, the launch can occur in the morning, afternoon or late at night. Always be aware of the time the ICO is being launched.
3. You should not invest in cryptocurrency with borrowed money or the use of credit. Only invest what you are willing to lose. ICO investments are just like gambling where there is not only a possibility of gain but also some losses.
4. Always double-check everything and read ICO participation rules and regulations to avoid being scammed.