According to ICO Data, Initial Coin Offerings, aka ICOs, have successfully raised close to 6 billion dollars in 2017 alone, for startups from around the world. In just one year, that is a considerable amount of investment in a concept that is not very old. So what is all the commotion being created around ICOs? Is it really as cool as it seems?
The answer is that just like any other investments, ICOs are risky. Many have failed and some ended up being a scam. But those that have been able to achieve their goals have done excellently well. They have been able to provide very huge returns for even small investments. And these ICOs are the reason why investing in ICOs seems to be a brilliant way of making a quick buck.
If you are planning to invest in an ICO then here is a comprehensive step by step guide to help you identify ICOs with potential and take you through the process of investing in the ICO.
1. Understanding ICOs
What is an ICO?
Short for Initial Coin Offerings, ICOs are a very new concept. The first time a company used it was in July 2013 to launch the Mastercoin token. Most investors at that time were not very familiar with the idea. Mastercoin was able to raise $500,000 through its ICO.
Before an ICO, if a project required public funds then it usually went through crowd-funding websites like Kickstarter. Bank loans and venture capital were other means of raising capital but none of them were an easy process.
ICOs on the other hand aim at bridging the existing issues of raising capital by helping project owners create a project on the Blockchain and then have investors invest in the project directly. Once the ICO begins, investors like you and I can quickly and easily invest in the project with the amount being transferred almost instantly.
How does it work?
Just like any project, a team with an idea that can solve a real world problem propose a product or service based on Blockchain. They create a white paper that entails details of the project including how it aims at becoming a solution for a problem.
Some teams also create a prototype while others simply detail the process. This is followed by several marketing campaigns to raise awareness of the ICO and build momentum before it starts.
All ICOs provide complete and accurate details about the number of tokens which will be distributed and the price of each token along with the use of the token. These details also include the targeted amount that the ICO plans to raise.
Advantages of an ICO
For investors, ICOs are quick and allow them to invest easily in a project anywhere around the globe. The entire process of raising funds is decentralized which is what is targeted by most Blockchain-oriented projects. The tokens are made available on exchanges soon after the ICO is over which means that investors can quickly begin to experience a change in the price of the tokens they bought. Successful projects notice a substantial amount of growth where tokens quickly increase in value.
For project owners, ICOs are a simpler way of raising funds than most other means. Unlike bank loans, they are not in debt and unlike IPOs the investors do not own a part of the project. This makes ICOs more viable.
Disadvantages of investing in an ICO
For investors, the disadvantage of investing in an ICO is the lack of regulations. While investments are always risky, the added risk in an ICO is that scammers may try to get money out of investors by promising very high returns. Project owners on the other hand do not experience any disadvantage when raising funds through ICOs.
2. Doing your due diligence
Go through the list of upcoming ICOs
To begin investing in an ICO, you will first have to find a website where you can take a look at the list of upcoming ICOs. There are a number of websites on the internet for you to get this list. Be sure to find a reliable place where you can gain
insight about the ICOs. We usually get most of our ICO info from https://www.icotokennews.com/. Check the list for ICOs which you find interesting and worth investing. Create a list of your own for ICOs than you would want to invest in.
Use blogs, news and social media to identify those with the highest potential
Use your personal list of ICOs and search them on various channels of media to find out how much media attention they have been getting and how many people are interested in it. An ICO that draws positive attention from people and the media is likely to grow more than others.
Research the problem that the ICO is trying to solve
Find out what kind of real-world problem is the ICO trying to solve. Do you think it is worth investing in the ICO given the goal it aims at achieving? This is an important question to ask yourself before you go ahead with the investment.
Find out about the target market
Identify the market that the ICO is targeting. Do your research to learn about the potential this market holds. If the growth opportunities seem bleak or if the response from the targeted market is not enough then it is a red flag.
Know about competitors that the ICO is up against
Find out about other ICOs and Cryptocurrencies that are already aiming for the same target market and are providing a solution to the same problems. Very strong competitors may drown the ICO even before it gets the chance to prove itself. An investment like this can be riskier.
Do your own research about the team behind the ICO
Know about the management team, the developers and the marketing team. Verify their capability to ensure that you invest in an ICO with a high-performing team.
How will the money be used?
It is very important to understand how the funds accumulated through the ICO will be used by the project owners. Read the ICO papers carefully to understand the process and check the roadmap created by the project owners to find out how quickly they expect to be able to market a product or service.
3. Participating in an ICO
Getting a Cryptocurrency wallet
If this is your first investment in Cryptocurrencies then you will be required to create a Cryptocurrency wallet. You can do this by visiting various websites for Cryptocurrency wallets. 95% of the ICOs accept Ether so you must choose a wallet that can store Ether. This step should be completed well in advance.
Some of the most popular Cryptocurrency wallets are:
The above wallets are ERC 20 compatible and will allow you to participate in a token sale without any problems. Be sure to use a compatible wallet. If you do not have one already, create it in advance.
Identifying a suitable exchange
If the ICO requires you to buy the tokens in Ether then you will first have to buy Ether from an exchange. There are several exchanges that function across the globe. You will have to be careful in picking one. Check for the fees charged by the exchange and find out the Cryptocurrencies that it supports. Reading reviews can help you choose an exchange. Crypto Coin Judge has some very insightful reviews regarding exchanges.
While you can instantly register on an exchange, the verification process and the transfer of funds from your bank account to the exchange wallet will take several days. So be sure to complete this step long before the ICO starts.
Track the ICO
Track the ICOs that you plan to invest in through different social media platforms and blogs. Also check the website of the ICO for new updates. You may be required to register on the ICO website where you provide all details necessary for them to establish communication with you and to transfer the tokens to your wallet.
Buy the tokens when it starts and claim them when the ICO ends
Once the ICO starts, visit the ICO website for the address to which you will have to transfer the funds. Do not depend on any other place for the address because scammers or hackers may try to get you to send the tokens to a different address.
Check for the address twice before you complete the transaction. Open your wallet and send the funds from your wallet to the ICO address.
Once the ICO ends, you will be able to claim your tokens. They are usually sent directly to your address or you may be required to claim your tokens manually as explained on the website. Some ICOs allow you to get your token immediately after the token sale ends, others need a few days.
Missed an ICO? Buy the tokens on an exchange
Sometimes, token sales begin and end so quickly that some investors end up missing the chance of buying the tokens. If this happens with you then you can buy the tokens from one of the exchanges.
Guest Author: Aaron Miller is a cryptocurrency expert and talks about new ICO launches, coins offered on exchanges, and the developments around the same, with a long-time experience.