What You Need To Know About Investing in ICOs
We’ve put together a quick simple guide that will give you the basic fundamentals when it come’s to ICO’s, as well as the tools that will show you what is involved with ICO investing itself.
It has only been in recent months that ICO investing has exploded, with over a staggering $800 billion invested in the month of September (2017) alone.
Cryptocurrencies as a whole have seen massive levels of growth in 2017 which has caught the attention of many professional traders who are looking to create some quick profits, as well as more casual investors.
Experts have warned potential investors about the dangers of investing in ICOs that cannot be trusted and over here at Block Discover we find it is absolutely important you do your own research (DYOR) before parting with your money.
ICO’s (initial coin offerings) are a new way in which startups and established companies can raise funds for their business. This could be for the development of a new product and the company in question will issue a coin or a token in the ICO.
There are more and more ICOs occurring every day and there are now over 1,300 different coins on the exchanges today.
The majority of these coins do not utilise their own specific blockchain. Instead, they utilise somebody else’s blockchain. Very often this is the Ethereum blockchain as it allows companies to issue their own cons without having to construct their own form of infrastructure. A small percentage will eventually develop their own infrastructure and platform (main net) where they will host their technology.
Why ICO’s are so disruptive
No longer do companies have to go down the traditional route of getting a loan from the bank or looking for venture capital and giving away massive chunks of their company away.
This is a cumbersome process that can be avoided if you go the ICO route. Any member of the general public can invest and have the potential to earn large returns.
With the hype surrounding the likes of bitcoin, many investors are looking to invest in the next big thing / big coin. They want to invest in a digital currency in its infancy and then sell it for lucrative prices in the future.
ICO’s are deemed as high-risk high reward with many of the white papers not having any proof of concept, which means that their coins could very well be just vapour ware in the not too distant future.
Here’s a quick look at some of the best ROI’s on ICO’s:
Issues and legalities concerning ICO’s
At the moment, there are little to no regulations or oversight when it comes to ICOs. This means that inevitably there are going to be scammers in the market trying to swindle investors for a quick buck.
Regulations might seem like a negative step in the evolutions of ICO’s however regulatory oversight provides investors like you, protection from scams and fraudulent ICO’s.
It is perfectly legal for anybody to partake an ICO investing opportunity as long as they abide by local laws, however there is little protection for the investors themselves.
Typically all a company needs0 to do is create a white paper (almost like a business plan) in order to raise money via an ICO. This is why you need to complete your due diligence before investing in an ICO.
There is very often no working product with many these ICOs, so their ideas have never been tested in the real world.
Another thing to take note is that one does not confer any ownership rights in the project or company unlike the stock market when you take part in their ICO crowd sale.
That being said, this hasn’t stopped them looking for the amounts of funding, all base on a concept rather than something which is tried and tested. The most money raised in an ICO to date is Filecoin, which raised about $257 million.
So how do you participate in an ICO?
Frist of all you will need to look at when upcoming ICO’s are planned for, this will give you time to plan in advance . There are a variety of sites where you can keep tabs and create a watch list that will alert you when these ICOs begin.
You can check out these website’s which list all the upcoming ICO’s:
- ICO Bench
- Crypto Smile
- ICO List
- ICO Alert
- Coin Schedule
- ICO Rating
- ICO Tracker
- ICO Watchlist
- Smith & Crowns
Some ICOs have a “whitelist” feature which means that in order for you to be able to participate in the ICO, you need to have already registered with them. This feature is normally used for higher profile ICOs that have a fixed number of coins available.
There is no fixed way on actually participating in an ICO however they will generally follow the same procedure. There will usually be a guide provided from the team running the ICO showing you step by step how to participate. You can sign up for the latest news and updates on their site or sign up for their telegram / slack channel to keep up to date with their announcements.
Here is an example of ZRX (Ox Project)’s ICO instructions:
Completing the due diligence process before investing into an ICO
It is vital that you do your own research (typically referred to DYOR acronym) to figure out whether a given ICO is a good investment or not.
There are a lot of different variables at play that you will need to consider just like you would when making any type of investment.
These will include whether it’s the only product or service of its kind, what technology and economics are the foundation for it, what are its milestones and upcoming roadmaps, are they using independent auditors, will the project be adopted for it’s intended audience, is the company team strong enough to deliver on what’s promise, etc. These are under “fundamental analysis” which one should preform on an ICO before investing.
While you do need to be careful of fabricated reviews that are done by people with an agenda, you can check out forums, websites like Reddit and social media to get a general gauge of what people are feeling about a given ICO and of course, a shameless plug of our website, Block Discover for reliable analysis on upcoming ICO’s.
Once you have done your research and you decided you would like to make this investment, you will have to open a cryptocurrency exchange account that accepts fiat currencies. This will allow you to change your dollars, euros or whatever fiat currency you use into a popular digital currency such as Ether (ETH) or Bitcoin (BTC).
We recommend you sign up for the a Coinbase account which a very trusted company that allows this – Go to Coinbase here.
Creating your own Crypto Wallet
It is vitally important for your security that you have your own wallet to keep your crypto currencies / tokens in.
Simply having your crypto tokens on a crypto exchange account (Bittrex, Kraken, Poloinex) is not good enough, this is not an actual wallet because you do not possess control of those private keys.
Private keys are usually a set of words which only which you will have access to when you first setup your wallet. You are the only one who will have access to these and these will grant recover and access to your wallet should you ever delete (or lose if your wallet).
If you are investing in an ICO, you will have to send ETH or BTC from your private and personal wallet. NOTE: If you try to do it through an exchange, you will not receive the tokens from the ICO.
Usually, Ethereum (ETH) is preferred as the base currency for getting involved with ICOs as it is usually compatible with most offerings being an ERC20 token which is the Ethereum standard..
Here is a video on how you can quickly set up a secure wallet for Ethereum (MEW)
Trading your ICO coins
If you have a strong belief in the ICO, you will likely want to hold onto the coins into the long-term.
However if your goal is to simply flip them (sell them for a quick profit), you can sell them on an crypto exchange by sending them from your wallet to the exchange itself. You can usually buy ICO coins on the exchange if you missed the actual crowd sale (if they become listed on the actual exchange).
Here are a list of the most common exchanges when usually list ICO tokens:
EtherDelta: This is a “decentralised” exchange and only hosts ERC20 (Ethereum based) tokens. The user interface is very unfriendly and it can be very intimidating to use.
Liqui.io – Usually one of the first exchanges after EtherDelta for an new ICO token to be listed, trading fee’s are a little expensive, but the user interface and ease of use is much better than EtherDelta.
Bittrex – By far the the biggest crypto currency exchange and is currently the most popular due to high trade volume (making it very liquid and easy to trade) not to mention user friendly interface. Every new ICO aim’s to be listed on Bittrex due to it’s popularity.
Poloniex – a very reputable crypto currency exchange with decent amount of volume. There popularity has slipped over recent months due to slow support response time and new ICO tokens are very infrequently listed due to new strict regulation.
Binance – A newly established yet very popular china based exchange which has a huge amount of volume traded on. This is usually the second most popular exchange where new ICO tokens are listed.
All the exchanges listed above do not allow you to buy crypto currencies with fiat currency, they are simply an exchange for crypto currencies only. You will need to covert fiat currency into either Bitcoin (BTC) or Ethereum (ETH) using a service like Coinbase or Gemini first. Then once that is done, you will transfer it into your wallet*, and eventually send it over to the listed exchanges.
*You can either send BTC/ETH from that point or if you choose to invest in an ICO, you would participate in the ICO token sale and then transfer those tokens once received to the cryptocurrency exchanges.