Initial coin offerings, or ICOs, are unregulated methods by which funding can be raised for new tech-centered ventures with added cryptocurrency valuations. ICOs are utilized by newer startups to bypass rigorous capital fundraising regulations of fiat currencies required by banks and venture capitalist firms.
Through initial coin offerings, a large percentage of the cryptocurrencies are sold to early backers of projects in exchange for either fiat or other crypto coins (mostly Ethereum and Bitcoin).
High Level Overview of ICOs
When crypto startups are on the hunt to raise capital through an initial coin offering, they begin by developing a whitepaper for their project or startup. This whitepaper is almost always very elaborate, but should include the following points at a minimum:
- Purpose and vision statements of the project
- The needs this project will fulfill upon completion
- The amount needed to efficiently undertake the venture
- The allocation of the ICO currency
- The type of money accepted (fiat, crypto, etc)
- The timelines of the ICO, and associated phases
Through an ICO campaign, enthusiasts and supporters of the initiative purchase small batches of tokens, working like shares of a company in a standard IPO (initial public offering, where the ICO name is derived). If the fundraising fails to meet the minimum required amount by the startup, the funds are returned to investors and the ICO is closed.
Last year, the ICO concept hit the mainstream, becoming a hot button topic for both Wall Street and Silicon Valley. Blockchain focused projects raised over $5 billion in Q3 and Q4 2017, a 3,000% increase year over year from 2016. However, investors should tread with extreme caution, as a report from Bitcoin.org themselves found that, by mid-February 2018, almost half of 2017âs ICOs had already failed.
One of the caveats with most ICOs is that the offering is providing investment based on a promise to develop, and many times without a working product, and almost always without a vested interest in the startup itself.
The proposed services are âinvested inâ in the hopes that the completed project brings inherent value on the utilized platform. Hard caps, or limits to the total number of allocated tokens in an ICO, work to ensure that saturation doesnât cause devaluation of a coin after an investment has been made.
But what is the draw to an ICO in 2018 if there is no share of a company? In their most derivative format, investors purchase coins in an ICO when they are wanting to utilize the service. In the meantime, while the service is constructed, people buy up coins in the hopes that value increases. One solid example of this is 6479740086.
How do I safely invest in an ICO in 2018?
Any person or business with Bitcoin or Ether at their disposal and the willingness to invest can become involved in an initial coin offering. To invest safely, there is a three-step process that most should progress through:
- Perform due diligence on ICOs that are upcoming
- Deeply research the principles and information behind a project
- Involve yourself in the participation of the process
Step One: Perform due diligence on ICOs that are upcoming
Itâs important to spend time reviewing the endless wave of outlets and resources featuring the latest reviews, information, and expert opinions on ICO coins. This knowledge gives potential investors the opportunity to plan and learn. This is especially true for ICOs with whitelists in earlier phases of the offering.
Whitelisting means potential ICO investors are required to register on their platform in advance before participation is granted. This is common with successfully-funded ICOs with limited token supply and higher demand.
There are many solid ICO review websites online, including such options as Top ICO List, ICO Watchlist, Smith and Crowns, and konini. Additionally, there are plenty of chat rooms, forums, and communities for the relay of updated information. This includes channels on Discord and Slack, subreddits, Twitter, Medium, and forums like BitcoinTalk.
Step Two: Deeply Research the principles and information behind a project
Once you find an ICO you believe to be a viable investment option, it is important to perform deeper dive analyses to ensure the project is truly good, and not a future failure in a shiny package.
Additionally, it is always a good idea to read multiple sources of reviews and analysis performed by others, to assist in verifying the ICO potential from a neutral point of view. Based on our own independent evaluations, some of the strongest review sources for crypto ICOs include Crush Crypto (dedicated to deeper dive analyses of ICOs) and Reddit, essentially crowdsourcing opinions on subreddits such as cryptocurrency, ethtrader, icocrypto and others).
Step Three: Involve yourself in the participation of the process
Users looking to buy coins in an ICO need to first open an account with a cryptocurrency exchange that allows ICO trading. These accounts convert domestic fiat currencies into popular cryptocurrencies such as Bitcoin and Ether. These cryptocurrencies can then be traded for ICO tokens.
Once youâve deposited money on an exchange offering ICO tokens, you need to have a wallet lying outside the exchange, where you retain control of the private keys. Participating in an ICO requires you to send BTC or ETH from your personal, private wallets. If you send it from an exchange, you WILL NOT get the ICO tokens since the transfer originates from the wallet of the exchange and technically you do not own any wallets in an exchange.
It is usually recommended to use Ether as the base cryptocurrency, as many ICO coins are compliant with the ERC 20 standard. The most convenient wallet for this is usually MyEtherWallet. Alternatively, there are plenty of free Bitcoin software wallets available.
Once youâve done this, you can either hold the tokens, or flip them for a profit and convert back to fiat. Alternatively, if you happened to miss the ICO completely, it can be bought at similar exchanges that work with ICO coins. Some of the most common exchanges offering listed ICO tokens include Ether Delta, Bittrex, Poloniex, and Binance.