What is an ICO?
A beginners guide to ICOs and how to invest in them
What does ICO mean?
ICO is short for ‘initial coin offering’ which is used when the distribution of a new coin or token is underway. ICOs are very similar to IPOs (Initial Public Offerings) which is like a pre-purchase of a stock that eventually is being added to the stock market. ICOs are getting more popular by the minute since it can be used to get funds for a company or idea. But instead of giving away shares in a company, you distribute shares in the form of tokens for peoples money.
Investing in ICOs is a high risk, high reward type of investment. With projects dying right after finishing the ICOs and other projects being immensely successful increasing the token value tenfold or even more. It is very important to do proper research on the team, the whitepaper and the whole project before you invest in an ICO.
ICO’s usually follow a similar pattern. When a company or team want to raise funds with an ICO they make the following things:
- A website with all the information about the project, the team, and the purpose of the token they are creating. They also go through the token distribution (For example how many percents of the tokens are distributed to the founders or sold to investors etc.)
- A whitepaper going through the business model and details on the project. This is what you should read carefully before ever investing. They are usually pretty short in length but packed with the details that either rings a warning bell or impresses.
- They make a video explaining the tokens purpose and why people should invest. (Optional but very common)
How does one participate in an ICO?
Tokens from ICOs are usually bought with Bitcoin or Ethereum and then distributed either instantly or after a certain time period. There are often ‘caps’ during an ICO which means that after the ICO is over, a certain amount of tokens will have to be bought or else the Bitcoin or Ether you paid can be reclaimed (returned). The minimum amount of tokens needed is called a soft cap and means the amount is the minimum required to be a successful ICO. There can also be hard caps which means that for example a maximum of 10 million dollars can be raised, and after that, the ICO is closed.
Being early into an ICO usually means that you can get a bonus on your token purchase. The earlier in the ICOs timeline, the higher the bonus percentage. But bonus systems can also be a call for concern. If you believe big cryptocurrency profiles, bonus systems are not a good way to distribute tokens. It’s mostly a way to get people in early and if that is a requirement it might be a bad token to begin with.
Buying a lot of tokens can also give you a bonus on your purchase.
How to invest in an ICO
Investing is not as straightforward as you might think. Usually, it requires you already have some Ethereum on a non-exchange wallet. So if you are totally new to investing in an ICO that accepts Ethereum, this will be your process:
STEP1: Buy Ethereum on an exchange – Coinbase is our favorite pick for beginners.
STEP2: Send them to a wallet where you have access to your own private keys. Our favorite pick here is MyEtherWallet (Often shortened to MEW), but be really careful when you go to the site. There is a lot of google ads trying directing you to fake sites that will steal all your ether and tokens. Look for the correct SSL Certificate which you can see here:
The green text in the URL Field should state MYETHERWALLET LLC [US] and also check so that the URL is: https://myetherwallet.com
Downloading MetaMask, which is a great Google Chrome Extension can also help you if you happen to land on a phishing page. MetaMask is also a wallet and lets you interact with Ethereum smart contracts and experiences on the blockchain like the famous crypto kitties.
STEP 3: Send your ether from Coinbase or similar exchange to MyEtherWallet. The reason for this is that exchange wallets often just point to a massive wallet that holds all the exchanges currency, while in the background they just keep a record on how much of that is owed to you. So the address you have on an exchange is just an intermediary and can usually not accept tokens from ICOs. MyEtherWallet or MetaMask can both accept your tokens.
STEP 4: Follow the steps the ICO states. But be sure to check for a minimum / maximum investment amounts and other rules. After you have invested you add the custom token to your MEW.