A step-by-step guide for beginners for investing in ICOs
An ICO(Initial Coin Offering) is a process when a new cryptocurrency is released by means of crowdfunding to raise the fund for the development of project
Nowadays, the ICOs are becoming more and more mainstream among investors and also the general public. Because of the newness of Blockchain ecosystem, there are still some lacks in the standardization of the rules of ICO, which makes it a bit cumbersome for an average person to get into the ICO participation. This step-by-step guide will help you understand the whole process for participating in an ICO.
Initial Coin Offerings (ICOs) also known as token sales are available to all and anyone can participate in it.
Lots of cryptocurrencies have been crowdfunded using the ICO model including the 2nd most popular cryptocurrency today, The Ethereum blockchain. It raised $18 million and lasted for around four weeks.
95% of all the ICOs today take place on the Ethereum Blockchain. It has become the primary choice for ICOs due to its smart contract features and an ERC-20 standard for the token. This standard allows the company to customize their token distribution on the Ethereum blockchain.
How do ICOs work?
Nowadays, token sales are mostly running on the top of Ethereum blockchain by using a smart contract that exchanges the collected Ethereum tokens for the token launched by the company. All this happens peer to peer thereby eliminating the need for any mediator or exchanges.
Every ICO is launched in the market with different pricing schemes like fixed price, decreasing price, increasing price or non-existent. If the scheme is a fixed one, then the investors could get as many tokens they wish to have at that fixed rate. In this scheme, the investors do not need to worry about influencing the price by making a huge purchase of the tokens.
After the token sale period ends, there comes the cool-off period After a token sale ends, there is a cool-off period where the investors, for a certain amount of time are restricted from transferring their tokens/coins. Once the cool-off period ends, the token is available to the exchanges for listing allowing the public to trade on the same.
The standard steps to participate in an ICO are:
1. Creating an account with any Cryptocurrency Exchange
For participating in any ICO, having cryptocurrencies is a must, usually Bitcoin or Ether. If you don't own some, you'll need to buy them through any of the online exchanges by transferring money from your bank account to your newly created account with that particular online exchange. In case you don't want to share your bank details to a third party exchange, you might opt to buy Ether from an ATM or locally from other people.
2. Exchanging Fiat currencies for either Bitcoin or Ether
After the successful registration on the exchange and your money has arrived in your exchange account, you will now have to exchange that money(fiat currency) for the cryptocurrency/ies you wish to own. This process will be completed within some minutes due to different block creation times of every blockchain. Once the process ends, your cryptocurrencies will be transferred to an online wallet which is offered by the exchange you're registered with. Nowadays, due to high risk of losing the coins online from wallets, it's advisable to store your cryptocurrency in a wallet which can be easily controlled by you rather than keeping them on the online exchanges.
3. Transferring cryptocurrencies from the online Exchange to a Wallet you can control
Another reason for storing the coins in a wallet which is under your control is the ICO participation. Most online wallets restricts your access to the newly owned tokens because they offer a limited possibility to participate in a specific ICO with your online wallet which means if you use such online wallets to participate in an ICO, you will be able to send the money to the requested ICO address but there is no guarantee of receiving those tokens. Hence, avoid sending funds from an exchange wallet and always go through the exchange's Terms and Conditions before transferring funds.
4. Setting up your Wallet
As said, Most token sales today are happening on the Ethereum blockchain. Therefore you will need an Ethereum wallet for ICO participation. Not every wallet is suitable for token sales. One of the widely accepted and user-friendly Ethereum wallets is MetaMask. MetaMask wallet is available as a plugin for the Google Chrome browser. It is a lightweight Ethereum dApp browser. During the ICO, if the company has not provided any instruction on the wallet preference, we recommend of using MetaMask
- How to use MetaMask?
Start by installing the Metamask plugin in your Browser. After the successful activation of the plugin, create your account and store the 12-word seed generated by Metamask in a safe place which will be helpful when you need to restore your Metamask access. That's it! You're now able to buy ETH or take part in the token sales. Once you've set your wallet and backed up send Ether from your online exchange account to your Metamask wallet.
4. Start buying ICO tokens/coins
With the launch of any ICO, there are certain terms of the ICO and also the token purchase agreement which is the prime step to be taken before investing your funds. Also, go through all the guides provided by the company launching ICO for the token sale participation. Make sure you stay updated with the timings of the ICO based on the timing you live in, as all the ICO's start at a certain period. Sometimes the ICO last just for minutes and in which case, using wallets providing more advanced setup configurations is recommended. Follow all the news and buzz on social media around the ICO and for more information on what to look out in an ICO before investing, read our previous article - What to look for before investing in ICOs
Once the sale has started and you've sent your ETH to the address specified by the company, keep a note of that provided address and make sure to check it regularly whether or not the address has been modified. The address mismatch indicates that the ICO websites have been manipulated by hackers, indicating that instead of the company, hackers have received the ICO funds.
- What happens after you've made the transaction?
There are a couple of scenarios that occur after you've made the transaction:
- You receive your tokens as soon as the ICO period ends.
- You might have to wait for some days to receive your tokens
- In some cases, tokens need to be redeemed manually. Read the terms carefully or contact the tech support of the company, if you haven't received your tokens within the stipulated time.
5. Securing your newly received Tokens
Once you receive your tokens in you Metamask wallet or any other wallet that you've used for the token sale participation, make sure to transfer these to a secure wallet which you can control(transaction charges might apply for transferring from one wallet to another).
Happy and safe Investing!