Currently, the financial world is agog with the sensation of cryptocurrencies. Bitcoin, the first virtual currency was introduced into the financial world in 2009. Since the launch of Bitcoin, several other cryptocurrencies have crept up. Right now, there are over 800 cryptocurrencies in the market. One of the ways which virtual currencies enter the market is through initial coin offering or ICO.
The amount raised through ICO as at July 2017 was pegged at about $1,252,676,352. What this means is that within 7 months, over a billion dollar has been raised through initial coin offering. The cryptocurrency market is experiencing a surge in the number of investors due to the solid market capitalization, which stands at $100 billion. Investors are trooping to the market to making a quick buck.
This guide intends to help beginners understand the concept of ICO and possible steps to observe when they attempt to invest in ICO. Beginners will also learn about the advantages and inherent risk associated with initial coin offering.
WHAT IS AN ICO?
An ICO or initial coin offering is the process of crowdfunding, especially when a new token or virtual currency is released to the market to funding the development of several projects. As at the close of the market in January 2018, over 1,000 coins were available on numerous platforms for investors to trade, with over 100 new coins in the process of getting into the market. It is pertinent to mention that not all virtual currencies operate with a blockchain, some of them operate with the aid of another blockchain. A typical case is an ERC-20 token, which acts as a standard within which Ethereum Blockchain operates. One may ask; what is Ethereum? Without further ado, Ethereum is a blockchain that most tokens leverage on to operate without necessarily creating their blockchain.
ADVANTAGES OF ICO
Initial coin offering has several advantages, some of which are;
- Democratization: Initial coin offering offers entrepreneurs the opportunity to raise funds without passing through the traditional methods raising funds through banks and lenders. The traditional methods of raising funds take a lot of time to sail through. Investment in ICO is lucrative, investors can recoup high returns on investment, but it has its inherent risks.
- Huge profit potential: since the advent of cryptocurrency, the market has raised a lot of billionaires and millionaires. This is made possible because investors buy cryptocurrencies when the prices are low and then sell when the prices double or even triple. Several ICOs that are currently in the market do not have a concept in their whitepaper, but they offer inventors huge returns on investment due to the inherent risk associated with the market.
Despite the positive side of ICO, there are few drawbacks which may scare potential investors away. The following are some of the main issues militating ICO;
- Lack of Regulatory frameworks: This is one of the major drawbacks on ICO. The essence of regulations in the financial world cannot be overemphasized. This is because market operators can take advantage of potential investors. To check the excesses of market operators, it is expedient to have a robust regulation. However, ICO does not have any regulatory framework to protect investors from losing their hard earned money.
- No track record: most ICO doesn’t have a product they offer, the best they have is a whitepaper that detailed how potential investors will make mouth watery returns on investment. That’s not all; they have been demanding for a humongous amount to develop their platforms. For instance, recently, Tezos crowdsale was recorded to have netted over $232 million during its ICO. This amount happens to be the highest in the history of ICOs. This kind of arrangement is not possible in a traditional financial market.
HOW CAN I PARTICIPATE?
As part of the intention of the guide, the processes of participating in ICO are as follows;
STEP 1: Research ICO for those that are upcoming
One way to research ICO is to check outlets as well as resources that feature the latest ICO. Knowing ICOs that would soon come up will arm you with the necessary tools to plan. ICOs with a whitelist will be a perfect platform for you to learn about them easily. A whitelist is this context is an expression of interest template which you have to register before participating in the Main ICO. Most reputable ICOs adopt this model since they have limited coins to offer to investors. The following is a list of resources that feature ongoing and upcoming ICOs;
- ICO Watchlist
- Smith & Crowns
- ICO Alert
- Coin Schedule
- ICO Rating
- ICO Tracker
- ICO Bench
- Crypto Smile
- ICO List
Below resources also feature ICO discussion;
STEP 2: Perform due diligence
It is important that you should carry out a rigorous background check to verify the viability of an ICO before you invest. One way to achieve this is to check the reviews done by other investors. The reviews will give you a clue whether the ICO is viable or not. The following resources will guide you when reviewing ICOs;
- Crush Crypto: This is a dedicated website for the analyses of ICOs.
- Reddit: This is yet another resource to peruse to reviewing ICOs that are viable. The reviews on this website are done by reputable community members like /r/ ethtrader, /r/ icocrypto, /r/ cryptocurrency.
STEP 3: Participation process of initial coin offering
There are some processes to pass through before participating in ICO. The processes are outlined below;
- Open an exchange account: once you are through carrying out due diligence and a background check on the ICO you intend investing in, the first thing you should do is to open an exchange account. The exchange account should accept fiat-based currency so that you can change your local currency into any of the cryptocurrencies like Bitcoin or Ether.
- Open a wallet: the need for a wallet cannot be overemphasized. A wallet is where your virtual currencies will be stored. Just like the traditional bank account where you save your money. Therefore, it is important that you open a wallet. The exchange account that was aforementioned should not count as a wallet because their private keys are not within your control. ICO participation requires that all investors, must, as a matter of fact, possess a private wallet. It is this wallet that you can send Bitcoin or Ether to an exchange.
At this point, it is recommended that potential investors should operate with Ether since most exchanges operate on the Ethereum blockchain. Also, the most recommended wallet is the MyEtherWallet (MEW).
- Follow Instructions: Most of the time, ICOs have instructions that are detailed in their whitepaper. Ensure you follow the instructions to the later. If you have any concerns, do not hesitate to ask their developers. You can also join their social media forum to get the latest update.
- Exchanges that ICO coins will be traded: if you didn’t participate during the ICO, you could invest in the Coin of your choice through reputable exchanges. If your goal is to be a long-term investor, then hold the coins for as long as you want, however, if you intend to sell after the coins must have hit your target, then you can sell to recoup your money. The following are some of the exchanges that list coins, which you should consider;
- Ether Delta: This exchange is reputable for listing new ICO coins as it drops. More often than not, beginners find it difficult to comprehend the exchange, however, carefully study the platform and join discussion forums; you will get to understand how the platform works.
- Liqui.io: This exchange is another trusted platform that offers new ICO coins for investors to trade. A look at the platform shows over 200 coins are listed.
- Bittrex: This platform is regarded as the biggest exchange regarding volume. It accepts only coin deposit. Therefore, if you intend to start with fiat-based currency, then you should look elsewhere.
- Poloniex: This platform trails Bittrex regarding the market position. Most ICOs wants to get listed on this platform due to its popularity among investors.
- Binance: This exchange is the 10thlargest platform in the world. It is based in China. Most ICOs wants to get listed on this platform due to its popularity among investors throughout the world.
Hopefully, you have learned about the concept of initial coin offering. It is expedient to re-emphasize at this stage that investing in ICO has its own inherent risk as earlier pointed out. Ensure you carry out a rigorous background check before investing your hard-earned resources. Also, watch out for scam ICOs, a lot of fraudsters are catching in on the vulnerability of unsuspecting members of the public to scam them. A wise investment in ICO can turn your life around.