Today i’m going to look at how to participate and buy a coin at the initial coin offering (ICO) stage.
I am going to be participating in my first ICO at the end of the month so if you are going to follow along or join in yourself then add your email address below and I will email you when I release my article around my first ICO.
ICOs are high risk, high reward which is the reason I have not participated in an ICO up to now, I am risk averse which is why the majority of my trading is done via copy trading. ICOs are more common than most think, by the end of January you will find 30+ new coins launching with many more launching throughout 2018, the idea is to pick the ICO of the coin that is most likely to succeed. There are many factors to look at when choosing an ICO which I will cover this in an article over the next week.
An ICO could be either a Crypto Coin ICO or a Crypto Token ICO:
Crypto Coins – Create a new coin which is different to Bitcoin and has its own unique feature and blockchain.
Crypto Tokens – Create a new project for which to work a special currency is needed. This is similar to investing in a startup. You put your money behind and idea with the hopes of it becoming profitable. The ICO is equivalent to crowdfunding and the equity raised is equivalent to the crypto tokens.
The majority of ICOs are crypto tokens. They actually should be called a token generation event (TGE) since they are based on ERC-20 (Ethereum) protocol and do not own a blockchain. ERC-20 is a token standard that follows the rules on the Ethereum blockchain. The majority of initial coin offerings will be this type based on Ethereum you will see very few new blockchains emerging.
Above you can see ICOs using the Ethereum ERC-20 that have launched over the last couple of years. Looking at the top performing by % return if you bought $1000 of Populous at its ICO on 24th June 2017 for $0.278 per share you would now have $197,842. I understand these numbers are ridiculous but you could easily put your money behind projects that are now worth nothing hence why ICOs are high risk, high reward.
The technical process of entering an ICO is nothing special considering the technology that has appeared over the last few years. The developers create an Ethereum smart contract (you can see the Ethereum official Application Code online) then using this application code they give you an Ethereum wallet address when you register for the ICO. You then need to simply send Ethereum to this address, after the ICO the crypto tokens will be automatically distributed to the correct owners. Some ICOs offer whitelists and presales to get the coins cheaper before they go on sale to the public, the earlier you buy generally the better price you get.
So how do I trade them back to my local currency?
Once the ICO is complete the project owners will generally add there project to an exchange, 2 of the more popular being Binance and Bittrex. From these exchanges you can then trade back to Ethereum or Bitcoin which means you can then move them back to your wallets to trade back into your local currency.
Heres a quick recap of what accounts you need to have and what you need to do to participate.
- Coinbase – You know by now that I use Etoro to trade Cryptocurrencies this is because of the ability to copy traders, their user interface and trading tools that coinbase does not have. Unfortunately with Etoro you do not own the coin, they buy they coin on your behalf and charge you a small fee for holding. This is normally fine as the tools provided offset this cost, however for an ICO we need to own the coin.
- My Ether Wallet (MEW) – MEW is an ethereum wallet that uses ERC-20 encryption which unfortunately Coinbase does not (there are talks of adding this to Coinbase soon.), ICOs require ERC-20 encryption so we must use this type of wallet to purchase the ICO. This is where you need to be safe. You will receive keys when signing up. DO NOT save your public and private key in the same place on your computer. Alternatively you could use a keystore file for verification, I use this method and I keep it on a USB drive. You could also use the more user friendly and safer method Metamask.io.
- Your ICO Account – This will be your account of the project you have chosen. I will be writing an article on the one I have chosen towards the end of the month. There will be time to buy it at the ICO.
- Exchange Account – This is chosen by your ICO, generally chosen after the ICO so you will need to register when announced.
Process for Buying:
- Add the amount of funds you wish to purchase in your chosen ICO to your Coinbase account from your bank account.
- Buy Ethereum on Coinbase.
- Send your Ethereum currently on Coinbase to your MEW wallet address (this will be a long string of letters and numbers).
- Send the Ehereum now in MEW to your ICO wallet address (again long number given in your ICO account).
Process for Selling:
- Register at the exchange given by the ICO.
- Send from your ICO account to your Exchange account wallet address.
- Exchange your ICO for Bitcoin or Ethereum. (The rates change here so if all goes to plan you should get a lot more ethereum back than you bought the ICO for.)
- Send your Bitcoin or Ethereum back to your Coinbase account.
- Change to the currency most suited to you ($/£ etc) then remove the funds to your bank account.
This is obviously complex which can put people off, it all adds to the high risk high reward! Don’t forget to add your email address below to follow my progress with an ICO that goes on sale 29th January 2018.