The way I see it there are 3 ways to make good money in the cryptocurrency space:
- Buy up a Bitcoin and a bunch of altcoins and hold for the longer term – i.e. be a HODLer
- Become a trader, looking at trends and signals to profit between trading pairs such as Bitcoin / Bitcoin Cash (BTC/BCH) which can have an inverse correlation.
- Invest in Initial Coin Offerings (ICOs) – companies selling their tokens to the public for the first time and then either sell when they are released on the exchanges or hold for the longer term.
This post addresses the third strategy and possibly the hottest and likely the highest risk part of the crypto space, getting in on new coins at the ICO stage.
If you’ve not yet bought altcoins such as those based on the Ethereum blockchain like Augur (REP – based on the ERC20 standard) you may want to get comfortable with that first as will likely need to use a My Ether Wallet address to participate (explained below). I wrote a step by step post on how to buy altcoins.Check out my How to Buy AltCoins post
Before we start, let’s first talk about how these ICO initial coin offering start.
What is an ICO?
An ICO stands for an Initial Coin Offering and is a way for new crypto startups to fund the development of their product or platform by selling their underlying crypto tokens in exchange for Ether in a crowdsale. The ICO coins you receive are digital tokens that can be used within the product or platform being developed or sold on crypto exchanges. You are only receiving a token rather than a stake in the actual company like you do in a traditional IPO (initial public offering) where companies get listed on a public stock exchanges.
What are the most funded ICOs?
There has been a lot of controversy around the most funded ICO of all time, Tezos, as it raised over $200MM without a working protocol and it is certainly leading the pack by a long way:
How to create an ICO
Essentially it’s all too easy and this is why most will fail and a lot are scams.
Anyone who has the ability to build a website, throw up a white paper and publish their Ethereum address can be in business of ICO!
You can see hundreds of them marketing their ICO on google adwords or on the listing sites below.
Top 10 ICO listing sites
The sites below are mainly directories that list the latest and hottest ICOs.
- Coinstarter – the kickstarter platform where you can invest in multiple ICOs all in one place
There are also excellent ICO review sites such as Decrptd that do more detailed and objective reviews such as this one on Ehab
Investing in ICO tips & how to avoid scams
If you find an ICO cryptocurrency by a company that resonates with you then you need to do your due diligence in order to filter out the scams.
I’d only recommend participating in a coin offering (also called token sale to make it comply with SEC regulations) if you’ve:
- Read white paper to see if it has real world utility
- Looked at the background of the team – look them up on Linkedin.
- Understand the token economics – is the token absolutely necessary for the operation of the blockchain? For example this company is using the blockchain for real estate transactions.
- Is the number of tokens capped?
- Know what value there is in holding the token – does it give you voting rights or pays out dividends?
- Have signed up to their mailing list or Telegram channel and asked questions.
How to buy an ICO
- First up you will need to have bought your Bitcoin or Ether (if you don’t have these follow this guide)
- Move your Bitcoin or Ether off the exchange to your own wallet where you control your private keys. You cannot participate in an ICO from your coinbase account. I recommend a hardware wallet such as Trezor however online wallets such as Jaxx are fine too. Most ICOs request Ether and such the most common wallet people use is My Ether Wallet (MEW). If you don’t already have a wallet setup on MEW this is a detailed guide.
- Go to the ICO company’s website and sign up to get the address to send your tokens – make sure you take screenshots to check you have entered everything correctly
- Inside your wallet send your coins to the smart contract address given by the ICO.
- The smart contract will send the tokens back to your wallet either immediately or at a specified date.
- If not already listed, add the token to your My Ether Wallet with the information given by the ICO company such as the number of decimals. Civic did a good job at making this process clear.
Pro tip: When sending Ether you should send a bit more than what you want to invest in order to cover transaction (tx) fees.
Some ICOs follow strict Know Your Customer (KYC) requirements such as Simple Token, which I’ve recently registered interest in, where you had to fill out your details and upload your ID:
Some ICOs also have bounty programs or run crypto airdrops where you can earn free tokens by signing up and referring another people. An example of this is the Dock airdrop where you can receive free tokens for giving your details and joining their Telegram group:
Crypto companies airdrop coins in order to distribute coins throughout the community as the more people who hold and/or use the coins, the more valuable they become. A recent great airdrop example was from the Coinfi ICO where they actually reached their hardcap in a private round but decided to give 500 free tokens to everyone who had whitelisted. Super smart.
So there you have it. It’s a bit of a wild west out there so be careful, do your research and try to avoid being on the wrong side of a pump and dump. If you don’t invest too much the upside can outweigh the loss.Check out my How to Buy AltCoins post