Hello friends, here we are again. We trust that you’ll enjoy this educational series. That said, today we will take on a very important topic in the crypto world. As a matter of fact, you can’t be alive in the 21st Century and not have heard about Initial Coin Offerings. It has become a common phrase.
Funnily enough, many people don’t care to participate in Initial Coin Offerings or to even learn about them. But if you’re not like them, you are about to peruse the right article. You’ll learn about Initial Coin Offerings (or ICOs), how to invest in them and everything in between. So grab a pizza and a soda as we take you through this informative and engaging journey.
Initial Coin Offering (ICO) Explained
Make no mistake, ICO is a popular method of raising startup funds in the cryptocurrency sphere. It’s a process of raising capital for a new project by encouraging prospective investors to pay with popular cryptocurrency. ICO is just like buying shares in a company, but this time in cryptocurrency. ICO is also likened to crowdfunding, like you would see for computer games. Though in all this, investors (angel investors and venture capitalists) are always encouraged to pay in virtual currencies. Usually, the investors pay with popular cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). BTC and ETH are the predominant cryptocurrencies.
While investors are paying with those popular assets, the ICO issuer is giving them the company’s coin/token. It is, more or less, trade by barter. However, issuers determine what coins/tokens represent. While some coins/tokens could mean shares in the business, others may not.
Therefore, every ICO comes with a White Paper which details the plans the issuer has for the project. Tokens that are issued by a company are always utility tokens or asset-back tokens. So, in the industry, it is said that ICOs are tokenized. What this means is that they are commercialized, as we have already explained thus far.
A Brief History of Initial Coin Offerings
The history of ICO dates back to 2013, when Ripple developed and distributed its cryptocurrency. From the sales of Ripple, they generated enough money to fund the development of the Ripple project, XRP. Later in the same year, Mastercoin developed its own coin. By creating a layer on BTC, the project was able to execute smart contracts and tokenize BTC transactions.
Cryptocurrency Projects Funded through ICO
Ever since the idea was birthed, many tokens have been developed using ICO. The most common examples include Lisk, which sold coins for $5M USD in 2016. Ethereum changed the calculus completely with its business model. The Ethereum Foundation pegged its ETH token to BTC at 0.0005. The token later raised $20M USD. Apart from tokenizing its ICO, Ethereum unleashed smart contracts.
How to Invest in ICOs
This brings us to the interesting part: How to invest in ICOs. To participate in an ICO is not rocket science. We’ll take you through every step of the way right here. Get ready as we go through this step-by-step guide.
Acquire Bitcoin and/or Ethereum
To buy Bitcoin or Ethereum, just visit the website of any leading cryptocurrency exchange of your choice. Ensure that your bank account or credit card is loaded. Yes, you will pay in fiat currency. If you have a particular ICO in mind, start this process before the ICO rounds. Note that some exchanges, such as Coinbase, charge high processing fees of 3.99% for credit card purchases. Or, they charge 1.49% for paying through your bank. More importantly, if you plan to keep some Ethereum, don’t use two-factor authentication security. Also, move your coin into the vault.
Move Your Cryptocurrency to a Wallet You Control
You cannot participate in an ICO with your tokens stored on a centralized exchange wallet. So, you must move the coins to a private wallet. The ICO blockchain shows that you have sent the issuer your tokens. Later, smart contracts are programmed to send you the number of tokens you paid for.
To create an Ethereum wallet, which is the common token for ICOs, you can open an account with myetherwallet.com or parity.io. As for Bitcoin, you could visit blockchain.info. Bitcoin is rarely used for this. From there, you can send the Ethereum from your exchange wallet to the ICO. You don’t have private keys for your exchange wallets, so you cannot participate in an ICO from them.
Participate in an ICO
To participate in an Initial Coin Offering, visit the ICO page when the ICO rounds are on. You will see all the instructions there. Yes, they will post the address where all the tokens will be transferred to. Ensure you are sending it to the right address because scammers have infiltrated the crypto sphere.
Indeed, we think infiltration is an understatement. It is an outright hijacking. Notice if there is a token exchange at the posted address. It cannot happen on the centralized exchange. After this, take the next step.
Decide What to Do with the New Token
Heard of cold wallets before? They’re the safest wallets you can hold your assets in. The reason is that they are not connected to the Internet. You are strongly advised to use them when you have plenty of coins/tokens in your wallet. You may also use a hardware wallet. To get a hardware wallet, you can visit ledgerwallet.com or trezor.io.
Holding Coins That Your Wallet Doesn’t Support
Most coins meet ERC-20 standard protocol. The next option is to store your coins in a USB drive or an encrypted text file. After transferring from your computer to your USB, keep the USB safe until you want to use the tokens.
So far, this piece focused on explaining all there is to know about Initial Coin Offering. Keep in mind, however, that there are many exit-scams out there going by the name of ICO. So, ensure you go meticulously through their business models. Be convinced that the business plan is FEASIBLE. Don’t lose your hard-earned money due to the fear of missing out (FOMO).
There are many ICOs in the crypto sphere now, and still more will come around. But the minute you identify the right one, go ahead and follow the steps above. Lastly, before you give it a try, note that most ICOs accept fiat currencies and read the terms of participation in the white paper. Good luck!
It would be ideal if you counsel your financial, investment, and tax advisers before making any investments in Initial Coin Offerings (“ICOs”). All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by Crypto Block Wire constitutes an investment recommendation, nor should any data or Content published by Crypto Block Wire be relied upon for any investment activities.
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