Hello Steemians,
I’m back with yet again another piece, something back on the topic of cryptocurrency this time however, ICOs, otherwise known as Initial-Coin Offering(s), something I get a lot of questions about not only from friends and individuals I mentor about digital currency, but friends of friends whom are stock market investors that religiously trade on the stock market only; there’s a major curiosity when it comes to ICOs and if you’re here, I guess you’re just as curious as I was years ago as well! The curiosity mainly comes from individuals wanting to invest in the next ‘Ethereum’, the hunger for early adoption in something that can make individuals insanely rich or millionaires in a short span of time can interest almost any individual and that’s where majority of the interest and popularity of ICOs come from, the potential of becoming an early-adopter in something that change life as we know it – oh and the monetary gain for the Lamborghini you’ve always wanted, right?
What is an ICO? How do I invest in an ICO? What are the risks of an ICO? Are there any guarantees I’ll profit when investing in an ICO?
These are all questions I’m sure you’ve asked before and by the end of this article, you’ll be able to:
- Gain a rough/intermediate understanding of what an Intial-Coin Offering is
- How to participate in an Intial-Coin Offering
- Understand the tale-tale signs of an illegitimate Initial-Coin Offering (otherwise known as a ‘scam ICO’ or just a ‘scam’ in general.
- How to analyse the project team behind an Initial-Coin Offering and deem if it’s worthy of your hard-earned cash
What is an ICO and what does ‘ICO’ stand for?
If you’ve come from a stock market background, you’ve got a major advantage of starting out here as an Initial-Coin Offering is very similar to what’s known as an IPO – Initial Public Offering and if you’re unsure what an Initial Public Offering is, an IPO is the ‘stock market launch’ equivalent of a ‘cryptocurrency token launch’ in which a company will offer its ‘stock’ to the public for the first time – these of course are usually done by companies which are somewhat new, somewhat small and are of course, looking to expand and raise capital to do so, the same concept can be applied to cryptocurrency but ‘companies’ are usually referred as ‘project teams’ however they can still be privately registered companies behind the project.
So we know what an Initial-Public Offering is and to make things simpler, we can now go ahead and apply the exact same concept to an Initial-Coin Offering (ICO). Do you think you can explain what an ICO is now roughly without reading ahead? Well if not, it’s essentially what we explained before, a funding mechanism and this is where projects will pitch forth their idea and what their project strives to offer, also involving the goals of the project and what the usability of the token (coin) will be or maybe even an issue with something in particular the token aims to solve; an ICO may also be referenced as a 'crowdsale'.
Regulations, legalities, procedures.
Initial-Coin Offerings are still quite arguably new to the cryptospace and one could certainly still say they’re still in their infancy stage and when talked about in legal aspects, the area can be quite sensitive. However, times have taken a change for the better and Initial-Coin Offerings have seen new introductions of various regulations, procedures and policies and not only that, they have been made increasingly harder to participate in – now you may see this as a bad thing, but please, do not as I’ll explain why this is better for people like me and yourself below.
I’m sure a lot of people can agree that money really can change people, it can influence their actions, make them think differently or even become something they’re truly not, you’ll see this a lot if you do decide to participate in Initial-Coin Offerings in the future and decide to interact with other investors socially (we’ll get to that soon). My point on this is, a lot of people in Initial-Coin Offerings are there just to make money, this isn’t good, in fact it’s quite disrespectful to accredited investors that do vigorous research and analysis to only have their potential spot stolen from them by someone who just screams ‘moon’, ‘lambo’ or ‘im gonna be rich soon dude lol’ – these are the type of people you’ll find in the social aspect of ICOs but it’s best to just ignore them, generally they’re the type of people that:
- Review only a minuscule amount of research upon a project if any – whitepapers, project goals, information on the project members etc
- Invest more money than they can't afford to lose – e.g taking out loans, playing with rent/food money allowances and expect massive profit by doing so
- Spam social media with false or just plain silly information – e.g in Telegram/Discord channels with constant ‘moon’/’lambo’ without being able to recite basic information about the project they’re investing in
[DON'T BE THIS]
Now what I’ve described is true, there’s many, many people like this in cryptocurrency let alone participants like them in ICOs, do they sound annoying to you? Very? Yes, even more so when they take away the investment spot of a person who does the complete opposite and shows dedication towards a project, but like I said, times are changing and that’s why the introduction of more regulations and procedures is good for investors that actually want to properly research a project and dedicate time to it like yourself (because you’re here and you’re actually doing research)!
Unfortunately, you will sometimes not even be allowed to get your leg in the door as certain countries, particularly those who have set laws in place stating their stance again Initial-Coin Offerings will be banned from participation, if you hold legal citizenship of: China, India, Canadam USA and North Korea (projects reserve the right to also decline participation from other countries) you can almost expect yourself to be banned from participation in ICOs due to local laws, however, all hope is not lost as there is one alternative loop-hole you can use – this would be to simply have a friend who has citizenship in a country which authorised for participation in the said ICO to then simply participate themselves and include your capital also, this is somewhat risky as you have to rely on someone else but at least there’s an alternative in comparison to completely not being able to invest along with having zero alternatives whatsoever, ensure your friend/acquaintance does their own sign up with their own real identity to avoid legal issues and breach of laws.
Procedures of an ICO
In short, a common ICO would go like this (not specifically, this is only to give you a rough idea):
Project team sets up social media and begins marketing their project with an ETA on the possibility of an Initial-Coin Offering in the future
Project team releases in-depth information regarding the product and also the token (such as whitepapers etc)
The project team will then start outlining the plans/process of the ICO to their followers/potential investors, during this time they’ll also set up the back-end of any technology they’ll be using – e.g smartcontracts (https://blockgeeks.com/guides/smart-contracts/)
A period is set for when ‘KYC’ (Know Your Customer – will be explained below) applications will start being accepted and for when they’ll the acceptance of applications will close
A date (usually in the form of a quarter – e.g Q1, Q2, Q3, Q4) AND time (with a declared timezone) will then be set in either the near or far future for when the ICO or pre-ICO will be conducted
Project team prepares for the ICO and continues to work on their product/project
[On the day of the ICO] Investors contribute their cryptocurrency or fiat towards towards a specified outlet/wallet address supplied by the project team
ICO ends after either a time-limit which was set by the team has been met or the hard cap has been met
Cooling off period begins where the team will resolve any issues, verify transactions were successful, offer support to individuals who had issues and also begin to refund individuals if necessary (e.g donating after hardcap was met)
After some time or rather quickly (varies) tokens will be distributed to the chosen source by the investor
Token will be listed on exchanges shortly after distribution or whenever the team feels it’s the ‘right’ time to do so, this could be months
Exchange listings are announced with a grace period allowing ICO investors to deposit their tokens on the platform early to get ready for trading the token which will eventually be listed and will be available to buy/sell
Token begins trading on exchange(s) - [profit or loss can be calculated at this stage]
Project team continues to work on their product, updates their social media and ideally, pushes out constant updates
So there you have it, there’s a rough idea of how a common ICO will go, however it’s not definitive as ICOs can of course be vastly different to some other projects, some can have pre-ICOs (an event of a token sale BEFORE the actual initial-coin offering), switch some steps around and just generally have different procedures from the ‘norm’ – if this is the case you should tread carefully, change is good, but it can also be somewhat suspicious also as people have had to learn the hard way in the past.
What are the red flags of an ICO?
When you’re interested in throwing your hard-earned cash into an initial-coin offering, you should always tread carefully and when someone tells you something like “this ICO is a guaranteed money maker” – no, no. Tell them they’re wrong, because NOTHING in cryptocurrency is guaranteed, let alone life. Project teams can easily disappear off the face of the earth with your money/tokens. Also later down the line even if everything seems to be going swell, a project can rebrand their token or claim they’re ‘releasing a new, better token’ out of nowhere which is usually a lie for them to mass-sell a token to take profit and steal money, leaving many investors with tokens worth next-to-nothing if not absolutely useless, a great example of this is Bitconnect.
Touching up on Bitconnect, it’s another reason why you should not believe when you are ‘guaranteed’ profit such as Bitconnect did, it was the obvious tale-sign and the BIGGEST red-flag about the project, yet people wanted to ignore it and think it was the best investment of their life and yeah, I’ll admit it, it’d have made them some cash and maybe some early investors rich, but there’s no way on earth people would’ve pulled ALL their profit/money invested in Bitconnect out, so when they shutdown and exit-scammed, those people who invested would’ve lost a sizable chunk of money, some people notably losing their homes, their families life savings and even amounts in the hundreds of thousands ($100,000’s) which is absolutely insane. You can read more on the Bitconnect-ponzi scheme here: (https://thenextweb.com/hardfork/2018/01/17/bitconnect-bitcoin-scam-cryptocurrency/)
You should always carefully review a project teams social media, are they posting a lot? Are they posting at all? Are individuals interacting with them? Do their followers/subscribers seem organic or fake? (botted) – these are just some of the questions you should ask, you should go by instinct and if you’re someone who’s unable to do that naturally, ALWAYS get second if not third opinions, you can even ask people online if you have no friends to go directly to regarding cryptocurrency. Projects will generally upload code to a ‘Github repository’ where they will then push updates and interact with other developers and users on the platform, with this we can see exactly what type of code is being pushed into the project along with how active the developers are. Now, just because developers aren’t active certainly does not mean it’s a red flag however it IS room for concern, if there isn’t any interaction between the team and investors along with no activity from developers, that’s a red flag and personally I’d stay away depending on other analysis. Look out for a project posting on coincalender (https://www.coincalendar.cc/) as well as this is popular for cryptocurrency project teams to use as an answer to the common ‘plans for the next five years?’ type of question.
You should scan the website, every project team should have a website relevant to their token before or during an Initial-Coin Offering, if they do not then this is a massive red-flag and I’d absolutely stay away, this is core and there’s no excuse for not setting up and developing a website that’ll supply resources of what the project aims to offer/solve to the public. Scan the website for any information you can use to your advantage, whether it be introduction videos, different tabs about the team (always do research on team members and do your best to verify they’re real and involved), roadmaps, whitepaper availability – your aim is to squeeze as much information out of the website it has so you’re able to go on instinct and make a final conclusion.
There is no right or wrong answer to this question, we was investors will never know whether a project is a scam or legitimate or whether it'll 'moon' with great profits or sink lower than our buy in price, not without proper insider information from those actually governing the project, as even staff members (out-sourced telegram Administrators etc) may be unaware of a projects true intentions. Always tread carefully, always do research, always invest what you CAN afford to lose and when in doubt, trust your gut on a long-term investment and hold off checking the price as long as you can if you truly believe in a projects potential.
What should I research before participating in an ICO?
I’m not going to write too much in this section, because I want to keep it as clear and concise as possible. As I’ve said above, you should always be constantly scanning the project for information, this is usually done by using social media (interaction with the team, other investors), Youtube (content posted by other investors/team members) or even their own website, which should be up and running and have a sizable chunk of information to offer.
The two biggest things and most common things you’ll get used to researching before you participate in an ICO, is a ‘roadmap’ and a ‘whitepaper’. We’ll start with the definition of a roadmap. As you may know, a ‘roadmap’ is a map (usually in the design of a curved/straight road) of a projects strategy in attempts to achieve the end-goal of the project. Usually this is broken down into quarters of each year out of a five-year period, e.g the project could be releasing another token sale in Q2 2019, which means anytime between the 1st of April to the 30th of June – they could also state Q3 2019 they’ll plan on releasing their own blockchain such as ‘Neotracker’ which is NEO’s own standalone blockchain. You should analyse a roadmap carefully and see if the planned releases in the future make sense and whether they could be beneficial to the project or plain right irrelevant and unacceptable which could mean the project could be a bad long-term investment for one simple event plotted on their roadmap, you need to make the effort of researching the true potential and technology behind digital currency to be able to conduct independent analysis, don't only invest your money, invest your time also.
Roadmap - a roadmap usually takes a few minutes to analyse, will generally fit inside an image in one webpage or page on a document/PDF and will be concise and as ‘straight to the point’ as possible, however, whitepapers get much more complicated, longer to analyse and require more dedication to understand – but this is not a bad thing! In fact, reading the whitepaper is the MOST important thing before participating in an ICO and is best practice when investing in any project, after you take in and dissect all the knowledge, you’ll either believe ‘this project can make a positive impact on our world’ or you could come to other conclusions, such as ‘how does this solve a problem?’ or ‘another project is already doing exactly what this project is doing, why should I invest in this?’ and so forth, very important.
Whitepaper - So what is a Whitepaper? A whitepaper is a document compiled by the project team that aims to inform investors/readers on what their token and project aim to solve or offer – they’ll help you understand what an issue is, usually in-depth to get a greater understanding, they’ll then explain how their project will solve that issue or what uses the token will provide. Some whitepapers are more detailed than others, some have better graphics, some are generally quite short and less informative (red flag!) that’s why it’s important to review and analyse whitepapers, if the team can’t be bothered to spend more than an hour on their whitepaper, why should you give them your hard-earned cash when they aren't even bothered about investing in their investors?
How do I participate in an ICO?
The final segment, I’ve saved this for last for a reason, it’s very important to not ignore or skip sections in this segment as it could mean the difference between participating in a successful investment, or worse, loss of money resulting in a failure.
Firstly, you’ll need to find an Initial-Coin Offering to invest in, you can now use all the information you’ve read prior to this and put it into play here. ICO drops is a great platform to display upcoming ICOs, it has statistics, a great breakdown on information about ICOs and other interesting things such as ROI potential (return of investment) along with ‘hype’ ratings (visit here: https://icodrops.com/). Once you’ve visited, head to the ‘Upcoming ICO’ section and keep reviewing every project in a descending order until you have found a project you personally think has the potential to solve an issue that we as a society currently deal with. You can also view the 'Active ICOs' however majority of them will have a KYC cut off and if they're active, chances are the deadline is over and done with BUT some have KYC registrations open throughout the entirety of the ICO, so it's worth checking.
Review their social media and identify a ‘hype’ factor behind a project, is there tens of thousands of interested investors? How is the marketing on the project? This can be a good thing if a project has a major hype factor behind it, as hype will usually mean there could be a ‘big pump’ after the token hits exchanges as hype generates interest (provided the ICO goes well with no major red flags), which almost guarantees more adoption in the future which in turn, could generate profit. Does the team regularly update their social media? Do they respond to questions from potential investors? Reddit is particularly a great place to discuss and analyse a project with other potential investors, project teams will usually post ‘AMA – ask me anything' threads here and also respond to questions when they can outside of AMA events.
Once you’ve seen their social media, time to move onto their website, review the design of the website, is the website secure? You can see this on the top-left of your address bar; I'd say this is important as you will be sharing extremely sensitive identification documents (passports, licenses etc) during KYC registration (will be explained below). Do they have a whitepaper available? If not, have they said when they’re releasing one? Do they have a roadmap on their website? Is the design of their website acceptable and professional? Identify basic information such as this and then proceed to analyse the roadmap first then the whitepaper information, this is of course your choice, but I recommend this as you’ll walk into the whitepaper with a decent amount of information already under your belt because of the roadmap which could motivate you more to finish it.
Once you’ve reviewed everything - Are you sold on the project? No? Well it’s time to look for another project and repeat the process above until you do find one, it’s great you’re doing that as identifying projects with bad potential is very important, you can't always just say 'that sounds good! I'm investing!' every time – if you’re sold on the project you’ve just chosen, you now need to move onto reviewing their ICO process, they should usually have a dedicated section of their website or a countdown timer to the date and time+timezone of when the ICO will be held and what tokens/methods required to participate in an ICO. You’ll find a lot of projects don’t release such in-depth information regarding their ICO until roughly a month before the said ICO will be open for investment deposits.
At this point, it’s a good idea to join the telegram for the ICO (if available) and begin discussing aspects of the project with other investors and even interacting with the team, they don’t bite! In fact, I’ve been apart of many large ICOs and have had questions answered promptly by teams along with replies stating I help out a lot in Telegram channels. There could be 90,000 people+ but don’t let that scare you from thinking you’ll be ignored or look like an ‘idiot’. As long as you have done research beforehand and the question you’re asking hasn’t already been answered in the uploaded material, there are no ‘stupid’ questions. In the telegram channel you’ll usually find information given in steps is displayed as the telegram ‘pinned’ message which will always be visible at the top and very helpful when you're looking to get started.
If the information regarding the ICO hasn’t been released yet, you can sit tight now and get on with your life with brief revision every now and then to brush up your understanding of the project, as the wait could be a few days, few weeks, but if you’re super early, even a few months could be an expected wait. Once the information HAS been released though, the team will state what tokens will be accepted, some maybe accept multiple, e.g Bitcoin, Litecoin, Ethereum etc – some will tailor the token accepted to the token type they’re planning on using (e.g ERC-20/NEP-5) and this is of course, the teams choice. E.G if you’re investing in an ICO on the NEO platform and the token type is expected to be NEP-5, you can more or less guarantee NEO will be accepted as a means to participate in the token sale before the information is even released. Usually ICOs will not accept actual money (fiat) for an ICO, it’s rather rare, so always expect to be participating with a digital currency, if you’re unsure how to buy digital currency right now – although this guide is aimed at those already involved with cryptocurrency, you can view my article on how to purchase and get started with cryptocurrency here: https://steemit.com/cryptocurrency/@jerrellemckenzie/getting-started-with-cryptocurrency-and-how-to-purchase-it-coinbase-binance-kucoin
- KYC (Know Your Customer) - Every ICO will usually require a KYC process, KYC stands for ‘Know your Customer’. This is a process where an institution will collect information regarding the identity and residence of investors and verify they’re legally clear for participation, without KYC, an ICO can be deemed disallowed in certain countries if not deemed fully illegal as a whole, some KYC processes can be more advanced than others, requiring more information and steps/questions and will generally always undergo a manual review (although some are automatic) which can take days if not weeks depending on the demand of the ICO and how many people are applying for the KYC process also. If you fail the KYC, you’ll usually not get a second chance with most ICOs, so it’s very important to do your utter best when filling it out and put maximum effort in as a denial could mean you’ve missed out on a potential ICO that could've returned you some serious profits.
The big day is here! When the date comes, you’ll want to be ready for when the ICO will be held. E.G if the ICO is held on Cetral Standard Time +7 (CST) 14:00 and lets say you live in the United Kingdom currently with the timezone of British Summer Time +1 (BST) this would mean the ICO is held at 20:00pm BST (8pm – British Summer Time) for residents in the UK. It’s important to convert your timezones, if not you may miss the ICO depending on the country you live in.(https://www.timeanddate.com/worldclock/converter.html? – handy tool)
ICOs can last for seconds, hours, days, weeks or even a full month, as said above it depends on popularity. Personally I’ve seen and participated in very quick ICOs, Arcblock is an example which met their Ethereum hardcap in roughly a minute, whereas their CMT (cybermilestoken) lagged behind taking roughly 3 minutes to reach the cap, but this is still extremely fast right? Compared to some ICOs that last a full month and still don’t meet their target. You need to be ready at least an hour or so before, as you’re competing with hundreds if not tens of thousands of people.
Hardcap – In an initial-coin offering, a hardcap is the utmost money the project team wants to raise and take in, e.g if the project aims to raise $20,000,000 (20 million) then that’s all they need to get the project afloat fully and do not desire excess funding, some projects have known to take more money than they need just because the hype behind their project grew massively, this is sort of a red flag and I’d find it pretty disappointing if a project I invested in did this. Returning the money to investors who contributed AFTER the hardcap was made, is the honourable thing to do and many, many projects have done this, which is a great sign.
Softcap – A softcap will always be lower than the hardcap, a soft cap states how much money the team is AIMING to raise, the hardcap remember, is the utmost they’ll take in for allocation of tokens, however the softcap is what they strive for to develop the project and use the funding for what they need.
Uncapped - You’ll find many ICOs aren’t uncapped these days and it’s usually a red flag when they are, this means there’s no literal cap and the team will take in any amount of money they can, usually making it a ‘fundraiser’ rather than a sale. The second biggest example of an uncapped ICO was ‘Tezos’ which pulled in a whopping $232,000,000 (232 million).
When participating in an ICO it’s best to send by a reliable wallet, usually during an ICO servers on popular wallets will overload and then you’re stuck behind if you’re literally not quick enough, unfortunate, yes to keep things simple I’ll recommend trusted wallets to use when sending tokens, you are absolutely free to research other wallets. Remember, these are just recommendations and are no way actual steps, it’d take a long time for me to outline wallets for every token out there.
Common wallets used for ICO participation
- When participating with Ethereum: https://www.myetherwallet.com/ (see information on ‘gas wars’)
- When participating with NEO: https://neonwallet.com/
WARNING: NEVER, EVER USE AN EXCHANGE WALLET (E.G BINANCE/KUCOIN/COINBASE) TO PARTICIPATE IN AN ICO, DOING SO HIGHLY RISKS THE LOSS OF YOUR INVESTMENT WITH NO RETURN.
Social media/resources I recommend to be signed up for to actively review information for an ICO:
- Github / Coincalender / Project website
- Instagram / Facebook
- Telegram / Slack
- Discord [More informal]
Summary
There you have it! My simple article/start up guide on understanding what an Initial-Coin Offering is, how to participate in one, how to understand the red flags and generally all the information any novice user in cryptocurrency should be aware of when it comes to Initial-Coin Offerings. I haven’t gone fully into depth as I wanted to keep this concise, short but informative as possible - so I do encourage more advanced research on ICOs along with the technology behind digital currency itself; if you have any questions whatsoever, or even if you're confused by some terminology, have suggestions or spotted an error/mistake please do leave a comment and I’ll go ahead and reply to your comments as soon as I can. I'd also be EXTREMELY appreciative of upvotes and resteems to hopefully get the content out there, it goes a long way! Thank you in advance.
ICOs as said above, are evolving and becoming more complicated to participate in, you should also generally expect to take pictures (selfies) of yourselves with your identity and sometimes you'll be required to create a physical 'fan sign', if you do not want to do this then ICOs may soon not be for you as they're ever-growing and becoming much, much more secure and legally regulated. Please also note drastic changes could come in the future and if and when they do, I'll certainly submit an update guide.
