In this post I will give you all the basics on an ICO as I know when you start looking at them first they can be confusing. When you get into cryptocurrency first it is like a whole new language you have to start understanding and then when you step into ICOs there is even more you need to understand and study. If your new to cryptocurrency then don’t forget to check out my Cryptocurrency 101 post as well.
Any ICO is risky and lending platform ICOs are even higher risk but also offer crazy high returns if they hit.
What is an ICO?
ICO stands for Initial Coin Offering and it is an unregulated and sometimes controversial way of crowdfunding via a cryptocurrency. It is similar to an IPO (Initial Product Offering) in the way companies use it to raise funds to develop their business but there are far less restrictions with ICOs on how they take place and how the funds are used.
Are ICOs Legal?
Currently as I type this people in the USA or Singapore are “not allowed” to participate in an ICO. From all the ICOs I have looked at some of the top tier ICOs implement this by using KYC (Know Your Customer) where they ask all customers to provide proof of citizenship, some say it on their website that they don’t allow US citizens but they never implement it or track where customers are from and then the rest don’t bother about it at all and fire ahead.
Some ICOs use your IP address to track what country you are in and the workaround alot of people in the restricted countries use for this is a VPN which is basically a piece of software that you install on your laptop or phone and it makes it look like you are in another part of the world. Some security conscious people use a VPN all the time and some just use them when they want to look like they are from another country.
What to Consider Before Joining an ICO
ICOs are risky as you are funding a startup business but they can also be highly rewarding. I have got into ICOs that have then went on to 50x and I have also have 1 that is trading under the price I bought it for in an ICO, that one was my first ever ICO but it could happen with any.
You should only ever put money into an ICO that you can afford to lose in my opinion as nothing is guaranteed. Expect poor support if there are huge numbers in an ICO and if you get good support its a bonus. Try and remove your emotions from the money as much as possible and dont get drawn into the FUD.
If you are getting in multiple ICOs like we do with the lending side then use different passwords and never use the same password as your email account just in case.
If the platform offers 2FA which most should now then use it as it makes it very hard for anyone else to get into your account. Google 2FA is where you can install an app on your phone and every time you try to log into a website with 2FA enabled you will be asked for a random password from the app.
Types of Coins
There are mainly 2 types of coins that you will be buying.
- ERC20 token which is a token that is created on the Ethereum blockchain. Personally I like ERC20 tokens as the big advantage of these is that you can normally withdraw them to your ERC20 compatible wallet straight away. With ERC20 tokens sometimes everything is done through the smart contract where you send the Ethereum funds to the smart contract address and it then sends back the tokens / coins to that specific address. If the distribution is done through the smart contract like I described then make sure you only send funds from an ERC20 compatible wallet eg MyEtherWallet
- Own Blockchain – This s where the company has created their own blockchain and usually they have created their own wallets as well. With these generally you send your funds to the address they give you and you get the coins in your balance on their website. If they have already created their wallet you should then be able to withdraw to that wallet but sometimes you need to leave them on the website until the wallet is available or until the coin is listed on an exchange.
I will do a full video and blog post on the differences of these at a later date.
Some coins will only accept Bitcoin and then you will have others that accept Ethereum. We are now seeing some accepting Litecoin and Bitcoin cash.
The funding method with most ICOs is the same, you create an account, select how many coins you want to buy and then the system will generate an address for you to send the funds to. When sending the funds it is always advisable to only send them from your own personal wallet and not an exchange.
When it comes to Lending platforms is it also not uncommon to have to preload your account with bitcoin or Ethereum so as soon as the ICO goes live you can then buy.
Other Useful Terms
- Blockexplorer – This is where you can view all the transactions of a coin. eg here is one that shows all the bitcoin transactions – https://blockexplorer.com/
- MEW – This is MyEtherWallet and it is the most common ERC20 compatible wallet
- ERC20 – This is a token created on the Ethereum blockchain
- FUD – Fear Doubt Uncertainty. You get alot of this in ICOs when things aren’t going well and can have a big effect on price.
- FOMO – Fear Of Missing Out. If people start to see an ICO gaining traction and attention this can catapult it to another level due to people join for FOMO.
What I look at in an ICO?
I’m going to split this into 2 parts as if you follow my YouTube channel you will see I have looked at alot of lending platform ICOs lately which I would class as very different than traditional ICO.
With a traditional ICO I always look for the following:
- What is it?
- Is the tech they are creating innovative?
- What is their history? Any popular faces on their board of advisers?
- Market Competition
- Is the market they are targeting very crowded? Do they have a unique approach or a competitive advantage?
- Do they already have a block explorer and wallets?
- Is it an ERC20 token that you can withdraw to an ERC20 wallet or have the company created their ow n blockchain?
- Are there alot of people talking about the ICO and what it is bringing?
- With all cryptocurrencies they need people and they need hype to get people interested and buying. Some might not agree with me here but from everything I have seen every successful coin needs to have a very supportive and enthusiastic community behind it to drive it to it. Take a look at Electroneum as an example where they have built a huge community and the community is out telling everyone how great the coin is which is pushing the price up even outside what tech developments the team are bringing with the coin.
Lending Platform ICOs
First what do I mean by a lending platform?
A lending platform is a something like Bitconnect or Davorcoin where you buy their coin and then you can lend it to them and they trade for you. You lend it to them at the current USD value of the coin and they pay you daily interest on that. Alot claim to give the returns from trading but in reality we don’t know.
These are a different breed altogether and you need to be very cautious as there are new ones popping up every day of the week now and alot of them are scams. In general terms what I look for are:
- Are they just a lending platform?
- What else do they offer?
- Is it an ERC20 token or a coin with its own blockchain? Explained above
- Is the team visible? Most in the lending space don’t show themselves which I accept here as these are extremely high risk but I wouldn’t accept that in a traditional ICO.
- Does the whitepaper make sense and show they understand cryptocurrency? eg I have seen whitepaper for coins that have their own bloackchain talking about launching on Etherdelta exchange when in reality etherdelta only accepts ERC20 tokens
- How does the site look? Good quality or crap theme put up on a poor server.
- How long is the ICO and when do they plan to hit an exchange as your coins / tokens will be locked until they do?
- Do they allow withdrawals during the ICO? Some ICOs that you preload your funds into will lock the funds until the ICO is over.
Conclusion on ICOs For Beginners
Obviously we can’t cover everything in one post but I have given out alot of information above which will hopefully help you and I will be adding to it over time so bookmark this page and check back. If you still have questions that I haven’t answered here then please let me know in the comments below and I will add it in. People are always asking me what ICOs I am in so I have a page called Crypto Links where I constantly update all the ICOs that I am in or looking at along with my latest thoughts on them.
If you got value from this Please Consider SHARING to help others be more informed when they are joining an ICO.