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In the past, the tech companies, the startups with the viable ideas as well as the virtual currencies had only a couple of ways to raise their funds. This includes the bank loans, the private equity, Kickstarter or the Venture Capital. Sadly, the opportunities for investments were limited to just a few investors and that you are required to know the right people for having to access the funds. But this was all in the past. The rise of the cryptocurrencies, blockchain technology has brought a change to how the companies develop and trade ICO tokens.
In the bid to raise enough funds for their projects, the tech startups now have blockchain to turn up to. While preparing, they also gather teams of capable individuals from across the countries globally and then they sell themselves to the public via the social media platforms.
Then the investors like you from any location across the world can buy the investment using cryptocurrencies. The volume of the investment is limitless while you can do as little as $50 or as high as $100,000 as it all depends on your decision. However, it is also important to note that the Initial Coin Offerings (ICOs) can be accessed by everybody and anybody can invest in that.
What Are The ICO Tokens?
To state it simply, ICOs is a crowdfunding mechanism that is favored by the companies that trade in cryptocurrencies in place of fiat currencies. ICOs can be compared with the IPOs or the Initial Public Offerings where the latter dominates the mainstream finance and business.
Both of their functions can be compared to the fundraiser campaigns by the startup companies that possess a requirement to create a coin or an app or even a digital service having connection to the blockchain. As soon as an ICO takes off, the potential investors bearing the existing digital tokens such as Bitcoin (BTC) or Ether (ETH) can purchase into the Initial Coin Offering.
Even all of those who do not already have an existing cryptocurrency wallet can also go ahead and create a wallet or choose to purchase with their fiat currencies. The in exchange receives a brand new crypto token that is specific to that particular ICO. In future, it is anticipated that the tokens they acquired will add more value offering the investors a good Return On Investment (IRO).
Background Information On Initial Coin Offering
Today, most of the token sales run on top of the Ethereum blockchain via the smart contracts that acquire Ethereum (ETH) tokens and automatically exchanges these for a new token that the particular startup company presents. This occurs completely peer-to-peer (P2P) devoid of any brokers or cryptocurrency exchanges functioning as middle men.
Each and every ICO possesses a different pricing mechanism (price increases, decreases, fixed or non-existent). The issued token’s exchange rate might be fixed, offering the investors the opportunity to receive as many tokens that they would like at that fixed price. This mechanism is pretty appealing to the large investors as they do not have to worry about influencing the price by buying a big number of the token.
As soon as the token sale ceases, the cool-off period starts where the tokens might be frozen meaning the investors are not permitted to transfer their coins for a specific amount of time or even kept away from the exchanges. After the cool-off period gets over, the exchanges can begin listing the tokens thus permitting the other people to trade it at a market price.
Going back to the pricing mechanism, the developers possess complete freedom on how they wish to set up the sale of the tokens. It is almost impossible to cover all of the ICO scenarios. A developer might wish not to sell his tokens at a fixed rate but let people invest in his startup and then distribute the fresh tokens proportionally by offering each person a percentage of the tokens corresponding to the percentage of his initial investment that is a part of his total investments. In such a case if a startup gets a single investor, he or she gets 100% of the tokens.
Another kind would be a Dutch auction as presented for the first time by the Gnosis team, where the sale starts at the highest price per token and then proportionally decreases as the auction comes to an end.
Three Important Benefits Of Trading ICO Tokens
There are a couple of benefits that you will receive if you trade ICO tokens. However, here are the three most important benefits that you need to understand.
Democratization
The ICOs enable the projects to bypass the conventional process of applying for the funds via the venture capitalists and the mainstream financial institutions. All of the traditional routes utilize a lot of time and resources. Anybody can invest in the Initial Coin Offerings and harvest the possible massive returns.
Potential Of Earning Huge Profit
The value of the various currencies have gone higher from the cents to the dollars in just a very short span of time. Thus, the potential investors are eagerly willing to make good investments in the blooming upcoming ICO. Although some ICOs had been lacking the original technical potential, many investors including the spectators still indulged in betting on high returns that was responsible for the 2017 astronomical boost in price.
Scope To Invest In A New Or Emerging Technology
The ICOs permit the investors to put their money into the new and emerging technologies. Each and every ICOs have been targeted to revolutionize an industry. An in-depth analysis of the ICOs will assist the potential investors in getting into the right startup.
How Will You Trade ICO Tokens?
The ICO token sales are gaining a lot of attention from the individual sales and the institutional investors. People are often asking questions like “how to buy ico tokens”. The ICOs are referred to the new IPOs or the next generation crowdfunding. However, the blockchain ecosystem is still young and it lacks standards. This makes the token sale participation a challenge for the average person. In this segment we will explain step-by-step how you can participate in a token sale and trade ICO tokens.
1. Register With A Crypto Exchange
For participating in an ICO, you will require cryptocurrencies especially Ether (ETH) or Bitcoin (BTC). You might not be able to participate in an ICO with fiat currency. If you do not have cryptocurrencies, you will first have to buy them. The best way to purchase a large amount of BTC or ETH is via the online crypto exchanges and then send your transfer money from your bank account to the newly created crypto account.
You need to note that the registration process might need a couple of days owing to the rigid KYC and AML regulations. If you do not possess a bank account or are not looking forward to giving away your privacy by sending your id to any third party platform such as Coinbase, then there are other options such as buying digital currency from a crypto ATM like a BItcoin ATM or locally from reputed people.
2. Exchange Fiat For BTC or ETH
As soon as you are registered on an online crypto exchange and the money from your bank account has been deposited in your crypto exchange account, you will have to exchange your USD, EUR etc for the drypto that you wish to purchase. This process will take up a couple of seconds to a few minutes based on when the next block is created. You need to note also that the block creation times differ from one blockchain to the other.
3. Transfer Coins From The Exchange To Blockchain Wallet You Control
Next, your crypto coins will be sent to an online wallet that has been offered by the cryptocurrency exchange you have registered to. Storing large amounts of the cryptocurrencies in an online wallet might be dangerous as the online exchanges are vulnerable to getting hacked. Thus, it is highly advised to send your crypto coins to a wallet that you can control such as any hardware wallet that you prefer.
Another reason you need to consider for moving your coins to a wallet that is completely under your control is for the token sale participation. Unless your exchange will offer you explicit possibility for participation in a specific ICO with your online wallet, the general rule of thumb is not to send your funds from an exchange wallet as you will not have any access to the new token with most of the online wallets.
This means that if you are using a random online wallet for participating in an ICO, you will send money to the ICO address but will not be able to receive your bought tokens. This is equal to losing your investment. In case this happens to you, then you would require to contact the tech support of the online crypto exchange. They will try to resolve the issue.
You must also note that most of the cryptocurrency exchanges are currently overloaded with the requests and mostly they possess pretty meager customer service. Moreover, the exchanges might not be bound to process all your requests depending upon the conditions that are set in their general “terms of use”.
4. Set Up Your Wallet
Currently, most of the token sales occur on the Ethereum network. Thus, you will require an Ethereum wallet for participating in the troken sale. It is a fact that not every wallet is suitable to trade ICO tokens. The most widely accepted and user-friendly ETH wallets are MyEtherWallet and Metamask. The best thing about Metamask is that it is a plugin for the Google Chrome browser and in addition to being a wallet, it is also a very lightweight Ethereum dApp browser.
On the contrary, MyEtherWallet is a client-side wallet and never holds your private keys. It also connects with several hardware wallets such as Trezor or Ledger Nano S. Based on the startup and ICO, one of these wallets might be used for participation. If the startup has not specified a preferred wallet for the ICO participation, you might choose Metamask.
Metamask is a desktop kind of wallet for cryptocurrency but storing large volumes of crypto is not recommended. You can use it for the ICO participation and then transfer your funds to a more secured place such as a hardware wallet or cold wallet and/or paper wallet. Do not forget to backup your wallet. Additionally, store your 12 word seed in a very safe and secured place but not in the cloud. After your wallet is properly set up and backed up, you have to send your ETH from the online wallet at the exchange to your MetaMask wallet.
5. Find An Eye-catching ICO
This is one of the important steps with which you can monitor the ongoing as well as the upcoming ICOs via many websites. Once you have selected one, you are required to perform specific checks.
- Check the website of the company offering ICO to follow up on the project by studying the white paper. Additionally, you need to know the people involved in it, their funding plans, their road map and the other people’s opinion about the ICO.
- Next visit the Reddit ICO Subreddit or even the BitcoinTalk forum for gathering information such as the ICO sale date and the availability. You need to be ready with the required funds as the ICOs consume just a very short window for selling out once it opens.
6. Get Your ICO Checklist Ready
Next, you would need to undergo familiarization process with the specifications of your chosen ICO and when it is ready to surface the market, the people behind it will release a publication on the ways to participate that covers the details like:
- Name of ICO
- The address
- The commencement date and time
- Starting block number
- Data field entry
- Gas Limit (recommended)
- My bid
- Guide on how to participate with crypto wallet
- Your wallet password, login details, and private key
- Gas Limit means the fees to send ETH for the Initial Coin Offering
- Your funds should be able to cover the fees as well as the investment proper.
You need to check the ICO list properly to find out the one that suits your preference.
7. When The ICO Begins
Send your investment fund to the ICO address that has been published by the project. Also set the right gas limit for your transaction to be consumed.
8. Wait For The Countdown
The top resources for getting your information shortly before the ICO includes the following:
- The ICO projects
- Blogs
- Telegrams
- Slack channels
9. Buy The ICO Tokens
Before you proceed to buy the ICO or trade ICO tokens, make sure you read the general terms of the ICO and the token purchase agreement. Most of the startups offer a step-by-step guide for the token sale participation. This includes the screenshots for each step. You must also join the social media handles including slack and follow the news around the ICO. Sometimes the token sales experience some technical errors and staying updated during the token sale is crucial.
All the ICOs either start at a particular time or a previously specified block number. You can also use an Ethereum block explorer for checking the block numbers that translate into real time of the time that you reside in. Take a note that some of the ICOs end in just a matter of minutes. Thus, using wallets such as Parity will permit for more advanced setup options that might be recommended, in case you anticipate that the token sale might end quickly.
When the token sale begins, you will be required to send ETH to the address that has been specified by the ICO team. You will also need to set a proper gas limit that is controlled by the interface of MetaMask.
10. Claim Your ICO Tokens
After you have sent the transaction, there could be a couple of scenarios after you have opted to trade ICO tokens:
- You receive your tokens just after the sale of the token ends.
- You will have to wait for a couple of days for your tokens.
- You will be required to redeem your tokens manually.
Under the normal circumstances, the tokens are made available between two weeks or even a month. However some take a relatively longer time and this time is dependent on the ICO type.
Note: In some of the cases, the hackers might have manipulated the ICO websites. Thus, by exchanging the real ETH address with their own ETH address the hackers try to acquire funds from the investors and the investors never receive their tokens.
11. After Your Tokens Are Claimed
You can go ahead and hold your crypto tokens in your crypto wallet. On the contrary, the start-up that is responsible for the ICO will possess their own blockchain or wallet. Occasionally, the ICOs go into partnership with the wallet companies and the cryptocurrency exchanges in the bid to provide support to their token. It is crucial to note that the tokens are transferable from one secure wallet or crypto exchange to another.
12. Secure Your Acquired Tokens
If you are using MetaMask or Parity or MyEtherWallet addresses, you need to make sure and transfer the received tokens to a more secure wallet. You will also be required to possess some extra Ethereum (ETH) in small amounts in your wallet for paying for the transaction costs of sending money from one wallet to another.
Key Takeaway
Investing in ICOs and even if you trade ICO tokens, you are exposed to big risks that all the potential investors must understand before putting all their money into this kind of investment. They must also have a clear knowledge about ICO drops and check what they are actually going for. However, anyone can invest in ICO and that is not a difficult process. But as an investor, you need to read carefully all the announcements and disclosures thoroughly before making an investment decision. Additionally. You must also keep a note if investing in ICO tokens is legal in your country.
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