Investing in ICOs or Token Sales: A Step-by-step Guide

Wondering what’s the process for investing in ICOs or token sales? Here’s a step-by-step guide that tells you how to properly do it, including buying, transferring and storing your tokens!

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Investing in ICOs is super hot right now. Our tips on how to invest in ICOs found that $1B were pumped into tokens in first half 2017. The record for the largest token sale ever was broken multiple times within a span of a few weeks. First it was Bancor, then Block.one/EOS and then finally Tezos, which raised $232 million through its crowd-sale!

It’s tough for regular investors to wrap their heads around such dizzying numbers. Yet many investors want to enter this fray. For new investors, here are our key financial tips to invest in this asset class. Read that first so that you can protect yourself against or at least be aware of the risks involved.

For new investors interested in investing in ICOs, here is a step-by-step guide on how to properly do it:

Step 1: Buy Bitcoin, Ether or other cyptocurrency for investing in ICOs

You can buy tokens in an ICO usually against other cryptocurrencies only. Most ICOs accept Ether and Bitcoin. Some token sales also accept other cryptocurrencies, such as Waves or Ripple. Few accept USD or bank transfers. Therefore, if you’re regularly investing in ICOs, get Ether or Bitcoin first.

To do so, make the purchase on any leading cryptocurrency exchange or wallet, such as Coinbase. You can use your bank account or credit card there, though credit card purchases incur higher fee. It usually takes up to about a week for you to get hold of your cryptocurrency. So plan ahead lest you miss out on your chosen ICO (some close within seconds!).

Step 2: Transfer the cryptocurrency to a user-controller wallet

Centralized wallets like Coinbase cannot be used for investing in ICOs. This is because you don’t own the private keys to your Ether or Bitcoin address. When you buy in an ICO, the seller immediately sends tokens back to your address. In absence of a private key, any token sent to your address will be inaccessible (or lost forever) to you.

Therefore, you need to set up a fully user-controlled wallet on a local drive. You can use services like My Ether Wallet, Jaxx, or Blockchain.info to do this. A few wallets allow you to invest in ICOs at a very specific time as an added feature. Since some ICOs are sold out in seconds or minutes, this feature can be very handy. One such wallet, Parity, was hacked for $30M in July though, so be careful.

Understand the gravity of your above action. It is like storing gold in a locker at home. If someone breaks in, they can take the gold away. Ideally keep the drive with your wallet disconnected from Internet so that you cannot be hacked (cold wallet). Buy a cryptocurrency hardware wallet, such as Ledger Wallet, to ensure complete security. Also, don’t mistakenly throw away or misplace your drive or hardware wallet. It’s like throwing the locker with gold away! Of course, hardware wallets do offer some recovery options.

Step 3: Investing in ICOs from your wallet

During the ICO or token sale, the seller publishes an address to collect funds for a limited time. Use your private wallet to send the cryptocurrency to the address of the token sale. Be careful though, as scammers can create fake addresses of ongoing ICOs to siphon off money from unsuspecting investors.

Once the seller receives your Bitcoin or Ethereum, they immediately send back tokens to your address. Also, you might be really keen on investing in ICOs you’ve chosen, but worried that you’ll miss the boat due to time crunch or your unavailability. In such cases, you can also bid using smart-contract powered bidding rings.

Step 4: Store your tokens securely

You need to securely store the tokens you’ve purchased in the sale. Just like in step 2 above, ensure you guard against both virtual attacks and physical risks. A cold hardware cryptocurrency wallet, as Ledger Wallet, is useful to store your tokens too. Check if it supports your new token as well before buying. Once stored on your wallet, disconnect from your computer and store safely till next use.

Most tokens now follow the ERC-20 standard (Ethereum based standard). However, in case your token isn’t built on that, you might not find a hardware wallet that supports it. In such a case, save your tokens on an encrypted file on a USB drive. Stash it away safely then till needed next. Remember, investing in ICOs is only useful if you know how to safeguard your investment!

Step 5 (Optional): Store your tokens on an exchange

One option that might be available to you is to store your tokens or coins on an exchange. Availability of such an exchange will vary from token to token and it’s popularity. In the future, services like Bancor may offer easy options for liquidity and storage of your tokens as well.

Additional tip for investing in ICOs

Always create a piece of paper with your information necessary to re-create your private key. Each token should guide you on specific steps needed to do that for that token. However, if you can withhold some information that you can memorize, it’ll become a good failsafe against hacking.

So now you know the steps for investing in ICOs. We advise you to go ahead and play around in a few ICOs with very little money first to get a hang of it. Once you’re comfortable with the process & technology, that’s when you should dive in to make proper token investments.

Don’t forget to check out our important tips on how to invest in ICOs that are a must read before investing in ICOs. Happy investing!

How to Invest in ICOs: 5 Tips for Dummies

Wondering how to invest in ICOs, or how to understand more about token sales? This article provides 5 key tips to keep in mind when starting to invest and make the best of the opportunity!

How to Invest in ICOs

As we write this, immense interest pours into initial coin offerings, or ICOs. For the uninitiated, ICOs are crowd-sale of crypto assets, including cryptocurrencies and tokens and coins. Early adopters made millions in the amazing bull run of Bitcoin & Ethereum till date. Now those people are the key force behind the huge interest in ICOs today. However, a majority of people still wonder what ICOs are and how to invest in ICOs.

Consider this – multiple ICOs raised nearly $1 billion in the first six months of 2017! This is huge by any measure, considering tokens are a fairly new concept. It is fair to say that many more people are entering the crypto fray now.

However, due to high volatility in prices, investing in crypto assets remains highly risky, even for Bitcoin and Ethereum. For the people who are still keen, here are 5 tips to keep in mind while trying your hand at investing in this asset class:

1. How to invest in ICOs: Understand the various risks

Technological risks: Tokens are a very new technology. They aren’t like regular money we’re used to. Be sure to understand the basic technology, and most importantly, how to save and use your tokens. Tokens are saved on digital wallets. For your wallet or the wallet provider, hacking is a real threat. Also, wallets have complex (un-memorizable) public & private keys. Losing your keys is akin to burning your money. It’s not like a bank where you can ask for a password reset!

Economic & financial risks: Crypto economics is in its nascent stage and most projects are in their infancy. So factors behind success and failure of projects are not understood well. Time will tell and more knowledge will be available later, but today they’re largely an unknown.

Crypto assets are financially risky due to their high volatility. In the foreseeable future, the volatility will remain a feature of this asset class. Therefore, don’t be the guy who wanted to take a personal loan to invest in cryptocurrencies. There’s only an outside chance that strategy may turn out to be lucky. It may be lucky, but will definitely be stupid!

Legal risks: The legal risks exist due to ICO’s uncertain status globally, especially the US. The SEC has mostly been silent on ICOs till now. It’s not clear if the SEC will come down heavily on ICOs later, or take a benevolent view. While the possibility of regulations impacting token holders severely is low, it’s still a wait and watch.

2. How to invest in ICOs: Understand that most projects will fail

Investing in ICOs is as risky, if not more, as investing in early stage startups. Of course, some tokens will be immensely successful in the long run, but a majority of them will fail. This is in line with the high failure rates of startups, and most token projects today are early-stage startups.

Just like in most startups, externalities will drive failure in most token projects, and not lack of smarts, integrity or hard work. Market response, long-term acceptance or competitor strategies may turn out to be vastly different or costlier than anticipated, leading to failure.

3. How to invest in ICOs: Understand the business, token & value appreciation

Every company doing an ICO details their concept in a white-paper. Be sure to read the white-paper in depth and understand the proposed business. Research more about the team and join their slack community to follow the discussion about the ICO and questions others have.

One feature of successful token projects is that the token is integral to functioning of the project proposed. Try and understand the underlying economics of the business and expected appreciation in token value. It’s possible that the project becomes highly successful in the future, yet the token doesn’t appreciate in value commensurately. This can happen due to uneven incentives to token holders. Avoid ICOs where it’s unclear how tokens will see a price rise, even if the business makes sense.

4. How to invest in ICOs: Invest only what you can lose

As is true of any high-risk, high-return investment, invest the money that you would be okay not seeing again. The worst mistake an investor can make is having plans based on the presumed returns of her crypto investments.

As a rule of thumb, invest only about 1-2% of your net investment portfolio in crypto assets today. Also, to be safe, invest in multiple assets to diversify your risk. And most of all, take it well on your chin if you lose all of it.

5. How to invest in ICOs: Don’t be swayed by the volatility

Evaluate the token for economics, understand the risks and invest only as much as you can afford to lose completely. After doing this, switch off for a bit. Don’t keep watching the price like a day trader. Once you’ve made an objective investment decision, ensure that emotions do not make you take a hasty step.

Just a few weeks ago, prices of crypto assets dropped a lot. Bitcoin, Ethereum and other tokens lost nearly 10-20% of their value. And then soon after, all of them went back up. So, once you invest, sit back and relax and enjoy the roller coaster ride, for it sure is going to be one!