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!

investing-in-ICOs

Photo credit: antanacoins via Foter.com / CC BY-SA

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!