The Definitive Guide To ICOs and Token Sales

An ICO is the first opportunity for the public to purchase new crypto tokens before they are added to commercial exchanges.

In 2016, when cryptocurrencies first started gaining traction about $250 million was raised via ICOs. That number skyrocketed to $1.2 billion in just the first half of 2017.

While some analysts call the ICO craze a “bubble“, savvy investors are boasting returns of 10,000% and more.

This leads to a lot of excitement when an ICO begins to generate buzz, as keen investors look to capitalize on the ‘next big thing’ at the earliest stage possible.

The ICO as a concept is not an entirely new idea. Instead, it works similarly to an initial Public Offering (IPO). An IPO happens when a company makes the switch from private to public, and is the first chance for members of the public to buy stock. You may have heard of an IPO in the informal manner ‘going public’.

The ‘Kickstarter’ of the Crypto World

To understand the appeal of an ICO, it’s perhaps easiest to think of it as the ‘Kickstarter’ of the crypto world.

With ‘Kickstarter’ and other similar crowdfunding sites, early investors back what they think could be a winning idea and pay for a product in advance of its release. It’s a risk, but the hope is that by the time the product is officially released it will be more expensive, meaning the early investors will have made a profitable purchase by getting through the door first.

Not only that, but there is often an added incentive for those who are first to invest – think free T-shirts and exclusive accessories.

With an ICO, the same principle is at play but the reward on the line is cold, hard cash. Investors who purchase crypto tokens at ICO stage do so in the hope that, by the time the token is added to commercial exchanges such as Binance and Kraken, the price will increase significantly.

On occasion, the earliest investors will also be treated to even bigger rewards. When the Mysterium Token (MYST) launched its ICO in May 2017, the very first batch of investors got an extra 20% on top of every token purchased. So, buying 100 MYST tokens at ICO would actually bank you 120 tokens. Early bird bonuses are almost standard now in most ICOs.

Some of the biggest selling points associated with participating in an ICO are:

  • Being among the first adopters of a new token
  • Potentially buying below market value
  • Opportunity for huge financial returns
  • Added benefits such as a percentage boost on purchases

So, if ICOs mean a chance to buy tokens at potentially the lowest price possible and you get free rewards on top, why not just invest in every ICO going? Well, this scenario looked like it could become the norm for a short period of time – and the backlash was huge.

The Upside – Insane ROIs

To give you a taste of just how much can be made from investors who get in it to a successful product at ICO stage, let’s take a look at some of the returns you could’ve made to date.

Ethereum, the very cryptocurrency which is used to purchase many ICOs now, kicked off at ICO with a price of just $0.3111. Today, that figure is closer to $330, making for an eye-watering increase of over 100,000%.

NXT has an even more impressive ICO return with its current price of $0.062 per token showing an unbelievable increase of over 367,000% at the time of writing, whilst IOTA, Neo and Spectrecoin all fall into the 50,000 – 100,000% increase bracket. Remarkable.

Quick returns are very possible too. Civic was only launched in July but those who managed to get in at ICO have already seen their investment grow more than three times.

QTUM has gone up over 3,500% since its launch in March, and Quantum Resistant Ledger is up nearly 600% following a May release.

With such huge return on investment possible in such short spaces of time, interest in ICOs grew exponentially.

The Downside – ICO Overload

In early to mid-2017 a spat of ICOs ran with a majority accumulating huge amounts of money from investors who were keen not to miss out on potential gains in the crypto token market.

Status.im managed to accumulate US $100 million in a handful of hours, whilst a project labelled Brave whipped up $35 million in less than 30 seconds. Yes, you read that correctly. $35 million in less than 30 seconds.

It didn’t stop there. Such was the pattern of people blindly chucking money at any ICO that cropped up that a token quite literally named Useless Ethereum Token (UET) emerged. The website’s official blurb reads:

“You’re going to give some random person on the internet money, and they’re going to take it and go buy stuff with it. Probably electronics, to be honest. Maybe even a big-screen television,” before later clarifying: “Seriously, don’t buy this.”

Useless Ethereum Token’s crowdsale raised just over 310 Ether (ETH) – roughly $92,000 at the time of writing.

UET was clearly a joke, but it typified the invest-first-questions-later mood that was sweeping the crypto market, leading many to speculate that a bubble was forming.

The fear was that anybody could come along with a half-baked product, rack up a significant amount of ETH via an ICO, and dump the resulting ETH on the market which would have two significant and negative effects; cause the price of ETH to drop, and short-change everybody who invested in the ICO in good faith.

A Return to Sensible ICO Investment

Following this craze, investment started to die down in some of the less appealing ICOs and investors began to take closer note of the whitepapers.

What is a whitepaper? It’s basically a document released by the creator of a crypto token that outlines the technical potential of the product. This is a way for investors to get a better idea of what they’re investing in, even if the product isn’t yet complete.

Some governments have also begun to intervene with ICOs. Regulations are being introduced to help eradicate the potential for fraudsters to bait customers with the promise of a quick return on their investment before abandoning ship.

In July 2017, the Securities and Exchange Commission (SEC) ruled that some of the “coins” sold in ICOs are actually securities– and are subject to the agency’s regulation.

China took a no-nonsense approach to ICOs in September 2017, temporarily banning ICOs completely. This lead to short-term panic as many worried investors withdrew their money from Chinese exchanges, but subsequent speculation is that this will in fact have very positive long-term benefits and could result in a much safer and more stable marketplace.

The consensus is that the outright ban is a temporary measure whilst the government figures out how to best to regulate what is, by definition, an unregulated market. In other countries such as the US and Japan, governments are still wrestling with the correct level of intervention, making the ICO market one which is very much susceptible to change.

With regulation in place and investors paying closer attention to the products behind the exciting new tokens, ICOs are currently a very viable option for crypto investors looking to put their money into a product of the future. But how do you go about investing in an ICO?

How to Find the Best ICOs

ICOs are funded by Bitcoin (BTC) and Ether (ETH) payments.

However, there is no set way for an ICO to take place. Instead, each one differs slightly from the last. Generally, information can be found on the company’s official website.

Typically, a whitepaper will be released which outlines what the token will offer to customers. Products range from new kinds of browsers to gambling sites and social apps that make it easier to send crypto from one individual to another.

The list of products, tokens and ICOs in the crypto world is huge, and the art of finding a solid ICO is in filtering the truly exciting ones from the rest of the pack. This is why such importance is placed on the whitepaper – it is a way for each potential investor to decide whether an ICO will be successful or not.

To help wade through the rubbish and find the hidden gems, just look for common criteria which most successful ICOs have:

  • Plan for the platform. Looking back over successful ICOs, some of the biggest returns to date have been in the form of new and ambitious platforms. Ethereum, NXT and Cyber are just a few examples.
  • There’s no ‘I’ in ‘team’. Don’t be lured in by one gimmick, one idea or one individual (…well, maybe Vitalik Buterin is an exception). Instead look for a solid team made up of a range of balanced professionals. A great idea for an ICO is only one aspect – they’ll need a trusty and dedicated team to see the idea through.
  • Beach the whales. Everybody loves whales, but in the crypto world they can be a curse, manipulating cryptocurrencies at their will with dominant stacks. Looking for ways to neutralise whales means the currency can grow (or decline) organically. Avoid projects where any one single person or group can control a large amount of the tokens.
  • Check the fine print. Look for things like Know Your Customer (KYC), the whitelisting process, and a maximum contribution limit which will stop a handful of players snatching up all the tokens.

How to Buy Tokens at an ICO

Once you’ve found a whitepaper that piques your interest, you should visit the ICO homepage.

This will vary for each ICO. Make sure that you’re reading the official ICO homepage, as fraudsters may duplicate them and slightly alter the URL to fool would-be investors.

On the ICO homepage you should find all the information you need regarding the token itself. Subjects covered will include the release date of the token, the release time, the white paper, information on the team behind the token and more.

When looking at the release time, you may sometimes see a blockchain number. This means that, instead of a very specific time of day, the sale will begin once a certain block is mined. In these cases an estimated time will be given, and potential investors will then have to watch with a keen eye to see when the sale opens up.

To find out what block is currently being mined, investors can check out websites such as blockchain.info for the latest information.

Make a Payment with Bitcoin or Ethereum

To make a payment you’ll first have to make sure you have either BTC or ETH available to transfer. Once the sale goes live, you can then send your crypto funds to the ICO address, which should be displayed on their official website.

Once again, be extra diligent to ensure that you are looking at the official ICO address and that not one character is out of place when sending the funds. The website may also give you additional instructions to help ensure the transfer goes through smoothly.

NOTE: Make sure you’re sending to the official ICO address provided by the official company. Scammers will try to dupe you into sending funds to their personal wallets. Never send funds to an address posted in a chat group and triple check the URL before sending. 

Once you’ve sent your funds, you’ll have to wait to see if your payment is confirmed. Popular tokens’ ICOs could sell out in just a matter of minutes. The ICO for those that gain less traction could last for days or even weeks.

If you’re sending Ether, make sure you use enough gas, as the network can be congested during the ICO.

The official ICO website will give you information on how to receive your tokens once you’ve made the payment. You may need to enter a custom code to your online wallet or claim the tokens after a certain amount of time, but often it will merely be a case of patiently waiting for the tokens to be distributed.

Following an ICO a token should ultimately become available on mainstream crypto exchanges. Once this happens investors will be free to trade their tokens as they please, providing there was no stipulation that locks them in for a set period of time.

TIP: Usually, the first exchange is start trading is EtherDelta, a decentralized exchange for Ethereum-based (ERC-20) tokens. (Yes, EtherDelta’s user interface is horrible, and it’s complicated to use. But there are plenty of  Youtube tutorials to help you get started.)

From here, the price could balloon up or crash down, depending on the supply and demand of the market at the time. In theory, a token which had an appealing white paper and attracts broad interest should witness a price increase from the ICO stage once it becomes available on regular exchanges.

Be on the Lookout for Red Flags

There are a number of risks that you should take into account before deciding to participate in an ICO.

Here are some questions you should ask yourself to help determine if the ICO is worthwhile and legitimate:

  • Does the company have a working product, or a whitepaper that shows how the product will work down the line?
  • Are there details on the team? Do they have relevant and trustworthy credentials?
  • Are ICOs legal in the country the company operates in?
  • Is the ICO aiming to raise a reasonable amount of funds in line with their goals?
  • Does the company have a roadmap detailing when they expect future developments to come to fruition?

If the answer to any of the above questions is ‘no’, there could be some red flags that you should beware of:

  • If a company has no working product and no whitepaper, there is unlikely to be much evidence that they will deliver what they claim they can
  • Good ICOs are founded by experienced professionals, often with financial and digital backgrounds at successful corporations. If the team are unknown and seem unqualified, it may be best to approach with caution
  • ICOs are currently banned in China, and regulations are under constant reviews in other major countries too. Make sure you know that your investment is legal so you’re not left tokenless if things go wrong
  • If the ICO is aiming to raise $100 million but they only seem to need $10 million to achieve their goals, ask yourself why they need so much money up front
  • Even if goals end up being delayed, the company should have a clear proposal with definitive targets at pre-determined dates. Having no roadmap smacks of an impulse product that hasn’t been carefully thought through

Where to Find New ICOs

Now that you have a better understanding of what an ICO actually is, you might be ready to invest. But where can we find these unicorn tokens?

There are two main ways crypto investors tend to discover the latest ICOs. The first is through media outlets and trusted crypto news resources. For that, look no further than the one and only Crypto Chill!

The other way people can find out about new ICOs is through websites which simply act as a long list, complete with dates and times, for various ICO launches. One example is ICOalert.com which gives you a simple countdown timer for a number of upcoming ICOs. Once you’ve found the one you want, just check out their official website and you can get started.

Investing in an ICO can be a terrific opportunity to get ahead of the pack and, if successful, it can reap huge rewards for those brave enough to put their money on the line early on.

Do your due diligence and steer clear of red flags to give yourself the best chance of a rewarding investment.

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