How To Participate in an ICO
After carrying out lengthy research, reading the whitepaper, being confirmed on the whitelist and completing any necessary KYC, an investor is ready to participate in an ICO. In this segment we will detail the steps required do so, as well as some of the risks associated and ways to prevent potential pitfalls.
Once the process of finalising the whitelist and KYC are complete the official ICO begins with the date and time of the sale being announced in advance. Investors participate in an ICO by sending cryptocurrencies, such as Bitcoin or Ethereum, to a designated public address that is revealed the moment an ICO goes live. Investors should be wary of any public address being suggested to be that of the ICO before the actual sale date. These are phishing scams.
Once the ICO public address receives the funds sent by an investor this fulfils the terms of a smart contract, which results in the public address that sent the investment receiving the ICO token in return. Although this can vary depending on the ICO, some of them will instantly send their tokens to investors once the token sale is complete, whereas others will have a lock up period wherein the tokens are released at a later date. If a public address was required as part of joining the ICOs whitelist, it must be the same address that is sending the investment.
Does the ICO set a realistic market cap?
The market capitalisation of a coin is calculated by multiplying the number of tokens by the value of a single coin. It is important to understand the market cap of a cryptocurrency before its release to gauge whether it is overvalued. If a coin is selling for $0.50 during its ICO and there are 4,000,000,000 coins being released, that would give the cryptocurrency market cap of $2 billion. Where does this place it in the rankings of all other coins? Does the project warrant such a ranking or is the price inflated? Will the price possibly drop after ICO?
The manner in which the ICO tokens are distributed can greatly vary. For example, it is completely normal for an ICO to distribute 50% of all tokens, reserving the rest for the founders, team or other purposes. How the tokens are distributed is an important question to consider before investing. Unbalanced distribution gives the founders great control over the price of a coin as they can sell it how they see fit. Lisk distributed 92% of all tokens, keeping only 8% for the core team which means that the Lisk price is fairly regulated by the market.
An ICO is completed once the soft-cap is reached, which is the minimum amount the team decided that they would require to move ahead with the project. However, after reaching the soft-cap the ICO will continue until the the hard-cap is hit. The hard-cap is the point at which the ICO is officially over and will not accept any more investment. Should the ICO not hit its soft-cap all investments are returned and the project does not go ahead.
The most popular ICOs sell out in matters of seconds and therefore it is important to be prepared the moment an ICO goes live, whilst also taking into consideration other factors such as the speed of the transactions you send. Whether participation is successful is dependent on how fast the ICO receives an investment. Should the transaction not be accepted in time, it will be returned to the address that sent it. How the speed is determined varies, depending on the cryptocurrency that is being sent and the wallet sending it. It cannot be changed in the case of all currencies. It is recommended to research this extensively to avoid missing out on an ICO.
The act of participating in an ICO is relatively simple and consists of sending an investment to the public address defined once the ICO goes live and receiving tokens in return.
The most important aspect of investing in an ICO is prioritising security by staying well-informed through the ICOs official social channels and double-checking all the information before commiting. The most time-consuming aspect of the process is the extensive research. However, it is absolutely fundamental to a successful participation as it allows for better investment decisions.
The Risks of Investing in ICOs
As is the case with any investments there is always a risk of capital being lost. However, the nature of ICOs and the space in which they operate also present a host of new dilemmas that investors must be aware of.