If you’ve decided to take part in an Initial Coin Offering, there are a few things you need to understand and be aware of in order to truly grasp the intricacies of how they work. Once you’ve familiarized yourself with some basic concepts, then it becomes a lot easier to understand the rest of the ICO process.
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What is an ICO Token?
One of the more confusing things to consider for potential investors is what exactly an ICO token actually is and how it can work for users.
The primary difference between cryptocurrency coins and ICO tokens is the fact that ICO tokens are not technically currencies, and require no blockchain. Cryptocurrencies have some form of monetary equivalent and can be exchanged as such, whereas ICO tokens do not possess this quality. Crypto tokens are a means of representing how many cryptocoins a person is entitled to receive when an ICO is over.
For example, one ICO token may give you part of the coin when it goes live, whilst others may offers other perks, potentially even shares in the business. This is a great way to look at potential ways of making money from newer technologies and being the first to get on board when these technologies eventually come out and see the light of day.
Some tokens offer equity, whilst others can function in the form of credit where you’re effectively giving a loan to the person who is running the startup.
It is vital that you always read the whitepaper and contract that you’re agreeing to as you don’t want to be surprised when you’re waiting for the renumeration that you’re due. Being vigilant and careful in the digital world is extremely important in order to not be scammed or conned.
How Can I Participate in an ICO?
There are several points one must consider before deciding whether an investment into ICO tokens is the right choice for you. Building up a great understanding of what you are investing in and how it can work can be extremely useful to ensure that you have made the right selection.
Ensure that the team behind the ICO is one that you feel you can trust and get behind. A good balance of experienced developers coupled with innovative business minds can be a good balance for a project to be involved in.
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First off, you need to purchase the cryptocurrencies required to buy the tokens, most of the time these are Bitcoin and Ether. Be sure to check which of these is accepted as you do not want to be buying currency that you do not necessarily need.
Next, you will need to create a crypto wallet where you can store the currency that you purchase. Make sure to look towards offline storage where you’re the one in control of the private keys you own.
After you’ve set up the wallet, you will simply need to send your correct public address and you’re ready to be part of the ICO.
Avoiding Scam ICOs
There are plenty of steps that you can take to avoid being scammed in an ICO. Though the scams ultimately are becoming more sophisticated and advanced in numerous ways and may be trickier to spot than before, there are still certain precautions which can be taken that will prevent you from becoming a victim.
The biggest thing you need to ensure is that you use common sense throughout the whole process. After all, having hte attitude that “if something sounds too good to be true, then it is” may be the best course of action. However, there are a few other factors you can consider.
A project may talk about unrealistic goals which can never be achieved to try and reel you into a sense of security which would make you believe that you’re investing in the next best thing. Doing some research about the validity of the claims is vital. A project should never guarantee anything, but rather you should be made aware of the potential for what can go right if all factors turn out well.
Finally, look into the team behind the project. Are they reputable individuals with years of experience in the industry who are looking to create and exciting new technology? If the team behind the project not clearly identified, this is a bad sign. Additionally, if the social media links of the individuals have only been created recently and are not particularly popular you should think twice before putting forward any money. Tracing the social media history of the developers will not be hard, and can save you a lot of hassle in the future.
What kinds of experiences have you had investing in ICOs? Leave us a comment below.
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