Basics for Contributing to an Ethereum ICO
The crypto space (Crypto industry? Are we that cool yet?) has become filled with endless financial opportunity, booms, busts, and sweat-inducing volatility all around. The current bull market(🐂) has resulted in billions of dollars being poured into digital assets such as Ethereum and Bitcoin, as well as ICOs (our in-depth breakdown, here).
But how can you take advantage of it, as a savvy, hip, cool investor? Getting into crypto can be scary sometimes (👻), and the learning curve may discourage some (📈), but listen: learning how to buy and trade tokens may be your first step in securing your future financial sovereignty — so let’s get to it!
The first concept you need to familiarize yourself with is the idea that, when you buy a digital asset such as Bitcoin (BTC), Ethereum (ETH) or ZCash (ZEC), you are responsible for keeping your own funds secure (maintaining and securing your private keys). There won’t be a bank to file a claim with, nor someone to request a refund from. Your money is under your complete control; you’ve now become that boring banker (👨🏻💼) in that plain grey suit that always greets you with a firm handshake, yet frowns when you opt to not discuss mortgages…
An ICO (Initial Coin Offering) is a public event where individuals can exchange their bitcoins or ethers for a token. This token represents a new platform, with its own applications, smart contracts, use cases, and community.
Once you understand the risks (take a look at past returns on our partner site, TokenData, and this warning by the SEC) and upside of entering in this new cutting-edge sector, you will have to follow these easy steps:
Get your hands on some Ether
The Ethereum network has been the platform of choice for many projects during this ICO craze. In order to participate in an ICO, you will need ether (the underlying asset powering the Ethereum protocol), however, some projects will allow you to deposit bitcoin to receive your tokens, or you might need to convert your bitcoins into Ether with an exchange or via a conversion service such as Shapeshift.
To buy ETH, you simply have to go to a website like Coinbase, one of the most popular and well recognized digital currency exchanges out there, currently.
Coinbase accepts multiple payment methods including bank transfers, credit cards, debit cards, and bank wires. There are also a handful of other highly-respected services if Coinbase isn’t available if your area:
This process may take a few days, depending on the payment method you used, so you should do it well in advance of an ICO sale.
Use a proper Ethereum wallet to buy ICO tokens
It is very important to understand that you cannot participate in an ICO sale if your ether is stored in Coinbase or any other cryptocurrency exchange, the reason is that, once you send your ether to the ICO address, the tokens are assigned to that address’ private key; since services like Coinbase don’t provide you with the key, you won’t be able to move the tokens when it comes time to actually access them.
By using such services to participate in an ICO you will be effectively forfeiting your tokens to Coinbase (and they have plenty of money so don’t bother).
To avoid the case we mentioned above, you will need a proper Ethereum wallet, one where you control the private key. We recommend you to use MyEtherWallet, an open source web application that allows you to create or import an Ethereum wallet, securely. Make sure you follow all the recommendations and warnings, such as backing up your JSON Keystore file, making a backup of your private key, and triple checking you have access to your newly generated wallet before sending funds to it; as well as sending a test transaction to ensure everything is on order and works accordingly.
Once you have created your wallet, you should deposit some ether to it using the funds from your Coinbase account (or whichever broker/service you opt to use). To participate in an ICO, you will need the Ethereum contract address associated with it. It is very important that you verify this address, as you won’t be able to recover any ether sent to an incorrect address.
Remember: watch out for cowboys and cowgirls in the crypto wild west 🤠. Recent phishing hacks are centering around this topic, trying to get funds from naïve users by fooling them into sending ETH to an attacker-controlled contract address. Very sneaky.
Once your wallet is created and backed up, head to the “Send Ether and Tokens” section, where you will be presented with this:
In the “To Address” field, enter the Ethereum Address of the ICO you want to participate in, next, indicate how much ETH you want contribute to the crowdsale. The remaining fields should be left as they are (unless specified by the team members of the project you are trying to invest in; some ICOs have a unique data code that you input with your contract, but that’s outside the scope of this post).
The ICO project you just invested in should have a link to a block explorer, like Etherscan, where you will be able to look up your Ethereum transaction ID, and ensure your brand new tokens are processed appropriately by the contract/network.
MyEtherWallet also has a nifty feature (“Show All Tokens”) that will show all the tokens associated with that particular Ethereum wallet; if you don’t find the tokens there, make sure to check the ethereum balance in your account, as you may have received a refund from the ICO smart contract, this usually happens if your transaction didn’t make it in time, and the maximum number of tokens were already assigned to others.
Store or trade your tokens
If you manage to get into that hot new ICO sale, you should decide whether to send them to an exchange and speculate on the price, or keep them safely deposited in your Ethereum wallet, or in a hardware wallet like Ledger/Trezor.
Services like Bittrex, Poloniex, and Kraken tend to quickly add new tokens to their growing repertoire of digital assets. You can create an account there, find your token, create a deposit address, and transfer your tokens from MyEtherWallet directly to the exchange of your choosing.
Conversely, if you weren’t able to participate in the ICO sale, you can transfer ether or bitcoin to the exchange, and buy the token on the open market once the that token is liquid and available for trade.
In the future, we will present more advanced versions of this guide with additional tips/tricks/ and methods of participating in other forms of crowdsales, as well as how to interact with these various token contracts from your ethereum full node wallet.