In 2010 a developer named Laszlo Hanyecz bought two large pizzas using 10,000 bitcoins that were only worth about $40 at the time. Had Laszlo owned those tokens when bitcoin peaked last December near $20,000, they would have been worth almost $200,000,000. I hope that was one tasty pizza.
Many people out there have dreams of striking it rich and becoming a millionaire in the new digital gold rush. With the markets in their infancy and massive amounts of capital from around the globe being invested, there are opportunities to make some incredible gains in the short-term as well as long-term.
As of April, there are almost 1600 cryptocurrencies that can be bought with new projects and use cases being introduced everyday. Which one has the potential to be the next Bitcoin? Many people new to buying cryptocurrencies and tokens are influenced by hype or the fear of missing out (FOMO).
Unfortunately, many times this results in newbies buying tokens that are completely worthless and have no chance of realizing significant gains in value. Many of these tokens go all the way to $0.00. Let’s cover some fundamentals that can help someone new to cryptocurrencies learn how to get involved on the ground floor of the next potential Bitcoin or Ethereum.
What is an ICO?
Initial Coin Offerings (ICOs) are the equivalent to an Initial Public Offering (IPO) of stocks on the NYSE or other stock market. Many tokens will have various stages of their coin sale. The lowest entry price for a token will take place in the beginning as an incentive and reward for early supporters of the project. Once a coin is available to buy on any of the exchanges prices can begin to experience tremendous volatility.
There were 913 ICOs that took place in 2017. 435 of these were successful raising $5.6 billion in capital. With only a 48% success rate, this means it pays to do your homework and choose the right project.
So far in 2018, there have been 537 ICOs registered so far and they have already raised more than $13.7 billion, more than double all of the capital raised in all of 2017. The consensus across the industry is that ICOs are an extremely viable means of raising funds for companies across all industries who may not have access to or choose to utilize more traditional funding such as IPOs or venture capital.
How can I participate in an ICO and buy tokens?
You may have to register as a potential buyer for various stages of a token event and get whitelisted to participate in advance sales prior to a coin being listed on an exchange. Depending on where the organization is registered, there may be additional AML/KYC requirements about your identity and country of origin that will need to be verified as well.
Once registered, most will require you to use one of the mainstream established cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH) to complete the purchase. If you have never purchased cryptocurrencies you can do so on one of the retail marketplaces like Coinbase, Robinhood, or Square Cash.
Be aware that these exchanges may have to verify your banking account information as well as AML, KYC requirements. Be sure to take all of these steps well in advance of the potential ICO’s you may thinking about participating.
How do I safely store my tokens?
Once you figure out the ICO that you are going to participate, you need to be sure to have a digital wallet to receive the tokens once the sale takes place. Securing your digital assets is your responsibility. Myetherwallet is a simple and completely secure digital wallet that also offers practical and straightforward advice and directions for people new to cryptocurrencies. This digital wallet is compatible with ERC-20 tokens based on the Ethereum protocol. You will still need to protect your digital keys in a secure, offline location. The link above walks you through all the steps and describes all the precautions you should take to protect your assets.
How do I choose the “right” ICO?
This is the first place to start. If the website is poorly done with limited information and has many grammatical errors then that is a good sign to keep on looking for a better project. If the team does not have the resources and capabilities to put together a professional website then you should question their capabilities to be resourceful enough to complete a complicated blockchain project.
This is a detailed description of the project and you should be able to find this on the website. Some of these are relatively short and may only be 8–10 pages while others can be 60–80 pages in length. Do a cursory read and begin to digest more about the project and if what they are proposing seems to be well positioned to bring value to the marketplace or dramatically disrupt or reinvent an industry you can continue to dig a bit deeper.
Hint: Sometimes projects will also have a condensed version of the whitepaper called a one-pager as well. If you are just starting your research and looking at many different ICOs you many want to start here and skip the long version of the story until you narrow your list of potential projects down just a bit.
Who is leading the charge on this project? You should be able to find this on the website and/or within the whitepaper. Legitimate projects are run by technical professionals who’s credentials and experience should be verifiable. LinkedIn is a great place to explore the background of the key players on a project and see the other types of projects and industries they have been involved.
The Cryptocurrency industry is in its infancy, but you still should be able to see other technical industry experience that is valuable to the use case or industry the project seeks to disrupt. If you have a hard time verifying key people and seem to be left with more questions than answers, keep moving. There are plenty of great projects out there being driven by passionate, competent professionals. Trust your gut.
It is important that a project be completely transparent about how the tokens will be generated and distributed and how many are sold in each stage of the coin offering. The token distribution should break-down how many tokens are allocated to founders, technical staff, ongoing development, marketing, legal, bounties, etc.
Also found in the whitepaper and/or on the website. This is a timeline of milestones of the project that usually covers a minimum of 2–3 years. Is the project meeting deadlines as defined by the roadmap? If you do some digging, you can see if there are major milestones that are verifiable and that have actually taken place.
What is the Cryptocurrency community as a whole saying about this project? Telegraph is a widely used chat platform used by cryptocurrency and blockchain companies to directly inform interested individuals about their project and directly answer questions. Bitcointalk.org is an online forum founded by Bitcoin founder Satoshi Nakamoto. Most legitimate projects will post announcements about their project there as well. You can skim the boards and see what others are saying. Take it with a grain of salt what any individual might say, but you can add the information to the entire mix of data you are gathering from all sources to come to your own conclusion about the project.
Long-term Use of the Token:
Some tokens are created simply for the purpose of raising money and do not offer any other utility or use for people who hold these coins. This means that unless the token increases in value and there is a market and demand for the token, then you may end up with a pile of coins that have no other use and little to no value. These types of tokens are more risky than projects whose tokens also give you the ability to use them for goods or services.
The past two years cryptocurrencies and ICOs have felt like the gold rush of the 1800’s and people have been trying to get in on the hype and strike it rich. Over time these new boom industries begin to mature and stabilize and ICOs and cryptocurrencies are no exception. Educate yourself and do some research and you will greatly increase your chances of being a winner in the digital gold rush of this century.