disclosure: i am a newbie in that space but i felt i learnt enough to avoid headaches to newcomers like me. I will try to explain in plain English what is going on with ICOs. And as usual this is not a recommendation to invest in ICOs. Just a mere attempt to explain it (and at the same time an exercise for me to clarify what i think i understood)
I have to admit. Blockchain is a fascinating world. I can’t think of anything as exciting since the birth of the iPhone and the App Store 10 years (technically 9 for the App Store). But at a much bigger scale. It feels as if the TCP/IP or Http protocol are being reinvented. And with it the whole digital ecosystem from the ground up.
I started to hear about this space years ago. But always looked at it with skepticism. Only recently a few dots started to connect and i decided to invest a significant amount of time (and money) in the space to learn. I don’t think you can learn this space otherwise. There is just too much.
Once you get in It and you understand that there are essentially two main blockchain protocols (bitcoin and ethereum) and that you understood the basics of ETH BTC trading you will quickly bump into the notion of ICOs.
ICO stand for Initial Coin offering. It mimics the proverbial IPO all successful tech companies go through to raise money and get a public valuation. Back to ICOs. In basic terminology and as far as i understand this is the process Dapps (Decentralized Apps — call it a blockchain service or utility — built on Ethereum blockchain or any other programmable blockchain) use to raise money and value the tokens (or coins) they will use in their service/apps. It s the equivalent of a fund raise instead of shares, you acquire tokens built on the blockchain where stakeholders are also fund contributors. Those Tokens, once attributed then are listed on private exchanges (equivalent of Nasdaq for tokens) where there value is actually traded.
ICO = Kickstarter on steroid + Blockchain + (later once listed) NASDAQ
Is there a difference between Coins and Tokens?
Yes there is one. Tokens are programmable piece of code while Coins only store a specific value for some simple type of transaction. Bitcoin is a type of coin for example, not a token, you can’t do much with it: for example you can’t built an betting service on Bitcoin (although you could accept it as a way of payment).
Dapps (eg a betting service built on the blockchain or an ad verification system built on the blockchain) issue their own token generated from the Ethereum Blockchain (tomorrow TEZOS blockchain and so on) to operate their own service and at the same time value their company . You can read more about the differences here
To be accurate ICOs should be ITO (initial Token offering) or even more ITGO (Initial Token Generated Offering), but marketing-wise that sucks. You want an expression that rhymes with IPO. Let’s call it Initial CONTRIBUTIONS Offering to make everyone happy
But how on earth does that work? How is that organized?
ICOs are organized by the Companies building Dapps. They carefully organize their token pre-sale, marketing and listing in private exchanges well in advance. But an ICO starts at a fix day and accurate time, communicated well in advance (sometime may change at the last minute…) for a limited amount of time where a certain amount of tokens will be «sold» to stakeholders.
Sometimes some are pre-sold to privileged investors before the ICO date, often with a discount. Some will go to early employees (think of it like ESOP) and a last pool can be later attributed to further contributors of the project. Typically companies will give a transparent visibility about what they do with token proceedings and how they will be allocated. This is very important to understand how (more on that later)
How can you participate in an ICO?
If you want to participate you want to make sure you first
1. Own BTC/ETH first (sometimes they will only accept BTC). You can’t acquire Coins/Tokens using Fiat currencies (FIAT = regular money)
2. Put your BTC/ETH on a wallet that will be compatible with the operation (instructions are usually provided by the token first owner)
3. be available at the exact time of the ICO.
4. Send your contribution
5. when the ICO closes you will receive a notice of attribution and the tokens you acquired will be sent back to the Wallet you used to for the contribution
And here be careful. ICOs happen in matter of minutes. Those companies raise tens of millions in less time than it takes you to turn on your computer. I am not kidding.
Between 4/ and 5/ you may have some dead time, and to be frank it is a little stressful. You’re not sure your contributions was actually sent and actually received but you are also in the dark about whether you re going to get something in return. You have to trust the system at that point (until something better comes in).
update : actually i just discovered that you can buy in an ICO through an organization like BitcoinSuisse that will do all the heavy lifting for you against some fees and you can even do it in FIAT currency if you don t own BTC or ETH. Just one bad news: they don t accept us customers (Regulations i guess). i am sure we ll see more of those type of ICO “banks” in the future
They should be rebranded Insane Coin Offering. And don’t go crying: those are not SEC regulated or supervised. If you miss them, blame only yourself.
You can always get a token later once they are traded on a private exchange. But usually their value goes gangbuster and you buy them at a high premium without certainty of their value.
Some ICOs are better organized than other. For example CIVIC created a wait line which was rather well kept. But others keep you in the dark. You keep trying to buy their token and fail. Only to discover the operation has been hijacked by huge miners putting a lot of gas (ETH/BTC fraction..) and ressources to buy them faster than you.
Because make no mistakes: those companies have yet to achieve something beyond an ICO. They have lots of work ahead and the risk level is very high. Sure, they get lots of cash…but you know? Remember 2000…
And their are a lot of ICOs. Maybe one a day. Soon ICOs will bypass VC raised money. Maybe will even disrupt VCs. You get the money without the hassles.
Who Can participate in an ICO?
Anyone who owns a digital coin like BTC or ETH. Lately you start to see “funds” like Polychain or Pantera Capital getting all in on ICOs. It is likely some corporations are participating although no one has bragged about it
How to know what are the upcoming ICOs?
Reddit is a good spot. Companies preparing ICOs will be usually public about it early on. TokenMarket is also a good spot
So how to pick the best ICOs?
No clear recipe. Very little you know at the moment of the ICO.
- Read their white paper. It should resonates with you. It should be well articulated and their plan should make sense. Don’t participate in an ICO because you think it’s cool. Understand where you put your feet
- Best ICOS are well marketed. Sometimes too well. Go to Reddit and Github and find if the communities are excited. See if the founders are active on social media.
- Try to find peers that are also excited by the ICO you re looking at. Don’t invest alone thinking you re a genius. You re not.
- If they have a product find a demo or try it (for eg i tried CIVIC before doing to the ICO)
- Learn: Try to find podcasts about the team to get excited about their project. Learn about the team. You need to be convinced they are good for the idea they are defending.
Some of the most famous ICOs that happened lately : Bancor (who raised 150m$ in less than a day), Status.im (who raised 33m $ in minutes), TenX (who closed in 9 minutes tens of millions) Adtoken (gone in 10 minutes) and Civic (one i managed to get in). One of the most expected token sale coming is Tezos, a new blockchain protocol with better “governance” built-in (unlike Bitcoin and ETH for now). Watch this one. It’s going to be massive (and uncapped unlike most ICOs that are capped — in order also to create scarcity and value.)
Some hacks to participate based on my limited experience
- Have multiple wallets ready to use. Some ICOs will prefer this or that Wallet
- Be fully available 1h BEFORE the ICOS and keep track of the time. ICOs need full attention and go very quickly
- Don’t rely only on your phone . Be close to a second screen may it be a computer or iPad
- Get in advance of the ICOS technical details for «wiring» your BTC/ETH. Make sure to get the ACCURATE sending address. Typically there will be a QR code but double check the long string of character corresponds to the one on screen. If You send your ETH/BTC to the wrong adress you will miss your ICO and lose all your money!
- don’t be shy on the gas value (ETH/BTC fee you will pay to get the operation done). Normally the multiple you get out of the listing post ICOS will cover largely this fee.
How do you know you managed to acquire a Token?
You will know you acquired a token from an ICO only once you receive an official allocation confirmation (Traditionally by email) and receive the token back in your wallet. Until then you got nothing and there is a stressful period during which you don’t know what s happening. This is an area of weakness of current ICOs that needs to be improved.
Pay attention: when you send your coin to buy the token from your wallet, you must make sure that your transaction goes through. Because of the high volume of demand and limited amount of time, it is very likely your transaction will fail, time out or be rejected even if you put a high amount of gas (for example recently i missed an ICO with a group of friend who put a very high volume of gas to guarantee the transaction and even that is not enough)
Tip: pay attention to your wallet feedback message after you press the SEND button. Sometime it can take up to 30 min an hour to know whether your transaction went through.
What can you do with your recently acquired ICO Token?
Once you have it, You can keep it, hoping it will gain in value. But for this you need to REALLY believe the company will win on it promise. At this stage we’re all blind. But you know, the guy who bought Apple 20 years ago…
If you’re not patient go trade it on a private exchange and flip it to some ETH/BTC. The company will announce after the ICO is closed where the token will be listed. Then you can create your account and list your token, waiting to be acquired at the market value. A few ICOs have been spectacularly successful providing super high multiples to the lucky early token owners. Check Icostats to get an idea of those are moving up. It s just mind blowing (and scary at the same time)
You can also keep it in order to be able to use it. Some Dapps will give transactional value to the token so you can use the Dapps in some way (Eg if for an eSport you will be able to bet with the token).
Are we in an ICO Bubble?
I hate that word. Bubble. It’s used when people don’t understand what’s happening. Nevertheless something here feel too intense.
Most companies have not proven anything and their valuation are staggering. Many will not succeed, a few will become behemoth. No one just know who and when. What s most annoying is that there is no third party verification system with those companies, there no SEC to control what s going on either. There is no public data in particular in terms of adoption (there is no Google analytics for Dapps, yet..). We only know what the company is willing to tell us. Which we have to trust. This is disturbing. But i anticipate this will change quickly. The market will demand it. As usual with new stuff, invest only money you are willing to lose.
On a general note
Participating in an ICO is pretty exciting (i can’t imagine what it feels like on the organizer side). But not all of them are successful.
i feel this is a jungle and that ICOs need to be standardized and more fair in their approach. Right now it s close to impossible to get into an ICO. There is just too much interest and there is zero regulation about it (actually kind logical for decentralized organizations). But it is extreme.
It’s as if it was crazy hot out there. You are told there is a fresh pool which can hold 100 but 100k persons are waiting at the door to get in.
The process of access and token attribution and allocation has to be easier, clearer, their should be more transparency on when you can get and instructions to participate should be a lot simpler and clearer (sorry guys but most people can’t write in plain English..)
I have no doubt ICOs will mature and morph. Maybe we ll even see companies buying built for helping setting up ICOS (The same ways some help build Kickstarter campaigns). Maybe some standards will eventually emerged. But i have no doubt the process is here to stay. I think we ll see an acceleration of those over time and that it may become one day the standard way to kick off a digital business.
One last thing
Beware of scams and phishing. Easy money and spectacular growth will attract bad boys. Be absolutely sure the site or forums or accounts you use are the real ones. They may lure you to send Coins to the wrong address and screw you big time with fake promises of early access. The best way to avoid this: triple check everything and use your common sense. Today TEZOS had to close their slack channel because of phishin attempts and Twitter is full of fake TEZOS accounts
Side Note: the Latest season of House of Cards has rebranded the ISIS equivalent ICO. Quite Funny. Of course this has nothing to do, beyond the explosive nature of the topic.