A how-to guide on buying into token sales
ICO. Token Sale. Crowd Sale. Token Offering.
Whatever you call it, you’ve heard the buzz. You’ve seen the hype. You’ve tracked the incredible numbers, seen the crazy fluctuations. Now, YOU WANT IN.
Okay, we’ll tell you how—a detailed step-by-step sequence of buying tokens for money, with a few special tricks thrown in. But how about a quick test first? ICOs are the wild west and only the best-prepared stand the best chance. Think of these 5 questions as gateways; a state of readiness you need to achieve before you can ‘attain’ the knowledge and play the field.
- Do you know what an ICO is? Not kinda, sorta, but really know how it works. How about the blockchain or cryptocurrency? Or the difference between coins and tokens? Get familiar with how cryptocurrency works. Read up so you can get smart about picking projects that are using the blockchain to do something truly revolutionary, rather than just for its halo effect.
- Do you understand the risks that come with buying tokens in an ICO? When a project tied to an ICO fails, the value of its associated tokens can plummet, and you could lose all the money you’ve contributed. It’s a very real possibility; not all ICO-issued tokens will grow tenfold in value. As the adage goes: Never invest more than you’re prepared to lose.
- Do you know how to protect yourself from ICO scams? As the popularity of ICOs has risen, so have the scams. Since ICOs typically involve moving ether, phishing scams—duping people into sending coins to the wrong address—are aplenty. Be absolutely sure the sites, wallets, or accounts you use are the real ones and be on the look-out.
- Do you know the regulations that apply to you? Before you put any funds into an ICO, check the terms and conditions that apply for your nationality and place of residence. In China, ICOs are banned altogether and residents of some other countries (like the U.S.) may be banned from participating in some ICOs. You’ll likely hear that it’s possible to circumvent this, but this may be illegal and severely punishable by law.
- Have you cherry-picked the ICO you want to participate in? Picking the right ICO is probably the most important thing you will do in this entire process. Do your due diligence. Check out backgrounds of the team. Read the ICO white paper and understand its business model. Join their ICO community on telegram, discord, or reddit, but be wary that there will be lots of unreasonable shilling for the project. Use common sense.
So, did you answer ‘Yes’ to all the questions? Are you still here? Let’s go down the rabbit hole —
How to contribute to an ICO
STEP 1: Create your Ethereum wallet and purchase Ether
Already have Ether in your wallet? Head straight to Step 2.
Most ICOs are based on Ethereum, so you’ll need to setup a wallet that is compatible with ERC-20 tokens. This step is key, because you need your own wallet to participate in an ICO. A good one that’s easy to set up is MyEtherWallet(MEW). For a really secure setup, install MetaMask to work with MEW, to keep your private key safe and review transactions before signing.
The next step is buying ether (ETH) and for that you’ll need a cryptocurrency exchange like Coinbase, Kraken and many others. The thing to note is that exchanges offer different exchange rates and the spread can be quite big. So look at a few exchanges to compare rates and choose one that’s favorable to you.
Once you’ve registered, let’s say on Coinbase, you’ll need to send some funds into your account. Just follow instructions to transfer fiat money—Dollars, Euro or other currency—from your bank account or hook up your credit card (this might incur higher fees) and purchase some ETH. Make sure to do this at least a week in advance of the token sale you want to participate in, as it takes days to complete the verification process. There are fees for each BTC/ETH transaction—this is a part of the protocols— and the exchange might have fees of its own, too. Once you have your ETH, send it to your wallet because you can’t send ETH to an ICO from your Coinbase account. Now you’re ready to participate in your first ICO!
Step 2: Send ETH to the ICO
Now that you have ETH in your own wallet, the rest is simple. At its most basic, to participate in an ICO, you send some ETH to an address during a certain window of time, and after the ICO’s done, you get tokens in an amount proportionate to the amount of ETH you’ve sent. But don’t let your guard down. This part of the process is fraught with scams and bad actors. Triple-check the ICO address before sending anything. There will be phishers sending you fake addresses on email, Slack, Reddit, Twitter; there might even be fake ICO websites as ads on top of your Google search results.
Some ICOs will require you to register for the ICO beforehand through the project’s website, which will typically also have a counter indicating when the token sale starts and ends. Do not send your ETH before that time, or after the ICO ends.
Let’s now talk about gas costs. Gas is an extra fee you have to pay for an Ethereum transaction to go through. The amount of gas a transaction costs corresponds to the complexity of the transaction. When you send an Ethereum transaction, you set the gas limit which is the maximum amount of gas you’re willing to spend for the transaction. If you set the gas limit too low, your transaction will fail. It’s like having gasoline in your car; If you don’t put enough gas to get to your destination, you won’t make it (and because you’ve used up the gas you did put, you won’t get it back). The gas limit for a regular ether transaction is typically about 27k gas. That number goes higher for ICOs—40k gas for most ICOs run by New Alchemy and anywhere from 40k to 100k gas for other ICOs.
In addition to setting the gas limit, you will also set the gas price (measured in gwei, which is one billionth of an ether). The gas price specifies the amount of ether you’re willing to pay per unit of gas, and determines the priority of your transaction. Transactions with lower gas prices will take longer to process. If you specify a higher gas price, your transaction may be processed more quickly, but you’ll just end up paying more ether for each transaction. A gas price of 4 gwei is a pretty safe number when the blockchain is quiet. When the Blockchain is busy, like during an ICO or the recent Cryptokitties craze, the gas price can be upwards of 50 gwei. Setting the right gas price and gas limit is important. But don’t worry. Most wallet programs such as MEW will set these values appropriately for you. Some ICOs will also lay out instructions for specifying the gas limit and price on their website.
If you’re eyeing a high-profile ICO that you think will reach its hard cap (the maximum amount of ether an ICO will accept) very quickly, make sure you’re available at the exact time the ICO starts. Since there might be thousands of people sending ether at the same time, the Ethereum network could get congested and transactions could take a while to go through. Check the status of your transaction by appending your address to: “https://etherscan.io/address/"
Step 3: Get tokens to your address
You don’t actually have to do anything, other than wait, in this step. If your transaction is successful, you will receive your tokens into your wallet automatically, soon after the crowdsale ends. This could be immediate or it could take weeks, months or even longer. In that time, don’t freak out. Delays happen during busy ICOs and deadlines can move a bit. Check in with other contributors on social channels and, if it feels like there’s something wrong, contact the ICO team directly. Hopefully you’ve done your research and avoided scammy or unprofessionally run ICOs in the first place. Once you get the tokens, consider putting them in an offline hardware wallet such as Trezor and Ledger.
Hooray. You’ve successfully contributed to your first ICO!
Do you have questions about the process? Ask them below (under responses) and we’ll answer you promptly.
New Alchemy is a strategy and technology advisory group specializing in tokenization. One of only a handful of companies able to offer a full spectrum of guidance from tactical technical execution to high-level theoretical modeling, New Alchemy provides technology, token game theory, smart contracts, security audits, and ICO advisory to the most innovative startups worldwide. Get in touch with us at Hello@NewAlchemy.io