Common Mistakes When Investing in ICOs

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Since the release of Bitcoin, Cryptourrencies have become an integral part of online markets and community discussions. Once Bitcoin became a mainstream online currency, the demand for virtual money has soared, unlike any other financial asset. Even the federal governments have been sidestepped and now they face the threat of a newly emerging online economy. One of the biggest fears with the cryptocurrencies is that the limited level of regulatory oversight could potentially lead to a parallel financial system being created across the world.

A cryptocurrency is often launched along with a product or service. Community members and investors can use the cryptocurrency for purchasing the product or availing the services. When Bitcoin was launched, it was issued with a very wide coverage. Since then, many new alternative coins (also called as altcoins) have been created. Every altcoin was launched with minor changes in the features of the Bitcoin. Among the numerous coin launches, there were many coins which failed to attract investor interest.

What is an ICO

An ICO is a process for issuing a virtual coin or a virtual token to online investors. ICO stands for Initial Coin Offering. An ICO is like the issue of shares and fixed income securities in the financial markets. When an ICO is launched, the coin is promoted in the crypto community by showcasing the features and the benefits that it offers. Typically, a virtual currency is used in place of an actual currency (also termed as Fiat money) with other users involved in the project. This allows the members to transact among themselves using the virtual money. Interested investors can choose to be a part of this project by investing in the ICO. A white paper is also released among the community. A white paper has all the information about the coin and is like a company prospectus. This provides the investor with the necessary information about the crypto coin.

Common Mistakes in an ICO

Every potential crypto investor believes that one can become rich by buying any online currency. However, this is not true. Below is a list of common mistakes that an investor makes in an ICO.

Mistake 1: Avoid Falling for a Scam
This is definitely a mistake to avoid. Every investor should stay away from investing in an Initial Coin Offering that even remotely appears to be a scam. An investor should perform a detailed background check about the currency as well as the developer. To start with, a quick search on the internet about the currency can shed some light. Information about aggrieved parties who have invested in the virtual currency can be found online. There are many online reviews from users across the world. There are also websites that provide this information to investors. If you can’t find any listed scams online, then do not get complacent. Some more background checks must be performed.

Once you have done some research on a crypto coin, then you will come up with many more questions. Do not be shy to approach the other members of the project for clarifications. Voice your opinions and concern to the online community and get it clarified. All genuine coin issues tend to address investor concerns. Members or owners are always available on social media platforms like Facebook, Twitter, LinkedIn, and others. There are dedicated platforms as well. The cyber community is especially active on websites like Slack, Bitcointalk, and GitHub. However, if you do not end up getting any response to your queries from any of these avenues, then it is a serious red flag.

Never share your personal passwords or pin numbers online. This is not restricted to only the crypto space. It is applicable for all financial or monetary transactions. Sharing your passwords or personal identification numbers over the internet can prove to be hazardous. You might end up having your account hacked or something worse than that. There are many impostors online who claim be to part of the ICO. They might probe you for personal information with the intent to access your account and steal from you. So, avoid sharing your personal information on social media platforms.

Mistake 2: Transferring funds from an Exchange to an ICO
This is another mistake that many investors end up doing. Never transfer any funds or ether through an online exchange when investing into Initial Coin Offering. This creates some confusion for the owner of the coin. Since the payment is done through the exchange, the owner is unaware of the address where the virtual currency must be sent. It is advisable to first transfer your ether to your personal wallet. The ICO funding can be done by making the payment through the wallet. This way, the owner has the address of your wallet and can transfer the virtual currency directly into your personal wallet.

Mistake 3: Not all ICO’s accept other cryptocurrencies
Since the popularity of Bitcoin has soared, people assume that almost all of the coin offerings also accept Bitcoin or other alternative coins as a mode of payment. But this is not true. As a matter of fact, one of the most common currency for investing is Ether. Ether is a token on the Ethereum network. Ether is much a highly prominent token in comparison to other virtual currencies. One of the reasons for this is because many of the initial coin offerings are launched using an Ethereum Blockchain application development Network. Of course, there are a few ICO’s which do accept virtual coins or other crypto tokens. But this will limit you to which ICOs you can invest into.

Mistake 4: Sending funds to the wrong address
This is not a fundamental or technical mistake. Pay attention to the receiver’s wallet address where you are transferring your funds. The information on the account where the funds must be transferred can be found on the website of the cryptocurrency.

This blog was written by Ankit Shrivastav as a part of the Crowdholding Guest Blogging Series.