How to make money with Crypto via ITOs and tokens (Part 4 - the final installment)


It is possible to make money on Cryptocurrencies, in an interesting but short window post ITO (Initial Token Offering). This IS part 4 and IS the final installment. Today we make our money!

I’m not recapping. Read part 1, part 2 and part 3 (the “final” part) to see what we’ve covered.

Quite a lot.

And, as for some of it, you’ve been wondering about how it is relevant?

Of note, here we are, at Part 4 (the new “final” part), in what was supposed to be a two part series?

Things are slipping, expectations are not being met, you’re getting information, but I’m going back on promises and I’m moving goal posts.

You’re starting to doubt my credibility, quite correctly too :)

You might not even be reading this, you’ve disengaged and check back on my updates less frequently, since you don’t think I’m going to deliver?

If you’re right, in years to come you can be the chap (or gal), that tells colleagues at the coffee vending machine, how you saw it coming and got out early ;)

For those of you still reading, maybe I can’t deliver, or worse, maybe I never even planned to?

Ok, I’m still in, for now, so what’s the “something else” we need to do - that you mentioned in the closing lines of part 3 - to make this work properly?

We just need to discuss ITO communication channels. Information, implies delivery via a communication channel and ITOs generally use one of the worst communication channels that I’ve used to date - Telegram.

Actually, that’s really unfair. It’s a technically incredible platform: fast; high speed; supports high volumes of users; you can write bots for it; it’s secure and; it’s free.

It’s also anonymous if you want it to be, so the baddies use it too.

An ITO will probably update a blog occasionally and host Customer Service and Community on Telegram.

Whatever you get given in these channels is totally unverifiable for the most part, and often not coming from who you think.

Let’s put together an analogy. You may have no experience with Telegram.

Ok, lets go to another communication channel you probably do use, Linkedin?

Imagine, my profile on Linkedin, is the ITO whitepaper - what the project is going to do, what you are entitled to expect. This blog, is the project blog. It might even be on something that adds crediblity, like Medium.com

But, it’s been mixed news so far, in this blog, and you’re having a few doubts.

My status updates on Linkedin, are Telegram channel. They represent the day-to-day information being published about the project. Much of the information you’re reading there matches what you expect from the whitepaper, but much of it doesn’t. Some does not fit, some does TBF, but other information that you were sure you’d seen has gone, and some of it, you think has been changed since you first read it.

What do you think is happening to the value of the token, even though you can’t sell it? Its inherent value is all over the place, on some days people are wishing they’d never heard of the ITO, on other days people wish they had more tokens.

Then, I message you directly and ask you to send your old tokens back to me, so that I can issue new upgraded ones - there was a technical problem. You did, and now you’re asking everyone on Linkedin when you can expect your new upgraded tokens?

Everyone tells you you are a “noob” and you’ve probably just had your tokens stolen. They check my Linkedin profile for you, and point out a subtle difference in the username: it’s not olliephillips - the real me - but an imposter pretending to me, and their username is o1liephillips.

You didn’t notice.

That first l is a number 1 in case you still haven’t.

Telegram is all of this. Good news, bads news, fake news, all of it unverifiable. And people are losing their shirts in token thefts regularly. I kid you not.

In one ITO I saw an investor lose about $5,000 worth of tokens in a single transaction. They were stolen by a fake “admin”, in exactly the way outlined above. And remember, Telegram is anonymous, there’s no finding the person who ripped his tokens off; he’s not getting them back. The tokens themselves are associated with the thief’s Ethereum Wallet now, and that is also anomymous.

He never read the pinned message that said real admins will never make first contact with you, which is pinned for precisely this reason, and he evidently didn’t know to inspect usernames very, very, carefully.

Naive. Yes. But, that ITO turned out to be a fraud in the end, so he’d have lost the money anyway. I suppose that made him feel a bit better.

This is why we don’t hang about post-ITO, remember? It’s going to under-deliver or be a fraud in many cases.

The bad news, we need to join Telegram, which is why all of that “guff” above is crucially important. Now you know. We don’t need to engage on there.

Please note, we’re not going to pretend to be anyone we’re not, and we are definitely not going to steal anything from anybody.

We’re also not going to try to influence the price, either by rubbishing the project, or building it up.

We’re not going to be posting any fake pictures either.

We are just watching for these events - which will happen as sure as night follows day - and we will use the information to guage sentiment, and what might be happening to the price, should we be able to find a away to trade tokens.

Side note: Technically you could just jump into the ITO Telegram channel for this method to work, but it does actually pay to subscribe to the ITO as an investor, early on, because there’s always a discount to be had on the token early. Later on, subscribers will pay more for the same token, so you already have some margin built in, assuming you can trade them.

Can we get to it?

We are. But first we are going to revisit smart-contracts, which we covered in part 3, both to refresh our knowledge, and pick out some big points.

  1. An ITO is a smart-contract, one that is probably modified from an existing ITO/ICO contract template.

  2. These templates usually follow established standards. ERC-20, ERC-721, and lately, ERC-1155.

  3. The detail is unimportant, but this means an ITO smart-contract will provide functionality that matches a standard.

  4. Smart-contracts have to include all the clauses they will need in their execution over their entire lifetime.

  5. You should be able read an ITO smart-contract at least in human readable high-level code.

  6. The functionality to transfer between wallets is built in, You can send them to another wallet, we know this because that hapless chap lost $5,000 by sending his tokens to a crook.

  7. Smart-contracts have an address, just like a wallet, on the blockchain network.

If we can transfer our tokens we can sell them?

Well, we can transfer tokens, so in theory we can trade by ourselves you are correct.

But, there’s no trust, as that chap and so many others have found out. You need two parties in a trade - who is prepared to act first?

Does the seller of tokens send his tokens and wait for the payment, or does the buyer send the payment first and then wait for the tokens?

Given that the consideration is likely to be cryptocurrency, it is just as dangerous to send cryptocurrency to another party you cannot trust.

Another side-note: You do see transactions like those above, happening in Telegram, or at least you see people sayng they have sold safely and bought safely. But don’t do it: a bad-actor could operate multiple accounts and spin both sides of this to the unwary, very very easilly.

What’s missing is trust: what we need is some sort of Escrow feature, like an exchange, but the token is not on any (see part 2 for more).

Introducing the “Decentralized” Exchange

There’s another type of exchange, which is not common place and not as well known, the “decentralized” exchange.

The decentralized exchange is itself a smart contract so you should be able to inspect the code. It exposes the operations of token smart-contracts in a web page on the regular internet using a javascript library called Web3.js.

It can do all this, precisely because the token contract implements a standard interface by following a token standard like ERC-721, so the decentralized exchange smart-contract can expect a set of “clauses” in the “contract”, to be present, and so, can work with any token which is based on the same standard.

Etherdelta, and my favourite, Forkdelta are two such examples of decentralized exchange smart-contracts.

The decentralized exchanges also bring two futher pieces of essential functionality to our party: the Escrow piece, so both parties in a trade can deposit funds and tokens into the decentralized exchange and; an order book, where you can place “sell” and “buy” orders, or look at the book and accept some of the orders already placed by other users.

You don’t even need to have the token from your ITO listed in the Exchange, it might well be, but it does not matter. If you know the blockchain address of your token smart-contract, you can connect the decentralized exchange to it and use it on the ITO contract.

Final side-note: These decentralized exchanges are complex. Though they provide full instructions on use, they are not for the faint-of-heart. I have also lost count of the number of people who have come onto the Telegram chat, stating that they sent their tokens or cryptocurrency direct to the decentralized exchange smart-contract address, rather than using the Web3.js front end to correctly deposit and withdraw from the exchange. Good luck getting your assets back if you can’t follow instructions.

What happens on the exchange doesn’t stay on the exchange

I’ve noticed a pattern in activity on Forkdelta token exchanges. In the early days of the ITO when there is low liquidity:

There will be some on the Exchange, who missed the ITO and still want tokens. You got yours at a discount remember, so there’s margin there immediately, if you care to sell.

There’ll be things going on in Telegram, that will impact sentiment and the order book will offer more or less attractive token pricing depending on the sentiment of the moment, and what position you want to take. Often sentiment is reacting to people trying to influence price - there’s no substance to it - but sentiment reacts anyway.

Remember we are not manipulating anything - we are not even conversing on Telegram - we are just monitoring sentiment.

There’ll be inexperienced sellers, who place sell orders at silly prices because they don’t quite understand the unit pricing (there are usually a lot of decimal places). Add just one extra zero behind the point and you could be selling at price of ten times less than you want. Miss just one zero and your buy order looks like a good price; what you’ll pay ten times more for my tokens? Sold.

You also see people who panic when someone is victim to theft, and just want out. Cheap tokens.

And, of course, it would also be naive or disingenuous of us to not recognise that tokens which have been stolen from unsuspecting folk, are being liquidated through these exchanges, at very low prices.

There is no visibility of this, there is no way to know the provenance of the tokens, but we must accept that it will almost certainly be happening.

So, for this, and other reasons the bid-offer spreads can sometimes be crazy. I have sold tokens at an inflated price and bought back at an understated price in the same browser session within a period of minutes.

Over the life of an ITO project, this decentralized exchange address will become known available in Telegram, liquidity and transaction volume start to increase and the market becomes more efficient, so the opportunity does fade away, despite the chatter and fake news and growing worry about the project and whether it is a fraud (or not). More experienced users make less mistakes, and are less likely to take the chatter at face value, or fall victim to theft.

Less naivety.

But, by this time, if you’ve played the game correctly, you’ll be long gone and looking for another ITO.

Nothing about any of what we are doing is illegal. We are taking part in a free market, which though inefficient, is driven by demand and supply. Information, is available but some choose to ignore it, or don’t understand it, or place too much significance on it. It moves towards efficiency as this sort of inefficiency gets removed, and information and knowledge improves - like any market.

In closing, I must say, it’s unfortunate that the gains I made in ITOs will have been mirrored by others making losses.

But that is a fact of life in any market where you don’t have the knowledge of the other parties.

I lost a lot of money in a regulated market remember?

So, that’s what this entire series was about, making sure you’re not the dummy.

It’s no more, and no less, than one massive risk warning, because the FCA isn’t going to issue one (at the moment).

Blockchain is not going away. To ensure the network is decentralized requires that value is offered in return for participation: currency or tokens.

Whether you agree that cryptocurrency and tokens are “valuable” is irrelevant. The market believes.

Fiat currencies are valuable for what they facilitate rather than any intrinsic value of their own - it’s paper!

Sure, you can buy a dollar of gold with a dollar, but you can’t swap every dollar for a dollar of gold. It’s just not there.

Where value is created, there’ll be people who want to take that value from you, by any number of means as we have seen.

This series was designed to explain a lot of stuff that will make the lay person safer in crypto as they experiment, as they surely will at some point. It’s quite possibly useful for in any realm of investment too.

Finally, I don’t mind admitting, I’ve learnt some of this myself, the hard way. The hard lessons are the best teachers: they say :/

That’s the End!

I really hoped you enjoyed this series as much as I’ve enjoyed putting it together. I hope it’s evolved into the story I wanted to try and tell. And, that the knowledge sticks and is transferrable.

If anything needs clarifying, let me know in the comments, and I’ll do my best to elaborate.

Did I tell you I’m in the market for a job or a lucrative contract?

Check me out on linkedin.

I’ve done quite a bit with blockchain, ethereum, solidity and Web3.js, and I’m hoping to do more in the future.

I authored this Golang CLI, “Front”, which will take the ABI of a smart contract (the bytecode), and generate Web3.js JavaScript functions for building a Web frontend to the contract. It’s a bit niche, but a pretty good piece of engineering, for me.

You can see more of my work on Github here.