A few weeks ago as an experiment, I tried to convince my mom to participate in the initial coin offering for iEX.ec. I've been trying to explain bitcoin and Ethereum for years to her, but she hasn't grasped it. I did convince her to let me buy some Ethereum for her. I digress.
The first thing she needed to do is purchase bitcoin. We decided to open a Coinbase account. I love Coinbase and think it is great, but I didn't remember it taking so long to open an account. You need multiple ID verifications as well taking a photo through a webcam. At that point, she gave up.
I then went through the steps in my head and realized how complex the process is for a non-tech person:
- Buy Bitcoin or Ethereum through an exchange.
- Register an account on an exchange.
- Go through the verification process (The process is typically lengthy because of anti-money laundering and know your customer laws)
- Transfer fiat money to your account. (This takes 9 days on Coinbase)
- Transfer money to a Bitcoin or Ether wallet where you control your private keys. This would be a wallet like My Ether Wallet. (If you participate in an initial coin offering using an exchange wallet like Coinbase you usually won't have access to the tokens your purchased.)
- Choose your payment method and send BTC or ETH to the address of the company's ICO.
- If you decide you want to put your new token in cold-storage for security, you need to buy a cold-storage wallet like Trezor and transfer the tokens there.
- Finally, if you decide you want to sell the tokens, you typically have to sell it on an exchange that supports more cryptocurrencies like Bittrex or Poloniex where you have to go through the registration process all over again.
If my mom wants to buy Coke stock, she calls her broker or logs on to Morgan Stanley and buys the stock in a pretty simple process. Participating in initial coin offerings is even more complex with the fact that transactions are irreversible. If you make a mistake with sending to a wrong address, you usually can't get your Ether or Bitcoin back. There is also the question of storage. You typically want your tokens in cold-storage because that is the safest method. My mom never worries about her stock disappearing, but if she screws up storing her tokens, they can be stolen or lost.
I don't see initial coin offerings becoming a mainstream investment for retail investors until the process becomes simplified and quite frankly less scary. The idea of making a mistake could result in thousands of dollars disappearing. I am still optimistic about initial coin offerings and believe they have great potential as an alternative to venture capital and as a route for regular people to invest in early-stage companies. Hopefully, my mom can buy an ICO through her Morgan Stanely app one day.