By Josiah Wilmoth
Initial coin offerings (ICOs) present investors with multitudinous market opportunities, but they can be intimidating for people who are not familiar with cryptocurrency technology. Strategic Coin desires to help investors navigate the burgeoning crypto finance ecosystem with confidence, which is why they provide educational resources and market research reports that investors can use to make informed investing decisions.
Below, this article describes a costly mistake that ICO investors can make and explains how to avoid it:
ICO Investor Loses $75,000 on a Failed Transaction
Recently, an investor attempted to make a large contribution to the AirSwap ICO at the very end of the uncapped portion of the startup’s token sale. Concerned that the transaction would not have time to process before the end of the sale, the investor authorized his or her wallet to pay an astronomical transaction fee — worth nearly $75,000 at current exchange rates — to incentivize miners to process this transaction first.
He or she accomplished this by raising the “gas price”, which is calculated in Gwei, a unit of ethereum equivalent to 0.000000001 ETH. The gas price represents the number of Gwei the sender agrees to pay for each unit of gas used to process the transaction or contract.
As a general rule, a gas limit of 21,000 is sufficient to cover ordinary transactions, while smart contracts (e.g. ICOs) require more gas since they require more computing power to execute. At the time of writing, a gas price of 1 Gwei was sufficient to process a transaction in about 90 seconds. However, this particular investor set the gas price at 400,000. Since the gas limit for this smart contract was 592,379, the investor ended up paying nearly 237 ether for this single transaction.
Unfortunately, the gamble did not pay off. The transaction failed, and block explorer Etherscan reports that it received a “Bad instruction” error. This error can cause transactions to fail for several reasons, but the most likely scenario is that there were not enough tokens left to fill the investor’s ~$535,000 order.
When Ethereum transactions fail, the sender does not lose the coins or tokens included in the transaction. However, the sender does forfeit the transaction fee. In ordinary cases, this is a minor inconvenience because users can send transactions for just a few cents, but when ICO investors offer to pay an astronomical fee to receive priority processing, it can prove quite costly. Consequently, this particular investor lost the entirety of their $75,000 transaction fee and still missed out on the chance to invest in this phase of the AirSwap ICO.
How to Avoid This Costly Mistake
The best way to avoid a similar fate to the investor above is to pay a reasonable gas price and resist the temptation to gamble that an expensive transaction fee will secure your investment in a crowded ICO — even if it means you might miss out on an investment. ETH Gas Station provides a reliable estimate of what gas price you should pay in order to have your transaction processed within a certain amount of time. Remember, you can always purchase tokens on the secondary market, but you cannot recoup transaction fees lost to a failed transaction.
Strategic Coin is your go-to source for cryptocurrency investment research and education. Whether you need help understanding the basics of blockchain technology or desire to read an in-depth analysis of the latest initial coin offering, Strategic Coin will provide you with the information you need to take advantage of market opportunities within the crypto finance industry.
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