The lawsuit was filed by a group of token holders who invested $20 million dollars during the Gigawatt token sale. This group claims that the Gigawatt project has failed to meet construction deadlines or fulfill previously stated promises. The Gigawatt company, they say, refuses to offer refunds given the failure to meet project goals.

The following is taken from the plaintiff’s filing:

“"Many investors [who] have not been issued their Giga Watt tokens or had their machines set up and deployed, fear that they might never be issued their tokens or see their mining machines activated, and are losing valuable time and money as defendants indefinitely delay the further development of the Giga Watt Project.”

Whether Gigawatt is failing to meet its promises and what this means is up to the courts to decide. The deciding factor will likely be whether or not a token purchase is the same thing as an investment.

Gigawatt likely made the mistake of selling the token as an investment - saying the the token will have value other than its utility. However, not all ICOs make this mistake. It is important, therefore, for participants of ICOs to understand what they are actually buying when they participate in a token sale.

The ICO/Token Sale - What You’re Actually Buying

When you participate in an ICO that sells a token like the one proposed by Gigawatt, you need to understand what you’re doing and what you’re buying.

Most important to understand is that you are purchasing a utility token - you are not investing in a security. Utility tokens have a use or allow you to do something that you wouldn’t be able to do without the token. In the case of Gigawatt, token holders got the ability to mine without having to pay for computing power.

If you were investing in a security, it would mean that you have invested in something so that it can increase in value. If a token sale tries to sell you a token and they say that you can make money simply by owning it, then they are selling you a security.

Companies that issue securities have a number of obligations to their token holders that they would not have if they issued utilities. If you don’t want to purchase a token from a company that is likely to get shut down or plagued by lawsuits, don’t participate in such a sale.

The ins and outs of token purchase

Let’s say you find a company that you like and which is holding an ICO or token sale. What do you do? How do you keep yourself safe?

The truth is, there is not a 100% foolproof algorithm for safe token purchase. However, there are a few things to do to increase the chance that what you are doing will end in success.

First, make sure you have fully informed yourself about the project, its token, and its product. Read the white paper - several times. Pay attention to the legal section and all the risks deliniated therein. Read the token purchase agreement and all the small print. Consult a lawyer and an accountant. Go through the project’s road map and contact the team’s representatives. Make sure they sound like reliable people who will meet promises and consider your interests.

Second, make your token purchase - safely. Ensure that the project uses a reliable payment platform (like Cryptonomos or ICOBox’s bookbuilding platform). Create an account on these platforms using original passwords. Consider using a password generator.

The third step might be the hardest - you need to wait. And wait. I know it sounds weird, but you have to remember what a token sale and ICO is - it’s a way for a company to get an initial investment - it’s a way to get things started. Some time after the token sale is completed, the tokens will be sent to your wallet. Just don’t expect that you will be able to use them, just yet.

It should be inserted here that not all ICOs are successful. If an ICO does not meet its soft-cap, then the funds you submitted will be sent back to you.

When can you use your tokens?

Likely, you won’t be able to use your tokens in any way until the infrastructure is completed. And this may take years. Pay attention to what’s in the white paper - the platform may not be ready for 1, 2, or even 3 years! Also remember, these dates are subject to change. Make sure you understand this fact BEFORE you buy a token.

What about trading a token on exchanges?

It is popular in the crypto community to trade tokens on exchanges. This is, of course, something you are fully within your rights to do, but you need to keep in mind that this is not what the tokens are for. Inform yourself about corresponding laws in your home country and local jurisdiction.