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Why Most New Tokens Are Ethereum ICOs

The ICO explosion of the past year can be mostly attributed to the growth of the Ethereum blockchain, and the ease with which Ethereum permits the creation of new coins. Many startups have raised millions of dollars on Ethereum with little more than a concept and a white paper, circumventing the traditional routes for seed funding from accredited investors. While there’s some controversy over how to classify and regulate these ICOs, it’s clear that a new alternative model has emerged for early-stage funding. By and large, that model is based on the capabilities of the Ethereum blockchain.



Creating an ICO: Limitations of the Bitcoin Blockchain

An ICO is essentially a program that collects cryptocurrency from contributors and, after reaching a target amount, distributes newly created tokens to the ICO’s contributors. To do so, the ICO needs a system that can be programmed to distribute the tokens without outside input. An ICO relies on common programming commands like conditional statements and loops to analyze, verify, and respond to incoming transactions. These pieces of code need to integrate with the blockchain on which the ICO is built.

The Advantages of an Ethereum ICO

First, Ethereum uses a complex data structure called a Merkle Patricia Tree to store a tree of program states, allowing for quick modification and verification of the various states required to execute an ICO. Instead of only containing a transaction ledger, the Ethereum blockchain’s multiple program states allow for the execution of smart contracts that automatically calculate the number of funds raised, verify and confirm transactions, and distribute new tokens upon the completion of the crowd sale.

Second, Ethereum is Turing-complete, but it uses something known as “gas” payment to process the instructions in a program code. Gas provides incentives for people to supply their CPU power to execute the programs on the Ethereum blockchain. If a program runs out of gas, it will be aborted. This prevents infinite loops and DOS attacks against ICOs, as every execution is eventually terminated. As a result, ICOs are more secure on Ethereum, and an attacker can’t deny service to your crowd sale based on a denial of service attack.

The ERC-20 Token Standard

Ethereum offers a standardized way to create new tokens on its blockchain called the ERC-20 protocol. ERC-20 is not a piece of code, software, or technology. Rather, it is guidelines that facilitate the integration of various currencies.

Ethereum is the platform of choice because it offers a blockchain platform with a built-in abstraction layer, which serves to unify the ecosystem.

Ethereum offers the tantalizing promise of one chain to rule them all or at least one chain to act as the foundation. Ether traders, entrepreneurs, and developers alike are keen to let a thousand tokens, DApps, and DAOs bloom because, although each of these assets is distinct, their roots run deep and ultimately back to Ethereum.

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