How ICOs work on cryptocurrency blockchains

The soonest Initial Coin contributions occurred on the Bitcoin blockchain. Bitcoin was perfect at the time since it was the only blockchain with billions of dollars in digital currency capital. Here is how it worked:

  • A group would report a venture and the amount they proposed to raise.
  • Potential investors were given ample time to prepare for the ICO.
  • The undertaking made an offer of a set number of tokens for a particular measure of bitcoin contributed.
  • An address was publicly shared where investors sent their bitcoin.
  • Financial specialists got tokens proportionate to their bitcoin speculation after the ICO

ICOs lasted for a period. These tokens were like receipts or IOUs, which were redeemable when the new blockchain launched.

95% of all ICOs today take place on the Ethereum Blockchain

The Ethereum blockchain is now the platform of choice for ICOs. The reason is its smart contract features and an ERC-20 token standard. This standard allows projects to issue tokens with customized characteristics on the Ethereum blockchain. ICO tokens can then be accounted for, transferred and stored all on the Ethereum blockchain.

Together with the smart contract features, ICOs on Ethereum are much more efficient. An ICO project just issues a token using the ERC-20 standard and writes a contract defining terms. The standard sets out a set of functions that can be understood and recognized by the whole Ethereum ecosystem. Once an ICO smart contract is described using this standard, all the participants of the ethereum blockchain recognize it in the same way. In turn, wallets, exchanges, and miners on Ethereum can manage tokens like they do cryptocurrencies.

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