ICO and Blockchain. The most essential things in a nutshell
Lately, such terms as ICO and blockchain have frequently appeared on the Internet and TV. However, there are few explanations regarding their peculiarities. Let’s try to figure it out.
The very name of blockchain technology speaks for itself and can be explained as “a chain of blocks”. As a fact, it is a big database. The data is kept on hard disks, that’s why blockchain can be compared to a big network of hard disks. The chain of blocks is created by miners – people who provide all blockchain users with computation power of their computers.
Miners create blocks on their computers. Blocks stand for a limited virtual space supported by miners’ computers. They get a cryptocurrency as a reward for created blocks. So, miners “rent” their computers. The amount of miners is increasing every day and blockchain is growing all the time.
Advantages of bitcoin:
- information in blocks is encoded and cannot be changed;
- data is stored on lots of computers at the same time;
- blockchain transactions can be anonymous;
- no intermediaries: users carry out transactions directly to one another.
For a good reason, ICO is often called an equivalent to IPO. When a company wants to attract investors and earn some money, it issues shares. Then, the company makes an arrangement with a stock exchange and appoints the day for launching sale of shares on it. It is called an initial public offering (IPO).
Although, IPO is a costly affair: the company will have to pay at least $200 000. What to do if the company doesn’t have so much money? ICO was made for that. It is also an initial offering but instead of shares, tokens are used.
A token is a digital asset which can be bought for bitcoins, ether and other cryptocurrencies. So, a startup which wants to attract investors issues tokens and announces the first day of sales on the cryptocurrency exchange. It will cost approximately $10 000-$20 000. ICO and blockchain are interconnected because the price of tokens is given in cryptocurrency. All the operations involving it are carried out via blockchain. Sometimes, several ICO blockchain projects enter the cryptocurrency exchange.
Advantages of ICO:
- availability for startups and small business;
- investments are attracted as effectively as in IPO;
- an investor can evaluate return on investments almost immediately.