Why do ICOs use Ethereum (or EOS, VET, NEO etc.) blockchain over Bitcoin?

By now you’ve probably heard about ICO’s and what they are. For those un-initiated, an ICO is an initial coin offering, or a process where developers sell their project’s coin to investors. Usually an ICO has a set hard cap, or a maximum amount of currency the project wants to collect. The tokens you purchase during an ICO will be distributed to you with the help of smart contract technology and coding.

ICO’s or initial coin offerings were the talk of the crypto town in 2017. We had new projects popping up with new ideas on how to “change the world” almost daily, and people wanting to get rich off crypto throwing money at those projects like confetti. A vast majority of those projects used Ethereum as their currency of choice to raise that money.

What many don’t know is that before Ethereum existed, Bitcoin was primarily used for funding ICO’s. The first token sale ever was held by Mastercoin in July 2013 during which the project collected 5000 BTC (then $500 thousand). Ethereum itself was made possible thanks to an ICO which collected 3700 BTC, or $2.3 million at that time.

But right now it’s a struggle to remember when the last time we saw a Bitcoin ICO was. Ethereum has almost completely taken over the ICO landscape, as anyone who wants to take a part in one needs to have ETH in order to participate. So why exactly has Ethereum taken over the ICO landscape and why are so many projects deciding to use it over Bitcoin?

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Well to explain that, we first need to look at the features of the both cryptocurrencies. Bitcoin is seen as a generation 1 cryptocurrency, one whose main application was to serve as money. As such, it was a blockchain-based, peer-to-peer, decentralized value transfer solution. It was always meant to serve as a transaction means and it does this job admirably.

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What it lacks are abilities to execute smart contracts that distribute ICO’s. This feature was never envisioned nor implemented by Satoshi. To distribute a Bitcoin ICO, developers are forced to use third party solutions and offchain contracts. Even though projects like Rootstock want to bring smart contract capabilities to Bitcoin, it for now doesn’t have a standardized solution for this issue.

Ethereum doesn’t have this issue as you can automatically send tokens to people who send ETH to an easily created sale smart contract. It’s a member of the gen 2 of cryptocurrency, one that allows you to use a programming language to build smart contracts and decentralized applications on top of them. After auto-calculating the amount of funds it needs to send, the smart contract executes itself and sends the tokens to investors.

Another issue is the Turing-completeness of both cryptocurrencies. Bitcoin isn’t Turing complete, meaning that it’s unable to calculate the answer to any computable problem, given enough time and resources. Bitcoin doesn’t have two key features of a Turing complete system: ability to repeat/jump instructions when certain conditions are met and ability to store information as variables.

Ethereum has this completeness. It also has gas payments, a protocol which incentivizes people to supply their resources required to process the code on the network. Programs that ran out of gas simply stop executing, and this safety check is an important part of guarding the Ethereum blockchain from DDoS attacks.

Finally, Bitcoin isn’t a good candidate for an ICO due to its block time. It takes 10 minutes for Bitcoin’s proof of work to produce a single block. This is rather slow and in ICO conditions it can cause delays and congestions on the network. Ethereum has a “Greedy Heaviest Observed Subtree” protocol (called GHOST) which enables fast block creation times with intact blockchain security. In such an environment, ICO’s can be processed quickly and safely.

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CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com

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