Ethereum is an iPhone and an ICO is an App (originally published 8.20.2017)
In another part of my “trying to understand Crypto” series, I’ve taken on trying to explain the difference between Ethereum and an ICO (Initial Coin Offering- which I will attempt to explain next time).
To begin, lets try to look at an Ethereum credit like the iPhone.
What I mean by that is the ETH (the symbol for an Ethereum Token), Is really like a building block for other things.
If you recall, I tried to explain Bitcoin in a previous article, that a Crypto Token is like a Stock that have a value that can go up and down.
Thus the Ethereum token has a symbol, which is ETH, and that symbol has a value. Currently, it $296.00, but you can easily check the price here.
This means you can invest, hold, trade, or sell the ETH Token. The ETH serves a basic purpose, again much like an iPhone served the basic purpose of making a phone call.
However, what make the iPhone really valuable?
The ability for Third Parties to build apps on top of the phone.
To date there are over 2.2 million apps for the iPhone.
These are different “ideas” that were built on top of the iPhone platform.
Think some of the biggest apps- Instagram for photos, WhatsApp, Viber, WeChat, etc. for messaging, and even Tender for dating.
Each of these ideas/companies used the iPhone as their base for running the platform.
Also, the iPhone also because a point of distribution, meaning the more people who had a phone, the more people would could use the app.
This created a unique dynamic I’ll call the- Phone/App Vortex.
This is very similar to the more prominent “Buyer/Seller Vortex”, which what is needed to build an online marketplace.
For instance, if you are trying to build a place where people can buy and sell things- Think eBay- you need lots of buyers for a seller to care. However, in order for buyers to show up to your web site, there had better be things for sale on the platform. So, you need lots of sellers for a buyer to care.
Once you reach a point of critical mass, with enough buyers and sellers, you will create a vortex of activity.
This you will have a buyer/seller vortex.
In the Phone/App Vortex, there is a similar dynamic. The more phones there are, the more apps have value. And the more apps there are, the more people want the phone, and thus the more valuable the phone is.
Why is this important?
Well, think of the ETH and an ICO much like the Phone/App vortex.
The more people that use ETH (phone), the more ICO’s (Apps) people will want to build. And, the more ICO’s (Apps) there are, the more valuable the phone is (ETH) will be.
So the Vortex is created increasing the value of both the platform Crypto (The ETH) and driving up the value of the ICO token as we..
Now, back to the ETH and ICO’s.
What is an ICO?
An ICO, is a new way to raise money for an idea or business.
Again, much like a traditional phone app was an idea, and you would raise money through traditional channels (Angels, VC’s, etc.).
An ICO is a way to issue your own “Token” that exists on top of the existing ETH Token.
This Token can then be made available to the public (I purposely didn’t say “Sold), and when the public buys (again, I didn’t say invests) your Token, the company can generate money through the ICO Token offering.
Again, think of an app on top of the iPhone.
Let’s say I wanted to do an ICO for a company called MonetaPro. I would create my own Token (Called MPRO), and that would be “issued” on top of the Ethereum platform (ETH).
Thus, the MPRO Tokens would create more and more ETH, which would in turn create more value for the ETH.
The more people that want the ETH, the more the underlying value of the ETH goes up.
Further, much like a traditional stock price, if more people want the ICO/ETH (Demand), than there is available to buy (Supply), the underlying price of the stock goes up.
The ETH is working much the same. The more demand there is — -either for the ETH (iPhone) or for the ICO (App), the more the Vortex is created.
This seems to be what is going on in the Crypto world now.
A new ICO pops up. It’s created on ETH. There is demand for the ICO. There is limited supply of the ETH.
So, the price of BOTH the ICO AND the ETH goes up accordingly.
For some, this seems like nothing but Funny Money.
For others, it’s simple market dynamics.
For me? I’m not sure what it is.
I only know I’m going to jump right in.
Next up? Stay tuned for my Parody song I just wrote for the Blockchain industry.