Ethereum has made it very easy for anyone to create and issue virtual tokens on its blockchain. This is done with the help of standardized Ethereum smart contracts, such as ERC20. In this way, people, businesses, or governments can issue their own virtual currencies, assets, or application tokens using the Ethereum blockchain, without the need to build their own blockchains.
The facility of issuing new digital tokens or coins based on Ethereum stimulated a massive wave of new start-up ventures that innovate and fund their projects on the Ethereum blockchain. The funding comes in the form of initial coin offerings (ICOs), also known as token-generation events. In this way, start-ups can issue digital tokens that can be exchanged for services on their future platforms. They can also issue tokens that represent financial instruments, such as equity shares. These two broad classes of tokens are commonly referred to as utility and security tokens. This mechanism turned out to be a huge enabler of crowdfunding on the blockchain. It even exceeded traditional early stage venture capital multiple times, one of the typical ways that start-ups raise funding. This can be seen in the following screenshot:
Projects that run ICOs based on an Ethereum token, which is quick and easy to issue, retain flexibility afterward to use the Ethereum blockchain for their future service offering, or to build their own blockchain. This is a business decision that needs to be taken on a case-by-case basis.
Some business applications can benefit from their own dedicated blockchains for industry-specific reasons or due to scalability issues. The Ethereum blockchain currently doesn't have unlimited capacity to handle all applications and their transactions at the scale needed for mass adoption. Ethereum is still an early-stage and experimental technology. Thus, further progress is needed to upgrade it to a point where its network will be robust enough to handle all the traffic of a large, decentralized application's ecosystem.
It should be noted that Ethereum is not the first, nor the only, blockchain platform for decentralized applications and ICOs. For instance, NEO, which many people call the Ethereum of China, is another such platform. Even Bitcoin has a smart contracts functionality that can be used for this, as we saw earlier when we discussed the colored coins and Counterparty projects.
Another platform for decentralized applications is Mastercoin, later rebranded to Omni. Mastercoin did its own ICO in 2013, raising $5,000,000 worth of Bitcoin to build its protocol layer on top of the Bitcoin blockchain.
One of the most notable examples of a project that did its ICO using the Mastercoin protocol is MadeSafe—a platform for distributed computing resources, such as file storage and processing power. This application is similar, in a way, to popular cloud storage services such as Dropbox, Google Drive, or Amazon Cloud, but it's decentralized on the blockchain, and it rents out the spare disk space of its network nodes rather than a centralized server.
Storj is another distributed data storage project. It initially started building its platform on the Counterparty protocol, thus relying on the Bitcoin blockchain infrastructure. Later on, the Storj team decided to move the application to the Ethereum blockchain and issued a standard Ethereum ERC20 token.
Another project, called Civic, is making a move in the opposite direction. Civic is a decentralized application for personal-identity verification. They launched their ICO by issuing a token on Ethereum, but are moving their platform to the Bitcoin blockchain with the help of Rootstock. Rootstock (RSK) is a new platform for decentralized applications that run on top of the Bitcoin blockchain. It aims to combine Ethereum-type smart contracts with the security of the Bitcoin blockchain, which is second to none.
To illustrate this point further, we can compare decentralized applications to mobile applications. Projects can pick their platform of choice for their decentralized application in the same way they can develop mobile apps for Android or Apple phones. Android and iOS are two separate platforms with their own protocols and app stores. Any mobile application can be built for either platform, and the user interface may look the same, but the application code in each case would be different.
Of course, projects always have the option to build their own blockchains. Sia and Filecoin are two other distributed data-storage applications that are building their own blockchains rather than using Ethereum or Bitcoin. We'll focus more on application-specific and industry-specific blockchains in the coming chapters.
The important point to make here is that various blockchain platforms for decentralized applications exist. They provide general-purpose technology to develop and launch such applications. Ethereum is currently the premier platform for decentralized apps and ICOs.
Now, you should have a good idea what decentralized applications are. Let's go a step further into the future to discuss an even more ambitious idea envisaged by the Ethereum founders: decentralized autonomous organizations.