A lot of people interested in ICOs confuse the differences between protocol and app blockchain companies. They ask companies holding ICOs the question, “How do you use the blockchain in your ecosystem?” and expect a protocol blockchain answer. This is the wrong expectation. LiveEdu ICO has received similar questions from investors. The purpose of this article is to explain the main differences between the two.
Protocol blockchain companies are companies that build their own complete blockchain from scratch and do not use any of the existing blockchains. Their blockchain is completely independent and can run on its own without the need for interaction with other blockchains. Protocol blockchain companies are rare and their success rate is significantly low because most do not reach the minimum user base needed for mass adoption.
From day one, a protocol blockchain needs a huge ecosystem for it to survive. From a ROI perspective, protocol blockchain companies generate less return than app blockchain companies. Imagine the internet as a protocol blockchain and all the companies running on the internet such as Google, Facebook, Amazon, Alibaba, and Badoo as app blockchain companies. The latter do not have any blockchain themselves; they build their entire business on a protocol blockchain called “internet”. Protocol blockchain companies are technically and scientifically hard to build and much riskier than app blockchain companies. App blockchain companies get to use the protocols built by the protocol blockchain companies for almost free and reap the benefits.
Example: LiveEdu is an app blockchain company which will run on the Ethereum blockchain protocol using ERC20 technology.
Another example you can use to understand the differences between protocol and app blockchain is the railway system in a county. Imagine the railway as a protocol blockchain and all the train service companies running transportation services on it as app blockchain companies.
Ninety nine percent of all ICOs so far can be categorized as app blockchain companies built on top of the Ethereum network. They use ERC20 blockchain technologies to tokenize certain aspects of their business operations, rewards systems or payment transactions. App blockchain companies do not build any protocol, at least in the beginning. They launch on an existing blockchain and use the blockchain as a way to develop their product cheaper, faster, more collaboratively and transparently.
Which protocol blockchain are you building your ecosystem on?Now that we have explained the difference between the two, next time you approach an ICO, do not ask how they use blockchain technology, but categorize them first either as protocol or app blockchain company. If they are an app blockchain company, the right questions to ask are:
- Which aspects of your internal and external network are you tokenizing with the blockchain protocol you selected?
- How do your token mechanics work?
- What are the weak points of your token mechanics?
- Will the protocol you are building on be able to maintain small transaction fees in the future so that it can be used for small payment transactions?