Crowdfunding And Blockchain

CROWDFUNDING AND BLOCKCHAIN

Where the real power of blockchain is its ability to keep track of transactions in a way that’s secure, publicly verified, and virtually impossible to use fraudulently. It keeps a record of how ownership changes. This makes it perfect as a platform for creating, distributing, and exchanging currency and making transactions.

The entire world of crowdfunding could be completely changed thanks to blockchain’s advantages. Crowdfunding has become popularity over the past decade or so with varying degrees of success. There are more than 400 crowdfunding platforms. Crowdfunding volume totalled over $19 billion in 2019.

THE LIMITS OF CURRENT CROWDFUNDING

We can start by looking at modern day crowdfunding, pain points. Crowdfunding offers many advantages to all the creators and consumers involved but there is also risk involved. It democratizes the process of investment, whether it’s for a business, an invention, or a work of art. Anyone can contribute as much or as little as they want. Entrepreneurs and inventors who might otherwise struggle to get an audience gain exposure and funding, while giving life to new products that might otherwise never see the light of day.

But there are definitely some flaws with this model:

THE CASH GRAB.

For starters, every crowdfunding exchange today is dependent on one of several dedicated crowdfunding platforms. These platforms aren’t providing opportunities for people for free or out of the goodness of their heart. A is taken fee for every project listed. Sometimes, this is a flat fee while others require a percentage of the total proceeds raised by contributors. Companies and organizations can’t be faulted for trying to make money. However, for those whose projects depend upon a critical level of funding, this can be a major problem for them.

MARKETING AND ADVERTISING.

Having a good idea on a crowdfunding platform isn’t a guarantee of success. You need a way to make your crowdfunding page more visible and attract new people to that project. Some crowdfunding platforms have a “featured” section, noting some of the currently most-popular projects. If you never make it to that threshold of popularity, then the benefit if going to be very limited for you. Spending time on branding, pitching, advertising, and strategies like search engine optimization (SEO) is a practical requirement. However, it takes time away from the actual invention or business.

COPYRIGHT WEAKNESS.

Some creators have seen their entire business model collapse before they even got a chance to start production. When their idea got popular on the crowdfunding circuit, other entrepreneurs got inspired and rushed to beat them to market with a similar product. Even with a copyright in place, you might only be giving more ideas and more inspiration to your top competition.

DECENTRALIZATION.

The blockchain is completely decentralized. This means it isn’t going to rely on any platform or combination of platforms to enable creators to raise funds. That’s going to have multiple positive effects for crowdfunding. For starters, you’ll no longer be beholden to the rules, regulations, and whims of the most popular crowdfunding platforms. Literally, any project has a chance of getting visibility and getting funded. It also eliminates the problem of fees. While blockchain upkeep does cost a bit of money, you’ll cut back drastically on transaction fees. This makes crowdfunding less expensive for creators and investors across the board.

AVAILABILITY.

It could be any project using a blockchain-based crowdfunding model can potentially get funded. Also, any person with the internet can contribute to those projects. There may be some demand for discovery and visibility in the platforms, but as of today there isn’t a fundamental limitation, like there is for crowdfunding projects today.

FLEXIBLE AND VARIED OPTIONS.

Using the blockchain as asset tokenization grants creators and entrepreneurs more ways they can reach their goals. They can raise more funds by issuing more fractional shares in their enterprise and use those funds to expand. Yet, they can also leverage those fractional shares directly. As an example, they could save money on hiring employees by compensating them partially in fractional ownership of the business, converting it into an employee-owned enterprise. Asset tokens become their own form of currency in this model, enabling organizations to do more.

RULES AND REGULATIONS.

Most platforms serve as gatekeepers for the projects they fund. For example, on Kickstarter, every project must produce some actual thing. It can’t be a new initiative or a service-based business. Projects on Kickstarter also can’t offer equity to micro-investors. And can be removed if they violate any of Kickstarter’s vaguely written terms of service. This gives a huge amount power to Kickstarter moderators. While this serves as a good way to cut down those who aren’t serious, but it also prohibits some people with otherwise amazing ideas from getting their projects the visibility they deserve

PROMISES NOT BEING KEPT.

Modern crowdfunders typical contribute money in exchange for a promise. Depending on the contribution level, this could be the new product when it comes out before anyone else, a small piece of memorabilia, or something more exciting. But those promises can be broken. Multiple highly popular crowdfunding campaigns have turned out to be scams, and successful ones at that. People never get the products they paid for months ago. Often, they forget about their contributions, so they never end up taking legal action. But it damages the whole and could easily be fixed with smart contracts.

HOW DOES BLOCKCHAIN CHANGES THE CROWDFUNDING GAME

So where does blockchain come in? The natural advantages of blockchain technology can support and improve crowdfunding in several key areas;


GAINING EQUITY.

Instead of crowdfunding to enable pre-orders of upcoming real products, blockchain could rely on asset tokenization to provide investors with equity or some similar concept of ownership. As an example, an inventor who plans on creating multiple new products with the incoming funds could then grant each new investor with a small ownership stake in the company, commensurate with the amount they contribute. That way, investors will see success proportional to the eventual success of the company. This could potentially open whole new worlds of investment opportunity in many different sectors.

IMMEDIATE RESULTS

Blockchain-based crowdfunders wouldn’t have to worry about the “empty promises” that have plagued modern-day crowdfunding projects. Instead of contributing money and waiting weeks or months to receive the promised product they, contributors will immediately receive fractional enterprise or product ownership.

PEER TO PEER EXCHANGES.

Just like cryptocurrency today, it’s possible to exchange crowdfunded business or product stakes on a peer-to-peer basis. This provides contributors with more liquidity for their investments. It could serve as a way to generate more interest in the project overall. This change could eventually spur the creation of an entirely new type of marketplace.

We are attempting to create the largest database of information on blockchain found on the internet. One block at a time.