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Crowdfunding in Cryptocurrency

09 March 2023 09:47, UTC

Crowdfunding has become an extremely useful alternative to venture capital, and has been utilized in pitching the cause of non-traditional projects such as those started by hopeful creatives, in-need families and individuals. About $34billion has been raised through crowdfunding initiatives. However, crowdfunding platforms have a number of limitations which blockchain technology can help with. 

Limitations of Crowding Platforms:

High fees: For every project listed on crowdfunding platforms, a fee is taken. This is sometimes a flat fee or a percentage of the total funds accrued. This cuts into the availability of funds and strains start-ups looking for every single dollar.

Rules and regulations: Some crowdfunding platforms do not accept services as a project and rather demand tangible products. This could cripple innovation narrows the horizon of new products and services.

DIY Marketing and Advertising: Most platforms do not help startups in publicity, which means startups need to pay for marketing, which takes away from the limited funds available.

With the above limitations of crowdfunding platforms, blockchain technology can be introduced into the crowdfunding process to combat the many challenges faced by platforms, contributors, and startups. It’s obvious to see why large crowdfunding sites would choose cryptocurrencies as their payment medium of choice.

While crowdfunding platforms is an effective venture capital, users can also make use of Quantum AI and other top applications to trade professionally.

How Blockchain helps Crowdfunding:

Decentralization: Due to the decentralized nature of the blockchain, startups no longer have to rely on any platform for fundraising. Startups are no longer held by the rules and regulations of most crowdfunding platforms. The fees and percentages demanded by crowdfunding platforms are also eliminated, and any project gets a chance to be seen and funded.

Use of Tokens: Blockchain could make use of asset tokenization, which can render equity, or some other concept of ownership for users. They are called cryptoequities. An example is Initial Coin Offerings (ICO). ICOs are new cryptocurrency offerings on the blockchain. Initial coin offering allows investors to buy cryptocurrency tokens representing shares in the project. If the company or project does well, the acquired shares of tokens will potentially increase in value over time. Blockchain offers a system where small amount of equity can be attained, and allows for efficient record keeping of high volumes of shareholders and investments.

Availability and Provisions: Many Projects make use of crowdfunding model that is based on blockchain, which can potentially get funded. Crowdfunders using this medium wouldn’t have to worry about fraud as they immediately receive fractional enterprise or product ownership.

Smart Contracts to Enforce Funding Terms: Smart contracts backed by blockchain provide better accountability in crowdfunding. These contracts would prevent funds from being released until a campaign’s legitimacy has been proven. This helps prevent mismanagement of funds acquired by ill-intended, fraudulent or unqualified people running a crowdfunding project.

A platform that allows the making of blockchain-type apps was created by a certain company, and couldn’t get funding. Stratis, the company that created the platform, turned to cryptocurrency crowding by creating an ICO to raise the funds. Bitcoin was the accepted payment and they raised over $100000 for their project.

Crowdfunding in cryptocurrency allows for retail investors to access asset classes and investment opportunities that would not have been available to them. OpenLedger is one of the many projects that use blockchain technology within the field of crowdfunding. OpenLedger operates as a stock market for cryptoequities. Companies can release an ICO to raise funds and then the cryptoequities can be traded on OpenLedger.

Crowdfunding allows business with really great products and services to gather funds from contributors; who are regular people, in small investment amounts, but the crowdfunding model is still extremely inefficient. Through blockchain, the funding process becomes safer and crowdfunding platforms that adopt blockchain technologies to promote the success of a project.