Blockchain’s Potential to Change Crowdfunding
Creating crowdfunding mediums using blockchain technology offers a plethora of solutions to many common problems, from accessibility to transparency, and even expenses. With the inception of blockchain technology and its inclusion into the crowdfunding sphere, many unique types of fundraising have spawned as a result, the biggest of which being Initial Coin Offerings. In addition to Forsage a fully decentralised crowd funding platform that pays 100% member to member.
- More Accessible
When crowdfunding moved from the real world to the digital one it opened the fundraising door to a much larger crowd, both those wishing to seek funds as well as those wishing to provide. However, traditional online crowdfunding still suffers from roadblocks and fees associated with international borders and barriers of entry for casual investors seeking early entry at the ground floor.
Using the blockchain gives the public access to startups that used to only be available to venture capitalists. Although there are crowdfunding opportunities not on the blockchain that allow access to equity, the minimum funding amounts are typically too high for the average consumer to afford.
Shorter lock time
When venture capitalists invest in ICO’s it doesn’t tie their money up for a very long period of time the same way that many early-stage startup equity investments do. Sometimes investments can see a return in as short as nine months; this allows for VCs to invest in more startups over time.
“Traditionally, venture investors can work with a startup for as long as 10 years waiting for an IPO or acquisition of the company to give them a return on their investment. But with ICOs, a venture investor who buys coins ahead of their public sale can usually expect the ICO to happen in as little as nine months, and from there on the VC can cash out, though some ICOs don’t allow such sales for three to six months after the offering.” – Tomio Geron, editor at WSJ
Investing can take place from all over the world, since ICO’s accept one type of cryptocurrency or another, and the funding can be sent across borders without heavy fees or legal restrictions.
- More Transparent
Crowdfunding without the use of a third-party mediator, there is no guarantee that the money given to a crowdfunded campaign through traditional methods will be used as intended. There are many cases of crowdfunding gone wrong because the businesses were not transparent enough. They raised funds and spent them on unknown things, or never had a proof of concept to begin with. Where traditional online crowdfunding falls short in transparency, blockchain-based crowdfunding can thrive.
Guaranteed through smart contracts
Blockchain software provides a platform to record and verify transactions, as well as other information, from a variety of different parties without the expense of brokers or other mediators. Smart contracts provide the trust that is lacking in many crowdfunding opportunities, providing guarantees for potential investors without relying on an intermediate company to enforce promises. Certain milestones can be set, and unless the community agrees that the project has progressed far enough to meet these milestones, the funded money will not be released to the startup; this can be automated using smart contracts.This can guarantee accountability to ensure that invested money is being spent wisely and correctly.
In the nonprofit sector, smart contracts are being used to “ensure that funds set aside for cleanup, such as those from Shell, are paid on verification of project completion, rather than contractors just withdrawing funds.” (Marian Conway, the executive director of the NY Community Bank Foundation)
- Less Expensive
Whether investing at the ground floor through an ICO for a fraction of the cost the coin might later be worth or simply trying to support a company in a different country, the blockchain provides the medium for lower fees and entry costs in the crowdfunding world.
A blockchain based crowdfunding company would provide a decentralized network for both the potential startups and the funders when it comes to the funding model, removing the influence of any specific company and eliminating large fees that are common through current crowdfunding providers.