In the last few years, sites like Kickstarter and Indiegogo have revolutionized the world for startups. Ideas that didn’t have mainstream business appeal were not only getting off the ground, but flourishing. Blockchain crowdfunding might just be the next step in startup evolution, helping important and interesting projects come to fruition.
Crowdfunding provides an excellent way for creative projects to find cash. Many small or obscure projects lay outside of the scope of traditional investment. This makes it very difficult for them to get their ideas off the ground. Kickstarter, Indiegogo, and others changed that, by allowing startups to connect directly with potential consumers in order to seek funding. They acted as a trusted third party to keep the money in escrow, helping to protect potential investors from being scammed. If the funding succeeds, customers get whatever was promised to them as part of the campaign. If not, their money will be sent back.
The problem with these established crowdfunding companies is that they are centralized bodies, charging high fees and also influencing the projects. Blockchain-based crowdfunding is set to be a game changer because it decentralizes the funding model from the likes of Kickstarter and other companies.
Kickstarter provides a service and there are costs to run that service, so it’s hard to blame them for charging 5% of the total funds received, with an additional 3-5% going towards payment processing. Despite this, it is still expensive. With blockchain’s distributed ledger, there is the potential to remove this third party, which will save a considerable amount of the fundraising costs.
Blockchain crowdfunding works by allowing startups to create their own digital currencies and sell them. This allows them to raise funds from early investors, while the investors also have the potential to make money if the value of their cryptographic shares increases.
Some advocates consider this a more pure form of crowdfunding, because it removes any intermediaries standing between the backers and the startup. It also has the potential to boost new blockchain platforms, because it will give the blockchain community a new way to fund its own projects. It appeals to the more anarchistic blockchain enthusiasts as well, because it allows them to avoid traditional funding methods.
How Does Blockchain Crowdfunding Work?
It is similar to Kickstarter, with the creators posting their project and then soliciting funds from a community of interested people. Where it differs is that the startups will be able to make their own cryptocurrency to sell to potential backers. These cryptocurrency tokens will be accounted for and kept track of by the blockchain, which makes it immutable and impossible to forge. The tokens represent shares in the project, and just like normal shares in the stock market, they have the potential to go up in value. These investments are referred to as cryptoequity.
OpenLedger by CCEDK
OpenLedger is one of the numerous projects that are popping up to apply blockchain technology to the field of crowdfunding. The parent company, CCEDK, saw OpenLedger as a new opportunity to provide something valuable to their users. According to Forbes, the OpenLedger platform aims to bring “great new ideas and people” to investors throughout the world. OpenLedger functions as a trading platform, where investors can immediately trade their cryptoequity. CCEDK will hold the money in escrow, which allows companies to access much-needed funds and also reduces the risks for investors.
When a company wants to begin crowdfunding, they will release Initial Coin Offering OpenLedger (ICOO) assets, which are the cryptoequity. If the company does well, these tokens can increase in value, as well as be traded on OpenLedger according to the desires and speculation of investors.
Stratis Raised Over $100 000 Through Blockchain Crowdfunding
On the opposite side of the equation is Stratis, a UK-based company that is working on a unique blockchain development platform that aims to reduce the time it takes to create blockchain apps. As you can imagine, it is often difficult to secure funding when you work with technology that the establishment is dragging its feet on.
Stratis turned to blockchain-based crowdfunding to acquire the much needed funds. They are developing a Bitcoin full node framework, which will serve as the foundation for their own service. They sought funds with an initial coin offering (ICO) and the tokens are used for the parent and side chains of the network. Investors can use the tokens to pay for the use of blockchain as a service or for dapp hosting functionality.
The ICO only accepted Bitcoins, but over $100 000 was raised for the project. The funds are stored in a multisig account, but only one of three keys is held by Stratis. This ensures that an employee can’t run off with the money and it protects the investors.
And, it goes without saying, with new technology comes new opportunity. Pandora’s box has been open and the future is looking bright.