Thanks to sites like Kickstarter and IndieGoGo, it’s arguably easier than ever for artists and entrepreneurs to acquire funding for their projects. Business ideas and creative works that may have failed to attract traditional investors in the past can now earn the necessary startup capital, with a trusted third party keeping funds in escrow to protect both investors and those seeking cash.
However, while these services have certainly benefited many individuals and organizations in recent years, they aren’t without their flaws. Kickstarter and similar sites charge high fees, and to some degree, they can influence which projects receive funding. That’s why some experts now believe that blockchain crowdfunding represents a better solution for everyone.
Why the Concept is So Popular
Although the concept is fairly new, it’s easy to understand the appeal of blockchain crowdfunding. With this method, people seeking investors for their business begin by creating a unique digital currency, and then selling it. Selling the currency to investors helps them raise the necessary funds. Investors, on the other hand, could stand to earn a profit if the value of the digital currency rises in the future. Already, startups employing this method have brought in hundreds of millions of dollars.
One example of a technology succeeding with the help of blockchain crowdfunding is chatbots. Recently, there’s been the rise of a new generation of chatbot platforms that are funded via blockchain investor communities. Most of these are funded through the Ethereum-based platform, WINGS DAO, but you can expect to see others spring up from the various blockchain crowdfunding sources that are emerging.
How Blockchain Crowdfunding Works
Essentially, blockchain crowdfunding eliminates the need for a third-party intermediary. Other than that, the actual process is very similar to the current crowdfunding model.
Startups post information about their projects to online communities. When they’re ready to attract investors, they trigger an Initial Coin Offering (think IPO), allowing people to buy equity in the form of a unique cryptocurrency. Through platforms like OpenLedger, investors can trade cryptoequity.
For investors, the process is extremely similar to buying and selling shares of a business on the stock market. A blockchain ledger tracks and accounts for all cryptocurrency tokens, making forgery essentially impossible and protecting investors.
Why haven’t more people adopted this approach to crowdfunding yet? One of the main reasons is simply technological limitations. It’s still difficult to actually create a blockchain app. Luckily, companies like Stratis are changing that. They’re one of the first companies introducing the concept of “Blockchain as a Service.” They allow individuals and organizations to create a blockchain on their platform, instead of developing one independently. This reduces the amount of time and effort that goes into the blockchain crowdfunding approach.
Although Blockchain as a Service is a fairly new idea, it’s very likely that many other companies like Stratis will emerge in the near future. They will give people even more ways to acquire funding for their projects. Eventually, this approach could replace Kickstarter and IndieGoGo. As more people gain access to blockchain services, the need to rely on a third party may become a thing of the past.
Author: Rae Steinbach
Rae is a graduate of Tufts University with a combined International Relations and Chinese degree. After spending time living and working abroad in China, she returned to NYC to pursue her career and continue curating quality content. Rae is passionate about travel, food, and writing, of course.