- Blockchain technology’s decentralised feature and peer-to-peer exchange value are being leveraged to fund creative and business projects
- This is being conducted through Initial Coin Offerings (ICO) through which involves issuing tokens to contributors which act as the company’s shares without equity exchange
Gathering financial resources for a particular cause or project through crowdfunding is not new, but the entry of blockchain technology in this space certainly is. Statistically speaking, in 2018, the crowdfunding market size was valued at $10.2 billion, and is expected to triple by 2025.
Problems with conventional crowdfunding platforms
Crowdfunding platforms enable the investment procedure to be conducted with a democratic approach, giving everyone the scope to contribute to projects that appeal to them. However, such platforms often impose regulations owing to their profiteering motives, which often get in the way of creative or noble ventures. Moving on, the fund seekers are often asked to hand over hefty fees, which could be used by them to finance their own ventures in the first place. This is where crowdfunding powered by blockchain technology comes into play.
What is Initial Coin Offerings (ICO)?
In 2012, a Bitcoin enthusiast and software developer, JR Willet was seeking funds for MasterCoin-his dream project. In his crowdfunding project, contributors could transfer Bitcoins in exchange for digital tokens that could be used later on the MasterCoin service. The value increased as the project gained momentum. Thanks to the innovation which was way ahead of its times, Willet managed to raise a fund of 5000 Bitcoins. This method of raising capital came to be known as Initial Coin Offering and paved the way for new-age crowdfunding methods.
For most of the crowd-sales, tokens sale participants send their contributions via smart contracts, which in turn allocate tokens to the participant. Developers then collect contributions from crypto-investors who invest in the projects newly issued tokens. In the end, the company benefits from its ICO by avoiding usual hurdles imposed by venture capital firms and banks.
Bitcoin, Ethereum boost crowdfunding
Ethereum infrastructure is a convenient way to set an ICO which ensures that prospective investors could trade their acquired tokens as most crypto-exchanges support ERC-20 based tokens. According to ICObench, over 80% of all ICOs rely on the Ethereum blockchain to create their tokens and issue them to investors. Openledger is another project that uses blockchain technology in crowdfunding. It operates like a stock market for crypto equity in which companies can release an ICO through OpenLedger to gather financial resources, following which this crypto equity can be traded on OpenLedger.
Latest Developments in Blockchain Crowdfunding
The Italian crowdfunding portal Opstart and SEED Venture, the startup financing platform based on blockchain technology, have recently started tokenization of crowdfunding campaigns. This would entail a process by which one or more shares of a start-up are equated to tokens which are easily exchangeable with shares. Max Crowdfund, a blockchain-powered real estate crowdfunding platform, has also reported getting its security features approved by the Financial Market Authority (FMA) in the Netherlands.
More freedom, no third-party interference and zero fees. Do you still need another reason to start investing in a blockchain-backed crowdfunding project?