How Bitcoin (and Blockchain) is Changing Crowdfunding
Blockchain technology is quietly disrupting a whole lot of industries. Right now, it’s mostly being done without a lot of fanfare (much like the internet at the beginning), but the ball is rolling and it’s gathering momentum.
One of the areas that blockchain is creating new and interesting opportunities is business fundraising. We’ll get into how Bitcoin blockchain technology is changing crowdfunding shortly, but first, let’s look at what blockchain is and exactly what it does.
Blockchain a pretty big and complicated concept. But I’ll try to break it down some by comparing it to Google Sheets vs. Traditional Spreadsheets.
Traditionally spreadsheets, much like transactional ledgers, exist in one place at a time. They might be on a person’s computer or even stored on the web in the application like Dropbox, but they never exist in more than one place at once, and changes made to them need to be distributed efficiently to all relevant parties.
Google Sheets, on the other hand, exist in multiple places all at the same time. They live in the cloud and everybody who has access to them can see any changes that are made in real time.
Blockchain is more like Google Sheets than a traditional spreadsheet, but with added security. Unlike Google Sheets––which can be edited by anyone with access––once an entry gets made in blockchain it both gets distributed over a diverse network (somewhat similar to the way Google Sheets works) and gets locked in. The entry can’t be changed once it resides in its particular block.
This means that entries that are put into a blockchain are incredibly secure. They can’t be changed or manipulated.
Because of this level of security, blockchain––which is the underlying technology of Bitcoin––is starting to be used for many new applications. One of those applications is business funding. This is interesting because traditionally business funding is very difficult to get.
Traditional Business Funding is Hard to Get
Most traditional business funding takes one of three forms: self-funding, bank funding, or venture capital.
The problem is that for most people, self-funding is incredibly limited. Bank funding requires having an existing business that has good revenues and cash flow. And venture fund capital nearly always requires a product or service that has mass appeal.
This makes traditional funding either very limited and very hard to get for businesses and can inhibit growth even for products and services that have huge potential.
Traditional Crowdsourcing is an Improvement but is Still Inefficient
Crowdsourcing business funding has been one of the miracles of the modern Internet age. With companies like Kickstarter, Indiegogo, Crowdfunder along with many more joining the crowdfunding craze.
Crowdfunding allows businesses with really great products and service ideas to raise funds from regular people in small investment amounts. When it works, it can really give your business a big boost.
One of the problems is that even with crowdfunding, this model is still extremely inefficient, with 78 percent of campaigns not reaching their target goals and only 1.9 percent of funds that are raised through crowdsourcing campaigns going to developing countries.
And that brings us to how blockchain is changing the crowdfunding landscape.
Blockchain or Bitcoin Crowdfunding Has the Potential to Disrupt the Industry
Because blockchain makes the funding process safe, accessible from anywhere in the world, and completely transparent, crowdfunding platforms that use blockchain can help to maximize the success of a project.
There are a couple of different ways that blockchain or Bitcoin crowdfunding is being used currently to help fund businesses; the first one is called initial coin offerings or ICOs.
ICOs (Initial Coin Offerings)
Companies are creating their own cryptocurrency that acts a lot like company stock. Initial coin offerings are offerings of a new cryptocurrency on a blockchain platform. It’s similar to the way the other crowdfunding platforms work where creators of the project post what they’re doing and then ask for funds from a group of people who are interested in backing them.
What happens with initial coin offerings is that investors are buying cryptocurrency tokens that represent shares in the project, much like how the stock market works. The shares have the potential to increase in value over time if the company does well. This is referred to as crypto-equity––and entire platforms are being built now to take advantage of the buying, selling and trading of crypto-equity.
Infrastructure is being built to facilitate Bitcoin crowdfunding.
Currently, all blockchain technology is fairly new. Bitcoin was only launched about a decade ago with the very first blockchain. What that means is that the market is not yet mature and so, creative and interesting structures are still being built to take advantage of it.
There’s a project called OpenLedger, among many others, that is using blockchain technology within the field of crowdfunding.
OpenLedger operates like a stock market for cryptoequity. Companies can release an initial coin offering through OpenLedger to raise funds and then this crypto-equity can be traded on OpenLedger.
This is fascinating and the technology is moving very quickly. So, things are changing fast.
Let’s take a look at how this works in a real-life situation.
The Stratis Story – Over $100,000 of Funding Through Bitcoin Crowdfunding
Stratis used a slightly different approach to blockchain crowdfunding.
They are trying to create a platform that allows them to make blockchain type apps extremely quickly. Because this is all based on new technology, it’s hard to get funding for the exact reasons that we discussed above.
So what Stratis did was create an ICO to raise the funds. Interestingly enough they only accepted Bitcoin as payment for the ICO and raised over $100,000 for their technology.
Another interesting feature of this particular technology is that three people are needed to access those funds, and only one of those people works for Stratis. This creates a degree of accountability within the fundraising that may not be there otherwise.
Blockchain is getting more and more press and for good reason. Different innovators are using technology to do cool things.
The Future Looks Bright for Blockchain Technologies
As people and companies get creative with the use of blockchain technology, we are likely to see more and more innovations. The future is looking bright for how this technology will be used in various business applications and we are already seeing it being used very successfully in Bitcoin crowdfunding.