In recent times, innovative ideas, business start-ups, charity, and nonprofit organizations have greatly benefitted in online donations & Investment through crowdfunding platforms to support their ideas and projects. The internet is a huge environment full of people from different races for different goals. Leveraging the power of the internet is a great tool for crowdfunding platforms to emerge and grow rapidly.
In 2015, it was recorded that about $34 billion was raised globally through crowdfunding platforms to support foundations and finance businesses. This is a powerful collaborative concept to grow the economy of every country by financing innovative ideas and business start-ups of ordinary people. Consistent efforts are being made to strengthen and expand the crowdfunding system to boost its efficiency and foster productivity.
In a bid to improve the development of the crowdfunding system, crowdfunding platforms are now looking into cryptocurrency, also known as a digital currency to enable safe and transparent donations or investment solutions worldwide. The use of cryptocurrency (blockchain technology) enables the decentralization of funds’ donations or investments by individuals with fewer transaction fees. The use of cryptocurrency in crowdfunding platforms will boost trust and business transparency.
How Does Crowdfunding Work?
Crowdfunding is very simple to approach. Whenever you visit a crowdfunding website, there is information relating to the general overview of an ongoing project(s). Most times, it is necessary to sign up with crowdfunding websites to read more about a project and how to contribute or invest. Some may charge a token amount as a percentage of the profit they make. However, the concept is to throw a campaign to the public to raise a certain amount of money for a project.
Types of Crowdfunding
There are several types of crowdfunding, but in this article, we will focus on two.
- Equity crowdfunding (investment-based crowdfunding)
- Real-estate crowdfunding
Either of these two and other crowdfunding types can be achieved through donation and investment models. Now, let’s look at how cryptocurrency can be used in crowdfunding platforms to transform the crowdfunding system.
What is cryptocurrency?
Cryptocurrency is a digital currency that operates on a decentralized system built on a peer-to-peer network using cryptography for making verified transactions and records. The concept of decentralization makes cryptocurrency unique and attractive owing to the fact that there’s no centralized authority controlling it. Yes, it is not controlled by any individual or government.
Bitcoin was the first cryptocurrency created. In 2009, it was launched as a digital token or coin through blockchain technology. The other available coins aside from Bitcoin are called “alternative coins”, popularly known as Altcoins. Examples are Ethereum, Ripple, Litecoin, and so on.
How can Cryptocurrency transform Crowdfunding Platforms?
Research showed that almost 78% of campaigns for fundraising through crowdfunding platforms don’t meet up with targets. Consequently, beneficiaries get less than what is expected to finance their businesses and startups. Now, leveraging cryptocurrency could improve how crowdfunding operations work.
In a bid to establish a strong cryptocurrency crowdfunding model, crowdfunding websites or platforms should create their own crypto coin. This can be achieved through a network of software on blockchain technology to create cryptocurrency tokens. It will help crowdfunding platforms to grow and expand exponentially within a short period of time.
This idea will help individual investors or contributors to invest directly into the coin or token system thereby becoming a huge asset in the future that attracts entrepreneurs or business organizations without external force. It may take some time to be accepted but it will enable crowdfunding systems or platforms to be strong and powerful without any third-party regulations.
Now, we will look at four important areas cryptocurrency crowdfunding could transform fundraising systems.
The Concept of Crypto Decentralization
Fundraising for business, medical treatments, Innovative ideas, and Startups do not need to depend on bank rules or other setback factors to allow creators to raise funds. With the help of digital currency, decentralization of the system allows for individual contributions for creators through a unique wallet address within minutes on the internet. Blockchain crowdfunding also reduces transaction charges thereby making crowdfunding less tasking and expensive for contributors and investors.
The use of tokens in crypto crowdfunding stands a great chance to promote reliable and substantial fundraising. Individual contributors can send their token contributions through an encrypted wallet address within seconds.
High availability and Instant provision
Each creator using a blockchain crowdfunding system can easily get funded within minutes. In addition, everyone with an internet connection can contribute to the fundraising projects available to them. Crowdfunding within cryptocurrency does not impose any threat or fraud-related operations like it’s happening in other areas over the internet today. Instead of this, individual donors can receive fractions of contributions without any trace or exposure.
Smart Crypto crowdfunding Contracts Terms
Crypto crowdfunding enables smart contracts and also helps to provide greater accountability in crowdfunding. Basically, funding contracts would provide built-in milestones which prevent exposure of funds during donation time.
Aspects of Crowdfunding to leverage Cryptocurrency
Equity crowdfunding solution
Equity crowdfunding solution (also known as investment crowdfunding) is used for raising business capital for startups and small-scale businesses. It brings new innovative ideas and upcoming businesses to the limelight through donations or investments. Most importantly, equity crowdfunding solutions ensure securities to several potential investors in exchange for financing.
This type of crowdfunding is a business oriented-mechanism where you contribute your share and in return earn a percentage ROI of your investment level. Each investor is entitled to a stake in the company proportional to their investment. Equity crowdfunding solution is different from other crowdfunding methods because financial rewards for investors are secured again in return.
The same applies to cryptocurrency crowdfunding investors, when they contribute to a particular project of funds, they expect ROI based on investment level directly into their crypto wallet address as the case may be.
Real-estate Crowdfunding Solution
In Real-estate crowdfunding solutions, cryptocurrency can also be an effective wheel that drives reliable fundraising. Real estate is a huge system that needs a huge amount of money to finance projects. In real estate, cryptocurrency can be used to aid easy access to capital for a landed property with less stress on crowdfunding management. We all know today that Real estate is a lucrative investment that appreciates within a few periods of time. When a crowdfunding platform opens an opportunity for a real-estate project through a decentralized system, companies and business investors can contribute their quota without conventional forms of capital fundraising.
Cryptocurrency has thrown crowdfunding systems into a new era of transformation. It is no longer new that blockchain crowdfunding technology has facilitated the democratization of project capitals for innovations and business startups. Even though there are some setbacks to using cryptocurrency crowdfunding, fundraising through the system makes waves across all major sectors.
This fundraising system ensures that authentic and reliable projects are enabled to gain exposure in the market. This ensures that contributors or investors have confidence in the projects they are investing in. In the real estate or equity crowdfunding model, cryptocurrency attracts many doubting investors because of the huge value of cryptocurrency in the market today.
Leveraging cryptocurrency technology into crowdfunding platforms or organizations ensures quick and easy fundraising programs for big projects. The use of crowdfunding crypto coins also facilitates the growth of crowdfunding platforms.
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