The blockchain technology is quietly changing many industries. Just like the early days of the internet, it’s happening without much fanfare. But movements are building up, especially in the realm of fundraising for businesses. Bitcoin and blockchain technology are creating new and exciting opportunities in the field of crowdfunding.
What is Blockchain?
Blockchain is a complex concept. Let’s simplify it by comparing Google Sheets and traditional spreadsheets.
Traditional spreadsheets reside in one location at a time. They may be on someone’s computer or even stored on the web in an application like Dropbox, but they do not exist in more than one place at a time. Changes must be efficiently disseminated to all relevant parties.
Google Sheets, on the other hand, can be accessed in multiple places simultaneously. They live in the cloud, and anyone with access can see any changes made in real-time.
Blockchain is more like Google Sheets than traditional spreadsheets, but with added security. Unlike Google Sheets – which can be edited by anyone with access – once data is entered into the blockchain, it is distributed across a diverse network (similar to how Google Sheets works) and secured. The entry cannot be changed once it is placed in its block.
Note: Entries in the blockchain are extremely secure and cannot be altered or tampered with.
Why is Traditional Business Funding Hard to Obtain?
Most traditional business funding takes one of three forms: self-funding, bank financing, or venture capital.
The problem is that self-funding is very limited for most people. Bank financing requires an existing business with good revenue and cash flow. Venture capital almost always requires having a product or service with mass appeal.
This makes traditional funding very limited and hard to access for new companies. It can stifle growth even for products and services with huge potential.
Why is Traditional Crowdfunding Still Ineffective?
Crowdfunding allows businesses with great product and service ideas to raise money from ordinary people with small investment amounts. When it works, it can give your business a huge boost. Companies like Kickstarter, Indiegogo, and Crowdfunder were among the first to make this popular.
The problem is that the traditional crowdfunding model is still extremely ineffective. According to Kickstarter, 78% of campaigns that raise 20% of their goal eventually become fully funded, while 11% of projects receive no funding at all.
This leads us to discuss how blockchain is changing the crowdfunding landscape.
Blockchain or Bitcoin Funding Can Be a Game-Changer
As blockchain makes the funding process secure and offers transparent access from anywhere in the world, crowdfunding platforms that use blockchain can help maximize project success.
There are many ways that blockchain and Bitcoin are being used to help companies raise funds.
Initial Coin Offerings (ICOs)
Companies create their own cryptocurrency that works similarly to company shares. Initial Coin Offerings (ICOs) are offerings of a new cryptocurrency on a blockchain platform. They are similar to how other crowdfunding platforms work, where project creators pitch what they’re doing, and then seek funding from a group of people interested in supporting them.
What happens with Initial Coin Offerings is that investors buy cryptocurrency tokens representing shares in the project, just like how the stock market operates. These shares have the potential to increase in value over time if the company can succeed.
Note: This is referred to as crypto capital – and entire platforms are now being built to capitalize on buying, selling, and trading crypto capital.
The Structure
Infrastructure to Facilitate Financing with Bitcoin
Blockchain technology is relatively new. Bitcoin was launched in 2009 with the first blockchain. Since the market was not yet mature, there is still creative and interesting building to be done to take advantage of it.
OpenLedger is one of many projects that utilizes blockchain technology in the field of crowdfunding.
OpenLedger operates like a stock market for crypto capital. Companies can issue an initial coin offering through OpenLedger to raise funds, and then this crypto capital can be traded on OpenLedger. Let’s take a look at how this works in a real case.
Stratis Raised Over $100,000 through Bitcoin Financing
Stratis took a slightly different approach to raising funds via blockchain.
The company created a platform that allows it to quickly build blockchain-like applications. Since all of this is based on new technology, it can be difficult to get funding for the reasons we’ve discussed.
In 2017, Stratis created an initial coin offering to raise funds. The company only accepted Bitcoin as payment for the initial coin offering and raised over $100,000 for its technology.
Another interesting feature of this technology is that three people are required to access the funds, and only one of them works for Stratis. This creates a level of accountability in fundraising that might not exist without it.
Look for more innovations as individuals and companies become more creative using blockchain technology. Its potential extends far beyond Bitcoin financing.
Source: https://www.thebalancemoney.com/how-bitcoin-and-blockchain-is-changing-crowdfunding-4173837
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