Blockchain Meets CrowdFunding: Is This the Future?
Actor and tech investor Ashton Kutcher surprised Ellen DeGeneres with a large donation to the talk show host's wildlife charity on behalf of cryptocurrency startup Ripple. Daytime viewers were not prepared for this PR twist, and many were left wondering what Ripple is. The $4 million that Kutcher presented to The Ellen DeGeneres Wildlife Fund comes in the form of Ripple's XRP coin — currently third most-valuable cryptocurrency on the market, behind Bitcoin and Ethereum.
Not long ago, crowdfunding was the hot topic and now it is cypto-currency and blockchain technology. It is only natural that block chain technology would innovate crowdfunding. Blockchain-based crowdfunding is set to be a game changer because it decentralizes the funding model from the likes of Kickstarter and other companies.
Kickstarter provides a service and there are costs to run that service, so it’s hard to blame them for charging 5% of the total funds received, with an additional 3-5% going towards payment processing. Despite this, it is still expensive. With blockchain’s distributed ledger, there is the potential to remove this third party, which will save a considerable amount of the fundraising costs.
Blockchain crowdfunding works by allowing startups to create their own digital currencies and sell them. This allows them to raise funds from early investors, while the investors also have the potential to make money if the value of their cryptographic shares increases.
Some advocates consider this a purer form of crowdfunding, because it removes any middlemen standing between the backers and the startup. It also has the potential to boost new blockchain platforms, because it will give the blockchain community a new way to fund its own projects.
How Does Blockchain Crowdfunding Work?
It is similar to Kickstarter, with the creators posting their project and then soliciting funds from a community of interested people. Where it differs is that the startups will be able to make their own cryptocurrency to sell to potential backers. These cryptocurrency tokens will be accounted for and kept track of by the blockchain, which makes it immutable and impossible to forge. The tokens represent shares in the project, and just like normal shares in the stock market, they have the potential to go up in value. These investments are referred to as crypto-equity.
Stratis, a UK-based company that is working on a unique blockchain development platform that aims to reduce the time it takes to create blockchain apps. Stratis turned to blockchain-based crowdfunding to acquire the much-needed funds. They are developing a Bitcoin full node framework, which will serve as the foundation for their own service. They sought funds with an initial coin offering (ICO) and the tokens are used for the parent and side chains of the network. Investors can use the tokens to pay for the use of blockchain as a service.
The ICO only accepted Bitcoins, but over $100,000 was raised for the project. With new technology comes new opportunity, and the future is bright for crowdfunding using blockchain.