What Is Blockchain?
Blockchain is a complicated concept. Let’s make it simpler 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 an application like Dropbox, but they never exist in more than one place at once. Changes must be distributed efficiently to all relevant parties. Google Sheets, on the other hand, are accessible in multiple places 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 is 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. Because of this level of security, blockchain—which is the underlying technology of Bitcoin—is being used for many new applications. One of those applications is business funding. This is interesting because traditionally business funding is very difficult to get.
Why 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 with good revenues and cash flow. And venture fund capital nearly always requires a product or service that has mass appeal. This makes traditional funding very limited and hard to get for newer businesses. It can inhibit growth even for products and services with huge potential.
Why Traditional Crowdsourcing Is Still Inefficient
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. Companies like Kickstarter, Indiegogo, and Crowdfunder were among the earliest to make it popular. One problem is that even with crowdfunding, the model is still extremely inefficient. According to Kickstarter, 78% of campaigns that raise 20% of their goal ultimately become fully funded, while 11% of projects finish having never received any funding at all. This brings us to how blockchain is changing the crowdfunding landscape.
Blockchain or Bitcoin Crowdfunding Could Be Disruptive
Because blockchain makes the funding process safe and offers completely transparent access from anywhere in the world, crowdfunding platforms that use blockchain can help to maximize the success of a project. There are several ways blockchain and Bitcoin crowdfunding are being used to help fund businesses.
Initial Coin Offerings (ICOs)
Companies are creating their own cryptocurrency that acts a lot like company stock. Initial coin offerings (ICOs) are offerings of a new cryptocurrency on a blockchain platform. It’s similar to the way other crowdfunding platforms work, whereby 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.
Infrastructure to Facilitate Bitcoin Crowdfunding
Blockchain technology is fairly new. Bitcoin was launched in 2009 with the very first blockchain. Because the market is not yet mature, creative and interesting structures are still being built to take advantage of it. OpenLedger is one of many projects that uses blockchain technology within the field of crowdfunding. OpenLedger operates like a stock market for cryptoequity. Companies can release an ICO through OpenLedger to raise funds and then this cryptoequity can be traded on OpenLedger. Let’s look at how this works in a real-life situation.
Stratis Raised Over $100,000 With Bitcoin Crowdfunding
Stratis used a slightly different approach to blockchain crowdfunding. The company created 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’ve discussed. In 2017, Stratis created an ICO to raise the funds. They accepted only Bitcoin as payment for the ICO and raised more than $100,000 for their technology. Another interesting feature of this particular technology is that three people are needed to access the funds, and only one of these people works for Stratis. This creates a degree of accountability within the fundraising that might not otherwise be there. Look for more innovation as individuals and companies get creative with the use of blockchain technology. Its potential applications extend well beyond Bitcoin crowdfunding.
