Blochain technology has been disrupting various industries. Even traditional business fundraising hasn’t been left untouched. Blockchain crowdfunding encompasses new line of investors and business owners looking for convenient ways of raising funds.
ICOs emerged as a boom in the funding market and witnessed a steep rise in 2017. They generated nearly $6 billion of the total fund raised by businesses. However, the ICOs dipped down the graph with the same speed it rose. Some of the major drawbacks are lack of transparency and least protection for the investor’s money. That’s a different story altogether.
What ICOs did good is to bring many relevant advantages over the traditional forms of funding. Businesses can now leverage blockchain to raise money in a more secure, transparent, and reliable manner. The technology could assist businesses to generate funds at a much lower interest rate and might give a competitive advantage.
With the help of blockchain, crowdfunding may become a much bigger game than it currently is. Let us now learn what advantages blockchain technology has to offer to the traditional crowdfunding.
Lower transaction cost with Smart Contracts
Traditional crowdfunding platforms like Kickstarter charge hefty percentages on the total fund raised plus a small amount on every transaction made. That is because these platforms have to put multiple resources to get things done.
However, leveraging blockchain businesses can reduce the amount of fees and overall cost that is included in the crowdfunding. Smart contracts can help here eliminating the middlemen thus saving a lot in terms of expenditure. Utilizing smart contracts to pay out funds once the target goal is reached is another way that blockchain can help in lowering the cost involved.
There could be endless examples of crowdfunding failures and frauds in raising funds. Business owners use the money raised for self-purposes rather than the actual cause. This is just one problem that people generally face in being a part of crowdfunding. Blockchain, on the other hand, is known to be reliable and secure for many businesses.
The technology with the help of smart contracts can make crowdfunding more accountable and secure for all the parties. These contracts could prevent funds from being transferred until the said condition is met. Moreover, all the transactions will be recorded on a public blockchain could ensure no cheating could happen.
Elimination of middlemen
Under the traditional crowdfunding structure, due to numerous middlemen involved, the final amount raised is not the actual amount raised. A lot of money is distributed amongst the people conducting the fundraising. Actually, that is where such platforms make money.
Blockchain, on the other hand, provides a way for untrusted parties to come into an agreement without needing any middlemen (because of smart contracts). Blockchain can do it by providing a digital distributed ledger that is visible and updated on every system connected to the network. It could significantly reduce the amount of fees charged during crowdfunding.
Decentralized crowdfunding platforms carry huge benefits for businesses. These benefits include providing a global investment platform that is over and above the governmental regulatory boundaries.
Things are changing. Through blockchain technology, businesses are innovating conventional processes to make them more secure and reliable. However, blockchain is still in its infancy, and a lot is there which is yet to be perfected. Although one thing is for sure, businesses will become technology compliant and will be eager to adapt and evolve with the market changes.