How to Make the Most of Crowdfunding on the Blockchain Blockchain technology offers a clear advantage for the crowdfunding industry, bringing transparency and security to the space and protecting both creators and donors in these interactions.
By Mitch Rankin Edited by Amanda Breen
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Since its invention and introduction for public use, the internet has been one of the most popular technological innovations. Starting from 140 million users in 1998, more users poured in at 63% annually. In 2021, the number of blockchain wallets reached the same milestone — 140 million — and Bitcoin had an annual growth rate of 113%. The market capitalization of all cryptocurrencies also reached $2 trillion in April 2021, becoming the fastest-growing asset class of the last decade.
These statistics, among many others, form the basis of blockchain technology's stake as one of the fastest-growing innovations in the history of humankind.
Many traditional industries are moving their operations onto the blockchain to leverage the potential of this technology. It is only a matter of time before the crowdfunding industry explores the blockchain, opening the path for more funds to flow into the space. For example, Kickstarter has announced its plans to move its entire operation onto the blockchain in 2022.
What does this mean for creators and donors?
Crowdfunding social platforms have been enabling environments for scammers and bogus donation claims. It only takes a few easy steps to create a fake profile on most crowdfunding sites, collect donations for sham projects and raise funds for tragedy victims that will never receive them.
So, how does one protect both creators and donors, allowing new projects and initiatives to secure funding and flourish, at no significant risk to either party?
Blockchain technology offers a clear advantage for the crowdfunding industry, bringing transparency and security to the space and protecting both creators and donors in these interactions.
Related: The Basics of Crowdfunding
Blockchain-powered crowdfunding projects
Blockchain-powered fundraising projects offer a solution for creators who need to commit substantial amounts of resources, time and money into developing ideas, products or services. Fundraisers allow organizations to test new products to measure market acceptance and viability before committing funds to further development. This market knowledge makes creators more willing to take on the financial risk to produce material that could benefit themselves or others. Without these assurances, creators may never get some of these products off the ground.
Today, a lot of the money that went into crowdfunding campaigns now flows through blockchains in the form of distributed autonomous organizations, or DAOs. An excellent example of a project that raised funds via a crowdfunding initiative is ConstitutionDAO, which raised $46.3 million from thousands of supporters to buy a rare copy of the U.S. Constitution. Once they failed to win the auction, they offered refunds to their donors and dissolved the initiative.
Related: Accessing Web 3.0 With a Click: Toolkits for Blockchain Adoption
So how does crowdfunding work?
When a creator presents the initiative of a new product, interested parties may choose to support the cause and secure access in advance of production.
Each supporter transfers the required amount in a stable coin to an escrow wallet bound by a smart contract. The creator can begin production when the total amount in escrow reaches the target within a specified period.
Three scenarios of blockchain crowdfunding terms
- Once the entire product is created, published and accepted by the majority of the donors through a governance voting system, the complete funds are released to the creators.
- When each milestone is reached and accepted by a predefined ratio of supporters, then a portion of the funds is released to facilitate project progress.
- When the product is created and released to the public, the funds can be released to the creator with or without donor acceptance independent of donor acceptance levels.
The predetermined amount from the escrow wallet will be transferred to the creator once consensus is reached. In this way, the smart contract insulates donors against judgment errors from project creators.
The integrating platform can also explore DeFi loans backed by assets for the interim working capital if the creator needs the funds to create the project.
Do you need to understand blockchain to use this crowdfunding smart contract?
The answer is no, you don't need to understand blockchain to use this crowdfunding platform in your business. Forward has a smart contract solution that allows Web 2.0 crowdfunding processes to be improved using blockchain capabilities. It is a no-code environment built for non-technical users to leverage the power of blockchain in the way they use apps currently in their businesses.
For example, an experienced illustrator may pitch a new artwork book using the customizable crowdfunding toolkit. The illustrator shows the objective, past work, risks and then sets the parameters and roadmap. Thanks to the decentralized nature of Web 3.0 tools, the project gets exposure without any geographical restrictions. Potential donors then contribute to the project in a trustless environment powered by smart contracts.
The smart contract has a simple user interface that creators and donors can interact with easily — nothing too different from the other applications they use every other day. Hence, users don't need to understand how blockchain works before benefiting from its functionality.
Donors can use regular credit and debit cards to pledge to campaigns while creators receive fiat currency to fulfill their projects.
Related: Accelerate Self-Motivated Employee Upskilling With Web 3.0 Rewards
What to look for in a blockchain crowdfunding application
The best blockchain crowdfunding platforms will have fully customizable smart contracts that allow you to define the terms of the contract, taking into account the conditions under which funds are released to the creator. It allows donors to choose campaigns offering terms they agree with. It also creates a transparent relationship where creators and donors are protected.
Blockchain technology is revolutionizing crowdfunding. It is advancing the interaction between innovators, donors and consumers. Thanks to smart contracts, donors can safely contribute to their favorite project. Consumers can support any creator and purchase digital products. Through providing a trustless and decentralized framework, innovators have an opportunity to initiate businesses, solve problems and produce new technologies.
