Developing an Advanced Crowdfunding Platform with Blockchain

Published : Mar 17, 2021

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  • Traditional Crowdfunding Platform | Limitations

    Operational Platform Fees 

    Crowdfunding platforms levy a fee for each project listing. Often, it can be a flat fee. Other times, it can be a portion of the total funds collected by investors using the platform.

    Stringent Laws and Regulations 

    The locations of crowdfunding platforms determine which set of rules they need to follow. Also, not all platforms provide facilities for a feasible project. Instead, they seek tangible goods.

    DIY Marketing and Advertisement 

    Many marketing campaigns for crowdfunding platforms fail to spread the word about new companies significantly.

    Scam Startups

    In some cases, startups have turned out to be scams. Actually, these fake startups deliver nothing. They leave investors with empty hands and no way to recover their funds.

    Intellectual property risk

    Often, startups lack strengthened IP security mechanisms. Thus, it renders them vulnerable to seasoned hackers who can take the concept and launch it with all of their money.

    The Effect of Blockchain on Crowdfunding

    Given these drawbacks of current crowdfunding platforms, integrating blockchain technology proves a practical business-transforming decision. Blockchain-based crowdfunding platforms can become a more acceptable means of funding a wide range of initiatives and causes. For instance, with blockchain smart contracts solutions, it becomes automatic to release funds only when milestones validate that there will be intended use of funds in the future. Fundamentally, blockchain solutions for crowdfunding can offer stakeholders vital oversights into individual campaigns while lowering the amount of trust required to make investments.  Furthermore, end-to-end traceability, transparency, and efficiency provided by blockchain augment a crowdfunding platform in various ways. Let's take a look.

    Enhanced Equity Accessibility

    Instead of using a crowdfunding platform to enable pre-orders of upcoming tangible goods, blockchain provides asset tokenization mechanisms. Asset tokenization facilitates investors a means to generate equity or fraction ownership of a physical asset along with features of blockchain technology. For example, an entrepreneur who intends to use the funds to develop several new products might give each new investor a small ownership stake in the business in proportion to their contribution. It has the potential to open up entirely new investment opportunities.

    Worldwide Availability

    Any project that uses a blockchain-based crowdfunding model has a chance to succeed. Such ventures can also be contributed to by anyone with an internet connection. Platforms for exploration and visibility could be in demand. However, unlike crowdfunding ventures today, there is no inherent restriction.

    Real-Time Provisions

    The “empty promises” that have troubled modern-day crowdfunding ventures will not be an issue for blockchain-based crowdfunders. Rather than donating money and waiting weeks or months for the expected product, donors would receive fractional business or product ownership right away.

    Also, Read | Crowdfunding Your Business Idea with Security Token Offering

    Exchanges between Peers

    Today, crowdfunded company or product stakes are exchangeable on a peer-to-peer basis, much like cryptocurrencies. Contributors would have more liquidity for their portfolios as a result of this. It could be an efficient way to pique people's interest in the project as a whole. It can potentially lead to the emergence of a new form of marketplace.

    Unchangeable Campaign Laws 

    All campaign data — step descriptions, targets, objectives, marketing materials, and legal documents — should be on a forgery-proof, securely accessible distributed ledger. Investors can use it to verify campaign process and requirement compliance.

    Fundraising in Decentralized Way 

    Make fundraising processes clear and KYC-compliant with blockchain-powered smart contracts. They can release funds to project owners only after they have met the set benchmarks. Stakeholders, subsequently, may vote in total democracy on the legality of each project (through consensus algorithms).

    Reduced Operational Costs 

    With smart contracts, you can simplify operations and remove third parties, saving fundraisers money and allowing them to spend only the amount they planned to invest.

    Private Communication Channels 

    Send private messages encrypted with public keys to communicate with groups and make announcements (visible to senders and recipients only).

    Adaptable and Flexible Fund management 

    Manage sales securely and transparently through blockchain-enabled escrow, messaging, deposit, digital asset withdrawal, and other resources to access several new funding techniques, such as scheduled transfers or monthly payouts.

    Additional Funding Options

    The tokenization of real-world assets and quick, low-cost cross-border transactions are just two examples of how digital assets based on the blockchain allow previously impossible funding and investment methods.

    Case Studies | Blockchain-Based Crowdfunding Platform  

    Fair Allocation of Funding

    At the moment

    Since there are so many crowdfunding consulting companies and websites, each of which charges a fee, the overall sum increases more than what you have expected.

    With blockchain

    Smart contracts eliminate the need for middlemen. Thus, it makes services like recommending the best crowdfunding platform and fundraising itself more autonomous and affordable.

    Creating a transparent campaign

    Currently, crowdfunding campaigns are shady practices. They have poor record-keeping, enabling fraud during fundraising. As a result, it fails to fulfill donors' standards. However, a blockchain-enabled database can maintain a detailed and permanent record of all fundraising activities during the campaign. Further, it will ensure an accurate and reliable record.

    Example from the Real World

    DAO Space is a decentralized autonomous organization (DAO) blockchain network that links investors and fundraisers in an open, distributed, and cryptographically secure ecosystem. It implements quick, theft-proof payments, automated digital asset delivery, and KYC and AML regulatory compliance.

    Towards a New Crowdfunding Age

    Indeed, it is no secret that crowdfunding holds a lot of promise. Even in its present, flawed state, funding helps new entrepreneurs, inventors, and designers in making the world a better place. Here, blockchain technology can serve as the basis for democratized investor contributions in the near future. It will be much more open, stable, and scalable for creators and investors.

    Crowdfunding on the Blockchain

    Oodles blockchain development experts have considerable experience in providing blockchain-enabled crowdfunding platforms. We have the potential to fundamentally alter long-complex crowdfunding practices. With blockchain crowdfunding solutions from Oodles, finance projects with digital assets, remove intermediaries, and check project legality and enforcement.

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