Crowdfunding is a way of decentralizing project funding by people who have creative ideas or have come up with a new product. Developing a prototype of this idea is time-consuming and usually paid out of the creator’s own pocket. Taking the idea or product mainstream requires additional funding, and rather than sticking to one or a handful of investors, crowdfunding is a preferred option. At the same time, the current model of crowdfunding is centralized, and blockchain technology can help decentralize the decentralization of funding.
The Centralized Way of Crowdfunding Today
It should come as no surprise then that various crowdfunding platforms have come into life, so that project creators can be connected to potential investors. The beautiful thing about crowdfunding campaigns is that every individual can become an investor in the project, without having to spend thousands of dollars. Even the smallest contributions matter, and help the creator(s)r each their goal.
In return for pledging their funds to a crowdfunding campaign, individual investors will be eligible for rewards, either in digital or physical form. Backing a movie project, for example, will most likely include backer rewards such as a digital download of the movie, a DVD, posters, or even a mention in the credits at the end.
But there is a downside to the way crowdfunding campaigns are being conducted right now. There are only a handful of websites to host projects, which is leading to centralization of the entire crowdfunding idea. In fact, this is in stark contrast to the idea of creating a project backed by many individuals, rather than a handful of investors.
Platforms such as Kickstarter, IndieGogo and GofundMe are making all the headlines when it comes to decentralized project funding, yet in their own way, all of these platforms are centralizing the ideology of crowdfunding. Unlike most Bitcoin exchanges, or centralized traditional financial institutions, none of these platforms holds funds in advance. Money will only change hands if and when the campaign reaches its intended goal, after which card payments will be processed by third-party companies.
There are several issues with crowdfunding campaigns as well though. Nearly half of the funded projects never completes their goal of developing a physical project for the masses, yet collects all of the pledges regardless. For the investor, there is no way to charge back the money, as the chargeback grace period expired.
If there is one thing that is abundantly clear, it is that crowdfunding campaigns are a positive trend, yet they lack the transparency required towards their investors. This is where blockchain technology, with its transparent nature, could play a pivotal role in the evolution of crowdfunding.
Blockchain Technology Provides More Transparency
Doing so would instill confidence in the creators of projects,a s they have nothing to hide and are willing to be open regarding how funds is being allocated. Additionally, it could use serve as a way to share project progression with the people who pledged money to the campaign, by using blockchain technology as a way to send and transfer data.
Last but not last, the blockchain can also be used for direct communication between project developers and individual investors. Rather than relying on centralized crowdfunding platforms to post campaign updates, blockchain technology allows for transparent and real-time communication between all parties.
What are your thoughts on using blockchain technology for crowdfunding campaigns? Do you see additional benefits to doing so? Let us know in the comments below!
Images courtesy of Chicago Tribune, Rude Bagette and Alphr