Crowdfunding in its basic meaning refers to the practice of collecting money for businesses and other financial projects from a large number of people through online platforms. But what we need to understand is how this Crowdfunding works with blockchain and changes it into crypto funding. Certain aspects are truly beneficial with this coming together of the blockchain and Crowdfunding. Both are mutually beneficial which in turn creates many opportunities in both fields.
What is Crowdfunding and how it works?
Crowdfunding is most commonly used by start-up companies and growing business groups as a means of alternate funding sources. There are many Crowdfunding platforms and they work closely with fundraisers. These Crowdfunding platforms charge the fundraisers to be the host of their programs. This is how Crowdfunding works. There are many types of Crowdfunding and below you can find some of them:
- Peer-to-peer lending
- Equity Crowdfunding
- Rewards based Crowdfunding
- Donation based Crowdfunding
- Profit sharing/revenue sharing
- Debt securities Crowdfunding
- Hybrid models
Crowdfunding and its application in Blockchain
When viewing Crowdfunding in association with blockchain, it is important to validate the necessity of raising digital currency for companies, especially start-up companies. Crowdfunding opens various unique possibilities for start-ups to raise their digital currencies. And here what we see most is the peer-to-peer lending mode in Crowdfunding. Peer-to-peer lending, generally termed P2P, is comparatively different from the other models of Crowdfunding. The CFI (Corporate Finance Institute) defines P2P as the ‘direct lending of money to individuals or businesses without an official financial institution participating as the intermediary in the deal.’ P2P involves loans unlike other modes of Crowdfunding. Here this loaning takes place with no banks or other financial institutions, but there is only peer-to-peer lending. This is the basic uniqueness or the difference found in the peer to peer lending, unlike other Crowdfunding techniques.
In dealing with the blockchain and Crowdfunding, we understand that Crowdfunding provides a platform or offers to the companies who are the creators or the consumers of the cryptocurrency. What makes this association between the blockchain and Crowdfunding is that it does not need the involvement of an intermediate third party.
Crowdfunding is more beneficial with this association. Blockchain supports and improves certain special areas of Crowdfunding. The following are some of how blockchain supports Crowdfunding.
- Decentralization of the Crowdfunding platforms: As we already know, blockchain works without a center. This absence of an all-powerful and controlling center makes it easy for the Crowdfunding platforms to work more independently without following any rules. For an individual or organization that doesn’t want to be bounded by any rules or regulations blockchain will help you in working independently without any obligations. The projects of the companies especially those of the start-ups will get all the visibility and required funding through this association which makes Crowdfunding cost-effective and efficient.
- Universality: With the blockchain, Crowdfunding got a universal outlook, where anyone aboding in any country with an internet connection and a computer can donate their contributions to the fundraising. So in general. Through blockchain, universalization of the Crowdfunding becomes possible and with higher efficiency also. This in turn creates many opportunities in both fields.
- Even-handedness: Blockchain uses asset tokenization in ensuring the equity and ownership of the investors. Asset tokenization allows or makes blockchain technology capable enough to provide security to all traded and non-traded assets. These asset tokens have got their currency which allows organizations to hire professionals and advertisers in the field. Through this, we can create a great many opportunities in the field.
- Complaisant options: Through making use of asset tokenization, blockchain is making and granting the creators and the entrepreneurs more liberties in their dealings. Which in turn allows organizations to hire professionals for the job thereby creating more flexible options and job opportunities.
- Peer interactions: In P2P, basically what happens is a peer to peer interactions and dealings. These cryptocurrencies are reciprocal on a peer-to-peer network. Investors will get much more interest in this kind of network thereby making it easy for the creators or the entrepreneurs to acquire their funding much more easily and smoothly. They also get recognition from the investors which also makes the chance of getting the investments much easier.