Crowdfunding has been around for a long time and the latest trend of ICOs in Blockchain ecosystem is being seen as the newest way to crowdfund. In order to understand the ICO crowdfunding we have to go back and understand what crowdfunding is all about.
The process of raising funds for a project from the group of people, where they contribute in smaller amount to create a remarkably huge investment to satisfy the requirements is termed as Crowdfunding. The bundle of investment is distributed across the group. This must be done so that no single person has to invest more. There are some occasions where the authors, the artists and even moviemakers have crowdfunded their projects or works.
There are some peculiar types of the modern-day crowdfunding. Some of them are listed as Donations based, Rewards based and Equity-based. Those who invest in donation-based crowdfunding campaigns do not expect any returns on their investments. While it is not the same with the others. Those who invest in reward-based crowdfunding, their investors expect certain rewards in acknowledgement of their investments. Nevertheless, those who opts to invest in equity-based crowdfunding are required to give a small share of their equity to its investors or sponsors against their contributions. Many crowdfunding campaigns have their own predefined goals, which will leave the whole campaign void if not fulfilled or taken care of.
How does Crowd-sale or Crowdfunding in Blockchain ecosystem work?
Blockchain technology is secure and is perfectly capable of managing transactions under contract. This feature will be convenient when it comes to managing rewards based and equity-based crowdfunding campaigns. The process of allocating relevant rewards and equity against their investments can be automated using “Smart Contracts” for crowdfunding which is the most secure feature of Blockchain Technology to be trusted.
The Smart Contracts can be written in a specific programming language which will help the system to automatically execute the them to issue certain rewards or certain percentage of equity based on the amount invested in the campaign.
Crowd-sales are the crowdfunding campaigns in the wide world of cryptocurrency, where the pre-mined crypto-tokens are sold by the digital currency platform for the platform which is under development, in exchange for either Bitcoin, Ethereum or some other well-established digital currency. The raised funds are used for further development of the platform. The crypto tokens that are bought by the contributors of the crowd-sale is equivalent to both equity as well as rewards.
Blockchain technology and the digital currencies have proven themselves to be capable of being shaped to fulfil the requirements or demands of any industry. Crowdfunding is one such division, into which the technology is capable of merging completely.