Introduction.
Crowdfunding is when a large number of people pull together small sums of money through an online platform with an aim of financing a project or business.
Like captured in this post, the first successful crowdfunding was done in 1997.
Over the years, the concept of crowdfunding have improved and gained strength till we arrived at where we are today. We now have many types of crowdfunding and various platforms used for crowdfunding.
The caption if this post refers, in this post, I will try to demonstrate to us all why crowdfunding is better don in cryptocurrency.
Someone asked me; "can crowdfunding be done in cryptocurrency?"
The answer is yes!
Crowdfunding can be done in cryptocurrency. This form of crowdfunding is referred to as token crowdfunding or crypto crowdfunding.
Below is how it works.
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How Crypto Crowdfunding works.
1. Creation of tokens:
This means that the owner of the project or project founders would create a token on a Blockchain. The token(s) would represent ownership or access to the project.
2. Smart contracts:
Self executing contracts are needed in crypto crowdfunding, with all the terms written into codes. They help to automate processes such as distribution of tokens and milestone of the project.
3. Blockchain platforms:
These projects are mostly hosted on Blockchain technology. Blockchain platforms helps support creation of tockens and smart contracts. One of the popular choice for this purposes is Ethereum. I sighted it because of the functionality of her smart contract.
4. Sale of tockens:
The owners of the project normally conduct a token sale. This allows backers the opportunity to purchase these tockens using any cryptocurrency of choice (Bitcoin Ethereum or anyone of choice). One is also allowed to purchase these with fiat.
5. Decentralized funding:
All the funds realized here are normally held in a decentralized form on the Blockchain. This enables transparency, accountability and helps boost the confidence of component members. The funds are released automatically based on already defined terms and conditions.
6. Utility of tokens:
The utility of a project's token depend on the project. In most projects, their tokens are used within the ecosystem for things like voting rights or for future returns.
7. Global access:
Crowdfunding in cryptocurrencyallows for global pool of bakers, this helps to overcome the geographical restriction associated to the traditional form of crowdfunding.
8. Secondary Market:
Some projects tokens are traded on the secondary market. This helps add value to the tockens and help provide holders with more liquidity.
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Advantages And Disadvantages Of Crypto Crowdfunding.
Advantages of Crypto Crowdfunding.
It promotes global accessibility. This means that this type of crowdfunding enables global backers access to the project easily.
It is decentralized in nature. This means that funds from here are stored in a decentralized manner, by so doing, it enhances transparency and reduces risks of fraud.
Smart contracts helps make the process automated, it also facilitates transparency and seamless distribution of tokens.
All token created during crowdfunding have utility within the project.
Crowdfunding done in cryptocurrency reduces intermediaries and all associated fees and charges.
Disadvantages of Crypto Crowdfunding:
There are lots of uncertainties because of un-unified global crypto regulations.
The volatile nature of cryptocurrencies is another disadvantage of crypto crowdfunding. This is because it can affect the price of tokens and introduce risk for everyone (both the project creators and backers)
There can be technical barrier because all the participants may not be grounded on all the basics of cryptocurrency, like wallets and other terminologies.
As against the traditional finance, there is limited regulations in place to protect investors.
The value of some tokens are sometimes under speculation, which most times leads to uncertainties for backers.
Reasons I think Crowdfunding is better done in crypto.
Haven listed the advantages and disadvantage, I will like to highlight reasons I think Crowdfunding is better done in crypto. They may include;
- Global accessibility.
- Decentralization and transparency.
- Smart contracts automation.
- Token utility.
- Limited limitations to entry.
- Backers and project owners stands greater chances of making more money.
- It allows for Innovative funding models like initial coin offering (ICOs), security token offering (STOs), Initial exchange Offerings (IEOs). This helps facilitate flexibility in the strategies of fundraising.
- It encourages community building.
Conclusion.
I have tried to elaborate on the basic aspects of crypto crowdfunding, including it's meaning, mode of operation, advantages and disadvantages.
And yes, everything that has advantages should have some disadvantages. However, in this case, I strongly believe that the advantages of crypto crowdfunding is more massive than the disadvantages. Therefore I think crowdfunding is better done in crypto than the traditional way.