In the past, Crowdfunding in the form of Kickstarter has been an important tool for startups. With the rise of ICOs, Crowdfunding has been somewhat neglected. However, ICOs come with a lot of risks for investors and startups alike.
Investors are facing the risk of losing their funds to a project that may or may not come to fruition. Startups are facing the burden of dealing with regulations and other risks that can make or break their business.
There is a need for a safer alternative to crowdfunding for startups where investors are protected and startups can use their funds effectively without having to deal with the burden of regulations.
Today, we will explore the future of crowdfunding for startups and how blockchain can be used to create a more secure platform.
What is the future of crowdfunding for startups?
The future of crowdfunding for startups is the use of blockchain technology to create a safer alternative for startups and investors alike. Startups will be able to use blockchain-based crowdfunding platforms that offer investor protection and regulatory compliance as well as a platform where startups can raise funds without having to deal with the burden of regulations.
This will also allow startups to focus on their business and less on complying with regulations. Investors will be protected by smart contracts and tokens, which can also function as rewards for investing in a startup. It’s safe to say that this is the future of crowdfunding for startups.
The Benefits of Blockchain-based Crowdfunding
Investor protection: One major benefit of using blockchain-based platforms is investor protection. Startups will be able to raise funds on a blockchain platform which is safer than raising funds on a centralized platform.
Startups will be able to freely raise money from investors without having to worry about regulations or compliance.
This means that investors can freely invest their money into startups without having to worry about getting scammed or losing their money. This is a huge benefit for both startups and investors.
Here are some of the benefits when it comes to using blockchain as the underlying protocol and system for crowdfunding:
1. Regulatory compliance
Startups will not have to comply with regulations when they use blockchain based crowdfunding services. Regulators might not like this, but the fact of the matter is that it will attract more investors.
Blockchain based crowdfunding will enable startups to raise funds in a transparent manner. This means that investors can see how their funds are being used by the startups they invest in.
3. Better security
Blockchain based crowdfunding will ensure that funds raised by startups are safer and cannot be hacked as easily as it happens on centralized crowdfunding platforms such as Kickstarter and Indiegogo. This is because of the decentralized nature of blockchain technology where there is no central point of failure or attack. As long as there is a community supporting your blockchain project, you are safe and secure.
4. The ability to scale
The blockchain based crowdfunding platforms will also have the ability to scale much faster than centralized crowdfunding platforms. This means that startups will be able to raise more money than they could on centralized platforms such as Kickstarter or Indiegogo. They will also be able to reach a larger number of investors and potential customers.
5. More money raised by startups
In addition to being able to raise funds at a faster rate, blockchain based crowdfunding platforms will also enable startups to raise more money than they could on centralized platforms such as Kickstarter or Indiegogo. This is because investors will not have a problem investing in your project if you are running the project on blockchain where there is an assurance of investor protection and regulatory compliance. In addition, the costs are minimal when it comes to blockchain based crowdfunding. This means that startups can use the saved on costs to raise more money.
Is the ICO trend over?
It’s safe to say that the ICO trend is over. The reason for this is that ICOs are facing a lot of scrutiny from the SEC. This is because ICOs have been used by scammers and fraudsters to defraud investors and disappear with their money.
This has led to the SEC putting a lot of pressure on ICOs to comply with regulations or face harsh consequences. This will lead to a more secure form of crowdfunding for startups, which will be in the form of blockchain based crowdfunding platforms where investors are protected by smart contracts and tokens which function as rewards for investing in startups.
The future of crowdfunding
Blockchain based crowdfunding platforms will soon become the de facto standard for raising funds for startups. This is because it comes with transparency, better security and scalability without having to deal with all the regulatory burdens placed on centralized crowdfunding platforms such as Kickstarter and Indiegogo. The determining factor of widescale adoption will depend on the following factors:
1. Mainstream adoption of cryptocurrencies
This will be dependent on the adoption of cryptocurrencies, specifically the top 3 or top 5 cryptocurrencies. If cryptocurrencies continue to be accepted in more mainstream platforms like Shopify, then it will become easier for startups to raise funds from investors.
2. Stable coins
Stable coins are still very important for ICOs and blockchain based crowdfunding platforms because they offer a stable value and can act as a currency on their own when it comes to raising funds. They can also act as a bridge between different currencies such as the US dollar and ETH, which is a problem that needs to be solved if you want to have widespread adoption.
3. Regulation of ICOs
ICO regulation is something that has been hotly debated in the cryptocurrency community over the past year. If the SEC decides to go soft on ICOs and treat them like any other security, then that will be a huge boost for ICOs, and it will make it easier for blockchain based crowdfunding platforms to launch as well.
4. Security tokens
Security tokens will go a long way in making ICOs more secure. With security tokens you can use your cryptocurrency as collateral, which makes hackers and scammers less likely to target your ICO because they know that they can’t get away with stealing your funds. They also bring regulated financial instruments into the mix, which is something that traders are used to dealing with when trading stocks and bonds.
The future of crowdfunding for startups is bright, especially if we use blockchain technology and security tokens to our advantage. However, this is still a long way off from becoming mainstream because there are a lot of hurdles we need to overcome before this becomes widely adopted by startups who want to raise funds from their communities or other investors.
About the Author
I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces, and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.