Are Blockchain and Crowdfunding the Future of Investing?
Posted On: 20th Mar 2024 10:30
In 2017, there was a shift in the investing environment due to the growing popularity of cryptocurrencies. The fact that Bitcoin, the cryptocurrency that got everything started back in 2008, had an unheard-of price inflation was one of the reasons for the spike. In January 2018, the going rate increased from $998 at the beginning of 2017 to $13,412. Even though bitcoin's price has dropped dramatically since then—it's currently trading at roughly $7000—the blockchain technology that first enabled it has been utilized to produce a plethora of other cryptocurrencies.
Businesses frequently created and employed these new currencies as an alternate way to raise investment capital. A business would produce the first batch of its cryptocurrency and then offer it at a discount to potential buyers. While fraud and wild speculation have caused many of these initial coin offerings to fail, their promise as a different kind of investment is yet largely unrealized.
Crowdfunding is one of the areas where initial coin offerings (ICOs) have grown more popular lately. Companies are increasingly looking to internet followers as a source of financing rather than venture capitalists and angel investors. And early adopters are placing their bets on the belief that these test coins or tokens will continue to appreciate, much like Bitcoin did. In an increasingly internet-driven economy, startups have been particularly interested in experimenting with cryptocurrencies and crowdsourcing to discover a viable financing strategy. For the success of businesses, crowdfunding software provides a plethora of functions and the newest integrations.
Understanding the fundamentals of crowdsourced investing and having a working knowledge of blockchain technology are prerequisites for using cryptocurrencies for crowdfunding. We will cover these subjects in further detail in this post's remaining sections to ensure you are up to date on everything.
Blockchain Basics –
One sort of digital ledger is a blockchain. It is made up of items known as blocks that are connected by cryptography to form a chain. A blockchain is spread across numerous nodes rather than being kept on a single server. A digital signature of every block in the chain is attached to every new block that is added. This stops someone from tampering backward because changing one block affects all the ones after it. Several computers on the network handle the calculations needed to add and validate new blocks.
Blockchain technology is used by cryptocurrencies to record transactions between several parties. Tokens for cryptocurrencies are just a record of transactions between addresses; they don't exist. Cryptocurrency networks lack a central point of weakness that hackers can take advantage of because they are scattered. Since every cryptocurrency created to date is open source, everyone can access the ledger and see every transaction ever made, all the way back to the initial block. Blockchain application development services enable you to make use of blockchain technology's possibilities for your company and improve system security and transparency.
Like fiat currency, cryptocurrencies can be exchanged on exchange markets. In theory, bitcoin can be purchased by anybody with an internet connection. In actuality, though, every exchange has its policies regarding currency purchases, and some may even restrict access to their services to citizens of particular nations. While it is still possible to trade cryptocurrencies for products and services, the alternatives are still somewhat restricted. Cryptocurrencies are identical to their traditional counterparts in every other way.
Crowdfunding Basics –
Crowdfunding is the practice of raising small amounts of capital from a large number of people to finance a business venture. It is typically done over the internet through the use of specialized platforms such as Kickstarter and IndieGoGo. The two main types of crowdfunding are reward-based and equity-based. The former involves companies pre-selling products or services to get their operation off the ground without incurring debt or being forced to sell shares. The latter allows backers to acquire equity in a company in exchange for funding.
From a business perspective, crowdfunding offers several advantages:
It enables entrepreneurs to obtain inexpensive funding without having to contact banks, venture capitalists, or other conventional sources of funding.
A product or service's proof of concept can be established through the launch of a successful crowdfunding campaign, which creates future investment options.
Crowdfunding, according to top digital marketing organizations, is a way to get a critical mass of followers in one location, facilitating easier business-to-business contact.
From the point of view of potential investors, crowdfunding can also be a worthwhile proposal:
Investors have the opportunity to support businesses that offer specialized goods and services that they otherwise wouldn't be able to.
Small-scale investors can now purchase equity in previously unaffordable industries thanks to crowdfunding.
Crowdfunding platforms allow investors to voice their concerns to companies.
Initial Coin Offerings –
Blockchain technology and crowdfunding can be used to establish initial coin offers, as we have indicated in our introduction, in which supporters earn cryptocurrency tokens in return for their support. The coins are purchased by early backers with the expectation that their value will rise once the project gets launched. As a result, initial public offerings (IPOs) and ICOs are comparable. The primary distinction between the two is that IPOs often target institutional investors, whereas ICOs target individual ones.
The Ethereum smart contract platform is the biggest success story among initial coin offerings. In July and August of 2014, the project held its first coin offering, which brought in over $18 million. At the height of the cryptocurrency boom around the end of 2017, the Ether token's trading price increased from $0.40 to $1,417. 2018 saw Ethereum take the lead as the most popular platform for ICO launches, controlling over 80% of the market. Numerous businesses launched their cryptocurrencies as a result of Etherium's success, and by the end of 2017, initial coin offerings (ICOs) had raised over 40 times as much money as they had in 2016.
The Future is Here –
Cryptocurrencies and crowdfunding complement each other, benefiting both investors and companies. The investing landscape is becoming more democratic as a rising number of initial coin offerings (ICOs) reach the market, paving the way for a day when distinctions between investors, consumers, and entrepreneurs will become hazier.
