Jan 17, 2019
SocialPolis Coin: Decoding the project (part 4/7).
The Blockchain-based alternative methods in financing and its boundaries — The benefits of SocialPolis Coin holders.
One of the major uses of Blockchain is the facilitation of business funding and the improvement of lending decisions. In this context, peer-to-peer (P2P) funding through Initial Coin Offerings (ICOs) is often singled out as one of the most visible and promising use cases. The Blockchain-based alternative financing method known as ICOs is a new form of crowdfunding. In this text, we will explain the fundamentals of ICOs, highlight their differences to traditional financing, point out their boundaries, and analyze their potential impact on crowdfunding. Finally we will conclude on a detailed reference to the benefits of SocialPolis Coin holders.
Definition
Crowdfunding is a revolutionary concept initiated back in 2006 during the Web 2.0 era and since then it has gain lots of popularity. It may be described as a public call for financial investment that it is distributed among a large group of users who can evaluate the project owner’s concept and can support them[1]. Whereas a single investor would not be able to sponsor the endeavor as a whole, the group or crowd may be able to provide the necessary capital. Thus, crowdfunding is based on the “ability to pool money from individuals who have a common interest and are willing to provide small contributions towards the [project]”[2].Crowdfunding has become the most popular solution for fundraising for smaller projects.
Different forms of crowdfunding
Academics and business experts usually differentiate between four separate forms of crowdfunding:
· Donation-based crowdfunding: Capital-seekers receive their funding without any requirements to return their investment
· Reward-based crowdfunding: Capital-seekers receive funding in exchange for rewards
· Lending-based crowdfunding: Capital-seekers have to fully refund the monetary resources they have raised through their campaigns and to cover interest or fees for receiving such funds.
· Equity-based crowdfunding: Capital-seekers have to provide their investors with a share of equity and part of their profits.
Nevertheless, there are several weaknesses that have not yet been resolved. These potential disadvantages include administrative and accounting challenges, a strong reliance on intermediaries, and weak investor protections[3].A novel Block-chain based crowdfunding is emerging that seeks to overcome these problems and bring equal benefits to investment-seekers and investors[4].
ICOs in a glance
Despite the resemblance between Initial Coin Offerings and IPOs, their structures and processes differ in many aspects, such as underwriting, distribution, and regulations[5]. ICOs are mostly supported by early enthusiasts and not professional investors as well. An ICO constitutes of a new form of crowdfunding, in which participants exchange existing forms of cryptocurrencies for entity-specific crypto-tokens. While crowdfunding platforms need intermediaries such as payment services to collect money, ICOs are completely decentralized and rely solely on P2P mechanisms provided by Blockchains. The access to them is global leading to higher amount collected. In 2017, $3.7 billion was collected in 235 ICOs[6]
As crypto-investors invest in a basic crypto-idea at the beginning of its life-circle, there is often the possibility the token-issuing start-up to provide no product at all.
Why ICOs Matter
In 2017, both Blockchain technology and ICOs has a substantial effect on early-phase funding and have reshaped the entire crowdfunding sector in ways that experts could scarcely have imagined.
ICOs deliver advantages to both investors and technology startups that could not be realized in a traditional crowdfunding or IPO environment.
In short, Blockchain system have the following characteristics[7]:
· Data redundancy, to ensure persistence among the transactions and data
· Use of cryptography, to ensure data security and integrity
· Use of a consensus algorithm, to coordinate transactions among the network peers
· Decentralization, which enables trusted direct interaction among the network peers
· Auditability, transparency, and verifiability of network activities.
These features can be proved beneficial for both parties involved in a Blockchain-based ICO. On the one hand, technology startups will benefit from the anonymous, decentralized, and participatory nature of ICOs. Further, companies that finance themselves through ICOs will not obliged to collaborate with international investment banks, financial service providers, or crowdfunding platforms, something that allows them to set their own rules and save fees levied by the aforementioned intermediaries. On the other hand, investors may profit from participating in ICOs as they can count on not only (on) a company’s success but also on the underlying cryptocurrency; that being said, individuals may invest in companies while the BTC/USD exchange rate is titled in their favor.
However, the legal implications of ICOs is still a problematic issue across jurisdictions, as the characterization of ICOs has not yet been defined and ICO’s anonymity make it difficult to enforce laws.
The benefits of SocialPolis Coin Holders
SocialPolis Coin (SPL Coin) will act as an enabler for the sustainable development economy and will meet the need for alternative methods in financing innovative projects ensuring at the same time, trust and transparency in sectors where these elements are of highest priority. However, what makes the project stand out is the benefits that provides to SPL Coin holders.
· Purchase or sale of SPL Coins in a transparent and secure way. The creation of SPL Coin was made using the Ethereum environment reducing the risk of implementing technologies that are still piloting.
· Protect investors from abnormal speculators by miners or others outside the SPL Coin financial ecosystem. The SPL Coin uses a reliable and completely secure environment within Ethereum. The reason is that the SPL Coin does not come to investigate yet another possible technological approach to the Blockchain, but to exploit the advantages of technology and cryptocurrency in the functional economic environment of social economy. This enhances stability and reduces risk in terms of the technological functioning of the SPL Coin.
· Use the SocialPolis Coin as a means of financial transactions between all SPL Coin holders, regardless whether they are part or not of the Social & Solidarity Economy.
· Benefit from the expected rise of the SPL Coin value as the SPL Coin ecosystem is growing. As Coops and other Social/Solidarity economy’s organizations re-invest most of their profits back to their community, any rise of the SPL Coin value will benefit the members of this specific financial ecosystem. Planning of the project development was carefully performed based on realistic and feasible calculations. This is why the implementation of the cryptocurrency begins first and then investments by third parties to support the joint effort are welcomed.
It is worth noting that the SPL Coin project is open to any global collaboration that will contribute to its success, as it is an open and dynamically evolving project with various potential ideas and areas of application.
[1] Danmayr, F. (2014). Archetypes of crowdfunding platforms. Wiesbaden: Springer Gabler.
[2] Lynn, D., & Sabbagh, H. (2012). The jobs act opens door for crowdfunding offerings.
https://www.sociallyawareblog.com/2012/04/05/the-jobs-act-opens-door-for-crowdfunding-offerings/
[3] Valančienė, L., & Jegelevičiūtė, S. (2013). Valuation of crowdfunding: Benefits and
drawbacks. Economics and Management, 18(1). https://doi.org/10.5755/j01.em.18.1.3713
[4] Yadav, M. (2017). Exploring signals for investing in an Initial Coin Offering (ICO). doi:
https://doi.org/10.2139/ssrn.3037106.
[5] Kuo Chuen, D. L., Guo, L., & Wang, Y. (2017). Cryptocurrency: A new investment opportunity? SSRN
Electronic Journal. doi:https://doi.org/10.2139/ssrn.2994097.
[6] Coinschedule. (2018). Cryptocurrency ICO stats 2018. https://www.coinschedule.com/stats.html
[7] Schlatt, Vincent, Schweizer, A., Urbach, N., & Fridgen, G. (2016). Blockchain: Grundlagen,
Anwendungen und Potenziale. https://www.fim-rc.de/wpcontent/uploads/Blockchain_WhitePaper_Fraunhofer_FIT_2016.pdf
