Crowdfunding an Blockchain: A Match Made in Heaven?

Over the past few decades, crowdfunding became a very important phenomenon in fundraising. While it’s not exactly new (in fact, French philosopher Auguste Comte funded his work through an early form of crowdfunding in the 1850s), the internet allowed crowdfunding to reach new heights.

Today, anybody with an internet connection can support any cause, project, innovation, or business, regardless of their physical location. People in Japan may contribute to a business innovation in Brazil, while Indonesian movie-goers can have a say in which independent movie they want produced in the US.

In an ideal world, that would be enough. Unfortunately, our world is far from ideal (yet).

The Problems with Crowdfunding

Delays

While providing the platform for would-be investors to meet with project-creators, crowdfunding websites like Kickstarter, Indiegogo, and RocketHub rarely take responsibility for the eventual outcome of the project.

After investors have given their funds, they tend to lose control over the project and their money right with it. If the project experiences problems, delays, or even worse, fails, there’s no easy way to hold the project-creator to account. This is especially troublesome with reward-based crowdfunding where the creator promises some kind of reward to contributors in exchange for their funds.

If the movie’s not happening, there’s no way donors can see their names listed along with the cast and crew. Should the revolutionary self-propelling roller skates hit the market much later than planned, contributors may not be able to enjoy their complimentary pair anymore.

The list goes on. The problem is quite obvious: if something doesn’t go according to plan, contributors have little to no means to demand rectification.

Trust

The other issue is trust. How do contributors know what exactly the creator spends their money on? Sometimes project-creators run big and costly marketing campaigns to draw attention to their cause. However, this takes up so much money that there may not be enough left to actually finish the project.

Kickstarter published a telling statistic: only a third of previous contributors come back to give money to another cause. This indicates that two-thirds of one-time contributors don’t feel compelled to donate again. A potential reason is that they weren’t satisfied with the results of the project they first backed, or that they haven’t seen another project worthy of their attention.

While the above mentioned issues may not be deal-breakers for many contributors, it’s true that addressing them can help elevate the status of crowdfunding and compel more people to donate to various causes.

How Blockchain Can Solve These Problems

Enter blockchain. From insurance and healthcare to retail and cross-border payments, the revolutionary technology brings innovation, accountability, and transparency to its users. Why not use it in crowdfunding?

The founders of Pledgecamp, a startup promising to revolutionize crowdfunding, asked themselves that very same question. Promising to be the “Next Generation of Crowdfunding”, Pledgecamp vows to bring more transparency and accountability to the industry.

Smart Contracts

The platform uses blockchain-based smart contracts. These self-executing “documents” provide transparency and automatic, built-in insurances for both project-creators and donors.

For example, donors can bind donations to specific milestones. When a project reaches the milestone, the funds are released automatically by the smart contract.

Pledgecamp calls this Backer Insurance and with good reason. This feature allows donors to remain in control of their contribution to the project, and provides a powerful incentive for project-creators to actually reach the predetermined milestones.

Decentralization

One of the most important features of blockchain technology is its decentralization. There’s no authority executing the blockchain: it executes itself automatically based on predetermined criteria.

This is good news for crowdfunding. Decentralization helps keep control of the project in the hands of both major stakeholders — donors and creators — while minimizing the impact Pledgecamp itself has on any given project.

The platform only provides the means for crowdfunding; everything else is in the hands of creators and contributors.

The Next Steps

The platform is currently under development; if all goes according to plan, a full launch is happening sometime during the fourth quarter of 2019.

Crowdfunding is a viable option for small businesses looking for alternative funding. If Pledgecamp is able to deliver on its promises, the industry will get a powerful new player, and small businesses gain new, secure, and transparent opportunities for funding.

A clear win-win situation.