How can a blockchain facilitate crowdfunding?
Organizations commonly adopt blockchains for finance-related tasks reduce operating costs, attract new customers, and solve trust-related problems. But is a blockchain a reliable foundation for a crowdfunding platform?
In the case of our carsharing startup, crowdfunding allows the owner of the carsharing business to attract investors in order to raise the funds to buy vehicles, then return the investments over time after the carsharing service starts operating.
Crowdfunding always comes with a risk for both investors and startups. Blockchain technology can ensure the safety of invested funds and guarantee that both parties will follow through on their promises. The following qualities of smart contracts ensure that a deal will be executed as described in code:
Blockchain technology itself has many cybersecurity benefits, such as unbreakable data integrity, traceability of all transactions and data uploads, and no single point of failure. Using a blockchain for crowdfunding can provide you with the following advantages:
Process automation. A smart contract can embody all the inner logic of a crowdfunding platform. Once the crowdfunding platform is developed, the rental owner only has to register a new sale and wait for investors to come. All other operations like token transfers and reward calculation are done by the smart contracts.
Risk-free reward distribution for investors. Most common and popular blockchain networks are governed by the Code is Law rule, which means that any business process will be executed exactly as it’s described in a smart contract. This rule automates token management and guarantees that investors receive their part of the profits.
Fraud protection. An event that isn’t described in a smart contract simply can’t happen in a blockchain network. Investors won’t be able to change their minds later and retract their tokens before the sale is over if this scenario is not written into the contract. With a smart contract, the business owner can create a thorough business plan without worrying about investors’ honesty. Thus, crowdfunding with blockchain technology reduces the risk of fraud.
Possibility to refund investors. Not all crowdfunding initiatives reach their goals. If an initiative does not finish successfully, a blockchain platform can refund investors.
