Decentralized Crowdfunding Explained

The cryptocurrency space is continually growing and evolving, with numerous opportunities to explore. One of these is funding for startups. Understandably, startups need funding to successfully start and grow. However, as the startup owner, how do you achieve that? One of the most realistic ways is through decentralized crowdfunding. What exactly is it? How does it work? What are its benefits and drawbacks? Should you consider decentralization in fundraising? Please read on to find out.

What is Decentralized Crowdfunding?

Decentralized crowdfunding is the process of raising funds quickly through the interaction between companies and the public. This method of raising money relies on blockchain technology. So, there is no need of having a third party for transaction verification. Additionally, the database is secure and cannot be tampered with by other parties.

How Does It Work?

If you have a startup and would like to get funding through decentralized crowdfunding, you may wonder how it works. Here, you will need to have an idea, or project relating to a product or service. Also, you should have crypto tokens or coins, which you then sell to the investors. The tokens you offer to the investor can be blockchain-based offerings, BBOs.

When the project kickstarts, the investors will use the coins and tokens to access your products or services. Alternatively, the coins can act as the investment or securities for the debt you owe to the investors.

Read: 6 Untold Challenges of Crowdfunding

The beauty of decentralization is that the coins may increase in value over time. However, this depends on how successful your startup is. In such a case the investors can trade them for profit. They can do this through the help of brokers.

Notably, there is no human involvement in decentralized crowdfunding. This is because it employs smart contracts technology. what are these? They are digital programs that automate the crowdfunding process such that specific things are executed once certain conditions are met. So, with automation and no third-party involvement, this becomes a secure and fast way of obtaining funds for a startup.

Benefits of Decentralized Crowdfunding

Decentralized crowdfunding presents numerous opportunities and possibilities to startups and companies in the crypto space. The following are the benefits of running a decentralized crowdfunding campaign;

No Involvement of Intermediaries

Decentralized crowdfunding does not incorporate any third payment parties. Therefore, the process is faster and more secure. A lack of intermediaries translates to the money spent in the end.

Maintaining Equity

Even with decentralized crowdfunding, you can still maintain the equity of your startup.

Accessibility

It is highly accessible for both companies and the public. This is because it offers access to companies looking to raise money quickly. Similarly, crowdfunding allows the public to access such companies. Therefore, if your startup is looking for a fast way of raising money, you can explore decentralized crowdfunding. Also, if you are a crypto investor looking for a startup to support its projects’, decentralized crowdfunding is the way to go.

Read: Is Bank a Financial Institution or Technology Company?

The good thing about this strategy of getting funding is that it exposes the startup owner to a variety of investors.

Cost-Efficient

Decentralized crowdfunding connects the public to the companies without the use of other intermediaries. Rather, it uses smart contracts which offer automatic execution of processes when specific aspects are met. This means that a startup company will spend less money with the elimination of intermediaries.

Transparency and Security

In the crypto space, transparency and security are core values. With decentralization, it is easy to achieve this, thanks to the use of smart contracts technology. they bring automation thus are no third parties or intermediaries involved, hence a clearer money trail.

A Wider Market for Your Tokens

As the startup owner, you offer your coins or tokens to numerous crypto investors. With this in mind, you can end up conducting worldwide marketing for your crypto tokens. What’s more, the more successful the project and startup at large are, the more value is attached to your tokens.

Generation of Feedback

Decentralized crowdfunding involves interaction between the startup owner and crypto investors. This way, if you have a project or want to launch a new product or service, you can present to such a crowd, and get their feedback.

Drawbacks of Decentralized Crowdfunding

As much as there are benefits attached to decentralized crowdfunding, it has its share of drawbacks, including;

Difficulty in Raising Money

When you opt for decentralized crowdfunding as the route for your business to raise money quickly, it is important to remember that raising money successfully through this means is not an easy task. You will have to convince the public. If you don’t succeed in convincing the crowd, you may end up with very few funds. Therefore, the pitch you create must be good. Besides, your crowdfunding campaign should be great and you should go for a popular platform.

Read: The future of money: Cardless ATM

A New Concept

Decentralized crowdfunding has not been around for long. Therefore, it has a lot of evolutions to make. For instance, the companies and platforms in this space should devise creative and new ways of ensuring many embraces it even in its early stages.

Not Available on Many Platforms

There are not so many platforms offering decentralized crowdfunding. Why is this so? It could potentially be linked to the volatility of cryptocurrency. Also, there have been previous cases of scamming in some funding platforms using blockchain technology. Therefore, this developed some mistrust in the general public and with a lack of trust, it is difficult to get a service done.

Environmental Impacts

Blockchain networks in general consume a lot of energy. Therefore, since decentralized crowdfunding runs under blockchain technology, many may be concerned about its effects on the environment.

Is Decentralization the Future of Startup Fundraising?

If you want to start a company or business, you may consider decentralized crowdfunding as a fit option for getting the money you need. Remember, the amount of money you can raise through this strategy is dependent on different factors such as the project you are working on, how good your pitch is, and the popularity of the platform you are using. Therefore, ensure you choose a popular platform, make a great pitch, and have a project that will attract investors. So, rather than sourcing for startup funds traditionally, why not embrace decentralized crowdfunding? It is still in its early stages but is very promising.

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