How the blockchain will improve crowdfunding

Posted October 18, 2014 by Jonathan Brown ‐ 4 min read

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Here are three ways crowdfunding can be improved by the blockchain, but there may be more.

Accept cryptocurrency payments

A major problem with crowdfunding is that it is often difficult to donate funds internationally. Cryptocurrenies such as Bitcoin can help eliminate this issue as they are not affected by international borders.

Cryptocurrency transactions are virtually free meaning more of the donors' money can reach the fund.

Implement business on an autonomous system

The business logic of a crowdfunding platform is typically to hold all donations until a specific amount is reached. If this happens, the funds are forwarded on to the recipient. If the target is not reached within a specified time frame the funds are returned to the donors.

This logic could be implemented entirely as an ethereum contract. This means that it would be fully autonomous. At the moment if you want to run a crowdfunding campaign you need to seek permission from a platform, for example Kickstarter. With an ethereum contract you can just go ahead and do it without asking anyone and have total confidence that the system will operate in the way it is intended.

It is entirely likely that new crowdfunding models will arise which use smart contracts in a very bespoke way. For example, imagine a charity crowdfunder where the donor can specify that their funds are to be used for a specific purpose, and where the terms of donation can be specified and enforced via the blockchain.

Nearly everything we do on the Internet will work better when its business logic is implemented on a blockchain.

Issue cryptostocks to donors

One way to reward donors is to give them cryptostocks for the brand they are supporting. In theory these stocks could be contracted to have meaning, for example they could be stocks in the company, but legally this is hard to do. Issuing stocks for a company typically requires a license from the SEC (in USA) and the penalties for not having a license can be extremely severe. Maybe one day an organisation will exist to issue real cryptostocks legally, but this has not happened yet. Swarm is currently innovating in this area.

However, cryptostocks can be very useful even if they don't have any contracted meaning. Bitcoin is useful, but it's monetary value is entirely speculative. If a high profile consumer brand's cryptostock was officially endorsed by the brand it is inevitable that it would also gain a speculative value.

If a project is successful, initial donors may see their cryptostocks increase in value and could be sold for profit. Individuals and companies hired to create the project could even be part-paid in the cryptostock. Indeed, the creators of the product could keep a proportion of the stock for themselves and use an increase in the value of the stock as a revenue source. For some products that that are hard to monetize because they don't have any reproduction or distribution costs, e.g. movies / music, this could be extremely useful.

There have been various cryptostock blockchain technologies and there will surely be more:
Colored coins
Nxt Asset Exchange

It seems likely that in the future many cultural phenomena will have their own cryptostock.