How regulated blockchain can power effective crowdfunding and fundraising

Posted by L3COS Jul 09, 2020

 

crowdfunding people

Running a business is tough. Among the many problems your business will face, raising the funding for it can give you sleepless nights.

That’s why rather than go through the traditional funding routes of bank loans or raising equity from venture capitalists, increasing numbers of business owners opt for a crowdfunding campaign.

What is crowdfunding? Crowdfunding is the practice of financing a new business by using small amounts of capital from a large number of individuals, usually through the internet.

Over the years, crowdfunding has become popular among new startups. To illustrate, Statista projects that there will be over 178,000 crowdfunding campaigns in 2020, with a transaction value of almost a billion dollars.

Having said that, crowdfunding campaigns are not without their challenges. As a startup owner, you might face unexpected issues such the cost of using the crowdfunding platform, or failing to attract investors, as well as failing to reach your funding target.

Likewise, your potential investors also face challenges such as the risk of losing their money, an inability to have a say in how the business is run, as well as how they might get rewarded for their investment.

These problems can be addressed by using blockchain for crowdfunding. How does using blockchain affect crowdfunding? And can a regulated blockchain do even better?

Let’s consider these and more questions in a moment.

Crowdfunding and blockchain

Blockchain became popular as the platform for the cryptocurrency bitcoin, but it has many potential applications in other fields. This is because of the decentralization and security that come with blockchain.

If you are a startup owner, how can using blockchain improve your crowdfunding campaign? With peer-to-peer transactions, blockchain makes crowdfunding easier, faster, and low cost. It eliminates third parties during your campaigns, which means you can lower the cost of your crowdfunding campaigns and use more of the funds you raise to put into the business.

That also lowers the barrier to entry to people who want to invest in your business. Even an internet user with only a small amount to invest can contribute to your crowdfunding campaign. Put simply, blockchain opens up your business for a crowdfunded investment to anyone anywhere.

For instance, in 2019 Dawn Dickson raised over $1 million from investors around the world for her business, PopCom, using a blockchain token offering that she promoted online. 

For equity crowdfunding, one common issue is the transfer of crowdfunding equities. Given that blockchain is a decentralized public ledger, it’s easier to identify individual investors and their precise level of investment.

However, one of blockchain’s main strengths, its non-regulation, is also a great weakness when it comes to attracting investors. Without regulation, serious investors believe they’re at a high risk of losing their money and will be reluctant to invest large amounts into your business. This fear arose as a result of a number of well-known frauds which used cryptocurrencies such as bitcoin. Solving this issue is where the regulated blockchain comes in.

How regulated blockchain benefits startups during crowdfunding campaigns

For blockchain to be a serious platform for crowdfunding and business generally, there has to be some form of regulation or government oversight. This will give confidence and encourage investors with larger funds and perhaps even great business ideas to trust, and therefore invest, through blockchain.

Secondly, it will become easier to obtain official regulatory approval and oversight for such investments, which are largely unregulated at the moment, as governments will be able to implement control with better oversight of the actions on the blockchain.

For these reasons, the regulated blockchain is a platform that will provide benefits to both the startup owner and investors.

What is regulated blockchain? A regulated blockchain is a distributed network of nodes with a governmental authority at its top.

Put simply, a regulated blockchain provides all the advantages of traditional blockchain while eliminating problems that result from non-regulation. By building the world’s first blockchain-based operating system, L3COS has created a platform with all the features needed to run a successful crowdfunding campaign.

Due to the high speed of transactions in L3COS, funds can be received swiftly. L3COS can execute over 50,000 transactions per second, which is faster than even Visa’s transaction speeds. In comparison, a blockchain like Bitcoin can only support 7 transactions per second while Ethereum can support 15 transactions per second.

blockchain transaction speed

Another advantage of L3COS is that it uses three consensus levels: delegated proof of stake (DPoS), proof of government (PoGVT), and proof of storage (PoST). This consensus mechanism helps to increase security and eliminate fraudulent activities. As a result, those seeking crowdfunding investments can attract investors who are more likely to invest larger amounts.

How regulated blockchain benefits investors during crowdfunding campaigns

While regulated blockchain provides important benefits to a startup founder, investors have much to gain, too, through the use of smart contracts.

With equity crowdfunding, investors can access their shares as soon as they invest in your business, after meeting all the requirements set in the smart contract.

This eliminates the time wasted in traditional investing where regulation can take much longer. This also eliminates the need for paper documentation, reducing labour and administration costs, as well as reducing the cost of regulation.

Another benefit to investors is that, due to better oversight and regulation, there’s a lower risk that they’ll lose their money in sham investments.

When a serious investor puts their funds into a startup, they want to have a say in the business operations.

With the L3COS blockchain, investors and the company can agree on creating various levels of authority in a startup depending on their level or type of investment. This makes it straightforward to vote on critical start-up decisions.

All in all, regulated blockchain provides the benefits that investors get from traditional investment channels, while eliminating the challenges faced by those channels.

Conclusion

Launching a crowdfunding campaign is an opportunity to secure vital funds to give your startup a good chance of success.

In regulated blockchain, you have a secure and therefore more trustworthy platform that allows you to attract a higher quality of investor. And with L3COS, you have a blockchain-based operating system that provides all the features you need to launch a successful crowdfunding campaign and attract better investors.

Contact us today to see how L3COS can help you successfully run your next crowdfunding campaign.

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