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, funding can make you lose sleep for days.

That’s why rather than go through the traditional funding routes, many 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 the transaction value of almost a billion dollars.

Having said that, crowdfunding campaigns are not without their challenges. As a startup owner, some issues you might face include the costs of using the crowdfunding platform, inability to attract investors, and inability to reach funding targets.

Likewise, your potential investors face challenges such as the risk of losing their money, inability to have a say in the business operations, and difficulty in getting investor rewards.

These problems can be addressed by using blockchain for crowdfunding. How does using blockchain affect crowdfunding? Can 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 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 your funds to run your business.

There’s also a low barrier to entry to people who want to invest in your business. Even an average internet user with low funds can contribute to your crowdfunding campaign. Put simply, blockchain opens up your business for investment to any interested person anywhere in the world.

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, a common issue is the transfer of crowdfunding equities. Given that blockchain is a decentralized public ledger, it’s easier to identify investors and their 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 belief came about as a result of fraudulent activities funded through cryptocurrencies such as bitcoin. This 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. Firstly, this will encourage investors with large funds and great business ideas to trust, and therefore invest, through blockchain.

Secondly, it will become easier to obtain government backing, which is largely lacking at the moment, as governments will be able to maintain control and transparency over the blockchain.

For these reasons, 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 an authority at its top. 

In a nutshell, 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 built a platform with all the features needed to run a successful crowdfunding campaign.

Due to the high speed of transactions in L3COS, you can obtain funds in a very short period of time to build and promote your startup’s minimal viable product. L3COS can execute over 50,000 transactions per second, which is better than even Visa’s transaction speed. 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, you can attract investors who are likely to provide big funds and the right ideas to make your startup successful. 

How regulated blockchain benefits investors during crowdfunding campaigns

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

With equity crowdfunding, investors can access 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 weeks before investors can access their stocks. This also eliminates paper documentation, reduces labor costs, and reduces regulation costs. 

As Andrew Levin, professor of economics at Dartmouth College, stated:

“One important reason for trying to move ahead with a central bank digital currency is to create a payment system that is essentially free for consumers and businesses.”

Another benefit to investors is that, due to 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 can have various levels of authority in a startup depending on their level of investment. This makes it easier for them to vote on critical startup 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 acquire vital funds to give your startup a good chance of success. 

In regulated blockchain, you have a secure and trustworthy platform that allows you to attract serious investors. 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 great investors.

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

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