Crowdfunding on Decentralized Platforms

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07.10.2015

Bitcoin is in the process of disrupting many industries – payments, money remittance, data storage, and many others.

As a matter of fact cryptocurrency approach proposes moving any services which rely on a central point of failure to a decentralized, distributed fail-free footing. It is still unclear how far-reaching this approach can be, but one thing is known for certain – Bitcoin makes people dream of things they couldn’t have dreamed before. The whole new range of possibilities has opened up, only a fraction of those has been tapped into up to now.

But now it’s already clear that blockchain technology is going to disrupt the traditional way of business management. Blockchain can be used in absolutely all stages of business process – raising funds, accounting, distributing profits and salaries, issuing financial instruments, providing business transparency. Blockchain technology allows to issue any kind of tokens, which could replace traditional stocks, bonds, and other financial instruments in future. Due to inherent latency of distributed systems current high-frequency trading will probably be still taking place at centralized exchanges, crypto approach will be used in the areas where milliseconds don’t really matter, for example raising funds and crowdfunding.

Currently several cryptocurrency platforms have in-built crowdfunding token issue and distribution features, most developed of them is NXT platform, which has supported dozens of crowdfunding campaigns by now. Comparing NXT Asset Exchange and traditional crowdfunding platforms one can see limitations of both. Let’s take a look at the current centralized crowdfunding platforms first.

The most prominent is Kickstarter.com model, where project backers pledge some funds in return for some discounts on the released product or some other perks offered by crowdfunding campaign leaders. This model allows to develop cool projects but is rather inflexible – what if I want to exit my investment in the project and sell my rights for the product to another user? I cannot do it. Quite naturally an idea to connect your rights to receive a product to some tradeable token emerges.

Almost the same applies to the situation when an early start-up backer wants to exit his or her investment at initial stages of start-up development. Trading in private securities have become possible for general public since only since several years, and blockchain issued tokens connected to private shares also seem to be a perfect fit for it.

Centralized crowdfunding/OTC trading platform of course also have advantages compared to blockchain-based solutions, the major of which would be user verification and compliance with the current securities laws. But cryptocurrency platforms move in that directions too, developing tools for crowd-based issuer verification, also compliance issues are being worked on. It should be noted that current crowdfunding and securities laws also evolve in the face of new reality. We might expect some convergence between technologies and laws in near future, which will give a significant boost to crowdfunding and trading in private stock on blockchain.

But crowdfunders and start-ups are able to raise funds and transact business operations on NXT platform already today. It is fairly easy to create a crowdfunding token, distribute it to the project backers, and manage a crowdfunding campaign. In reality NXT provides an almost complete DAO solution which many other crypto 2.0 platforms only promise. Crowdfunding projects on NXT platform are able to collect and distribute funds, make business decisions using the community feedback by setting up community polls, conduct secure communications using encrypted messaging channel.

NXT community has supported many innovative projects, including Supernet, meta-cryptocurrency aiming to unify all existing blockchains. During its operation NXT community has developed tools to prevent fraudulent crowdfunding campaigns, which proves the validity of crowd verification approach and crowd intelligence.

Currently there are around 600 tokens issued on NXT platform.1000assets.netcampaign aims to bring that number to 1000 by the end of 2015. This is a realistic goal, since at the moment NXT platform provides the widest range of crowdfunding functionality among all analogous cryptocurrency platforms.

Progress cannot be stopped, crowdfunding and asset trading on decentralized platforms will definitely be on the rise. The next phase of this development will be its acceptance by established financial institutions, we witness the beginning of this process now. More and more banks and exchanges are looking closely at what blockchain can offer, and they seem to be interested in what they see. Blockchain technologies won’t replace traditional institutions, they are going to bring them on a new level and change them forever.

Sasha Ivanov exclusively for ForkLog

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