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Crowdfunding with crypto, is it real?

Crowdfunding has already established itself as a great way to raise funds for startups since traditional ways of financing a business or an idea are not always available and have certain requirements.

For example, self-investing in one’s own business or idea can be quite limited. Getting a bank loan may require an existing business or some kind of positive financial results. Venture fund capital is more focused on products for a mass audience.

Therefore, many business ideas have to seek support from ordinary users and go to crowdfunding platforms such as Kickstarter, Indiegogo, and GoFundMe.

However, not all projects will be successful and the reason is not always in the project itself. Crowdfunding has certain limitations and can be ineffective. On some platforms, starting crowdfunding campaigns is available only to residents of a limited number of countries. For instance, Kickstarter is available for less than 30 countries. Also, only residents from these countries can fund projects. This limits the project’s potential and forces them to target the audience of certain countries to get funded.

As a result, according to Kickstarter data, 11% of campaigns receive no funding at all. But cryptocurrency can expand the possibilities of crowdfunding and make it more accessible to other countries.

ICO as the beginning of crowdfunding with crypto

In 2017, there was a crypto boom that caused a rapid rise in cryptocurrency prices and interest among a new audience. One of the reasons for the crypto boom was the rising popularity of initial coin offering (ICO).

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In many ways, ICOs resemble crowdfunding. A startup announces its idea and sets a date when funding will be ended. In most cases, startups start ICO campaigns on their website, not on some crowdfunding platforms. Startups also post additional information about the market where the project is going to work (market data, potential idea implementation) and about the project itself (roadmap, whitepaper). Those who are interested in the project can invest their bitcoins and ethers to support the project. As in crowdfunding, if the project has not reached the minimum amount for idea implementation, money must go back to investors.

But there are also a number of differences. For example, crowdfunding campaigns are sometimes more focused on creating some kind of physical product or device. Those who have supported the project can get this product at a lower price or something else. The rewards for a crowdfunding campaign are entirely up to the startup to determine.

At the same time, ICOs are most often launched for some blockchain projects and investors exchange their cryptocurrency for project’s tokens. These tokens are a kind of share in the project’s business, which will be used to perform certain actions in the new blockchain network. If the cryptocurrency project is successful, then the price of its tokens should rise.

This stands in contrast to crowdfunding “backers” who may receive a reward but don’t expect to see a significant financial return on their investment. That is why there are no major regulatory consequences for running a crowdfunding campaign.

However, ICOs are considered by governments around the world as equivalent to IPOs and they should be regulated. But there was no regulation when the ICO hype took place in 2017-2018 and it became a stronghold for scammers. A lot of fake projects did not return money at all, did not plan to implement their idea or copied existing projects. This forced regulators in many countries to ban ICOs and ruined people’s attitudes towards ICOs in general. Still, a lot of blockchain projects remained honest with their investors and were able to implement their ideas thanks to ICOs, which greatly helped the cryptocurrency industry.

The ICO story has shown that crowdfunding with crypto has a right to exist, even though it can be highly specialized.

Cryptocurrencies on traditional crowdfunding platforms

If cryptocurrencies were used not only to support blockchain projects but also in traditional crowdfunding, this would greatly help startups around the world to find investments. The popularity of ICO has left its mark and at the moment there are more than 170 crypto crowdfunding platforms.

Some of them are focused on startups in a certain area (not only blockchain and crypto), while others are trying to become an alternative to popular traditional platforms. Some platforms just support cryptocurrencies as a method of payment, while others consider themselves as decentralized blockchain-based platforms. But one way or another, most of these platforms are still niche or just gaining popularity.

Adding cryptocurrencies to platforms such as Kickstarter, Indiegogo, Crowdfunder and GoFundMe would have a much stronger impact on the crypto adoption and crowdfunding space. With the addition of cryptocurrencies as a method of payment, it would be difficult to maintain the support of a limited number of countries.

Cryptocurrencies are global and the recipient cannot refuse to receive payment in cryptocurrency. Therefore, nothing stops backers around the world to buy bitcoin cash with credit card and fund some projects. Worldwide support and the emergence of a new payment option would significantly increase the range of those who can participate in crowdfunding. Many projects could have more opportunities and chances to receive funding.

But the decision to add cryptocurrencies or not is still up to the platforms themselves. If crowdfunding gains more popularity and uncertainty about cryptocurrencies decreases, perhaps they would be able to interact more closely with each other in the future.