Both cryptocurrency and crowdfunding are relatively new ideas that complement one another when used together. Crowdfunding is an innovative way to fund a project or business by asking a large number of people to donate a relatively small amount. Additionally, making these donations through cryptocurrency has several benefits for both the project owners and the individuals helping to fund them, and is well on its way to revolutionizing crowdfunding platforms themselves.
How Crypto Crowdfunding Works
Crypto crowdfunding is a new and innovative way of funding a project. Instead of asking for backers to contribute funds, sometimes in return for rewards, as seen in traditional crowdfunding, crypto crowdfunding involves providing contributors with tokens relevant to the project itself. These tokens have a wide range of uses and will represent different things for each project. Some may turn backers into stakeholders for the project, while others may be more utility-based, allowing the backer to directly interact with the developing project.
Donating Through Crypto
There are many options when it comes to making crypto donations to specific crowdfunding projects, all with their own strengths and weaknesses. Initial coin offerings (ICOs) allow investors to purchase new crypto coins in exchange for already established currencies such as Bitcoin and Ethereum. Such methods are employed across the cryptocurrency realm with new coins offered to investors within Binance listing announcements regularly. Alternatively, security token offerings (STOs) allow project managers to offer tokens that represent various forms of ownership for the donator. STOs, as well as other options such as Initial exchange offerings (ICOs), tend to be more secure and more widely accepted globally, giving investors more legal security.
Benefits of Crypto Crowdfunding over Regular Crowdfunding
One of the greatest strengths of crypto crowdfunding is the benefits surrounding the investor. Unlike regular crowdfunding where contributors can offer an amount of money, and may or may not be given certain rewards for doing so, crypto crowdfunding returns to them tokens that have objective value within the project they are donating to. These tokens guarantee the investor concrete stakes in the project’s success allowing masses of people from across the globe to form communities dedicated to the project. Not only that, but these tokens received through the support of crypto crowdfunders then have value within the project itself. Many give investors access to exclusive content or allow them a voice in decision-making regarding the content. Due to the nature of crypto, there is also the opportunity for these tokens to increase in value over time, meaning that there is an additional incentive for early investors who may see substantial returns as the project takes off.
Of course, the regular benefits of cryptocurrency over traditional forms of payment also apply to crypto crowdfunding. For one, the additional layers of security that come with crypto and blockchain technology give backers valuable peace of mind when donating to a project. Additionally, the global reach of cryptocurrency allows crowdfunded projects to transcend geographical restrictions, allowing diverse communities to come together in support of a project.
Challenges of Crypto Crowdfunding over Regular Crowdfunding
Although there are numerous benefits to crypto crowdfunding, there are also various challenges that need to be explored. As previously mentioned, the value of tokens does fluctuate, and although a successful project will see the value rise, the opposite could occur for a project that isn’t reaching its goals and targets. This then has a direct impact not just on the project managers but on the investors as well. On top of that, cryptocurrency still has little legislation globally, and in many cases cannot offer legal protection to investors. This can be overcome, however, by favoring more secure tokens such as STOs over those with fewer regulations such as ICOs.
Conclusion
The use of cryptocurrency is on the rise, with presidential support and global interest, it is quickly on its way to becoming a standard method of payment in the US and beyond. By encompassing cryptocurrency, crowdfunded projects can keep up with the times, and open up their ideas to a much wider audience. Although crypto is volatile, it also appears to be the future of finance, and for good reason. As legislation develops, many of the concerns regarding crypto-crowdfunded projects will cease, and it may well be that crypto becomes the norm for these kinds of projects.
Until then, it is essential that potential investors gain a good understanding of the risks involved prior to backing a crowdfunded project with crypto. Then, the rewards can be reaped and the benefits better felt.
