Crowdfunding has become a very popular way to democratize fundraising for many new age startups. But the current crowdfunding platforms are centralized which means the funds are controlled by the platform and they can provide preferential treatment to certain campaigns. It is about time a decentralised platform disrupts the crowdfunding sector.
One of the project that I find interesting is AZFundChain. It aims for financial inclusion through decentralized money circles. A platform where users from across the globe can run their campaigns and raise money from their peers, AZFundChain uses blockchain to make sure the transactions are transparent, do not cost a lot in fees and within everyone’s reach.
Crowdfunding and its popularity
Investment for innovation was a domain of the rich for the past century. Common people could not invest in the early stages of innovation – which is where the returns are high – and crowdfunding has changed that. It allows innovators to run campaigns for raising funds for their research or production and for common people to invest small amounts in the product or the venture itself.
Money circles and current methods
One form of crowdfunding is ROSCA or money circles. ROSCA stands for a rotating savings and credit association where a group of people save and borrow together. Many people across the world use this means of credit and savings because they do not have access to banking channels or do not trust the banks. They also cut through the bureaucracy and sometimes save on the interest. These groups are often locally organized and managed by a closely knit community or a group of individuals.
Problems with traditional crowdfunding
Crowdfunding became a very popular way to raise money in the last decade but it is not without disadvantages. The risks include:
- Difficulty to start a campaign: For the creator or the founder of a project, there is a barrier and information asymmetry which makes it a high-risk proposition
- Reputation at stake: For a creator, not being able to meet their goal or target for fundraising means loss of reputation. It means enough people do not believe in the project
- Intellectual property: Most of the crowdfunding campaigns are public and that puts the creator’s ideas out in the open. This poses a threat to the core of the creative idea
- Fund centralization: Most of the current platforms are run by a company and once the donor has parted with her cash, it is up to the company to secure this money and transfer it. This results in scams and loss of funds
Crowdfunding on blockchain
Blockchain has gained popularity in several industries because it provides various advantages. These advantages are derived broadly from three features of a blockchain – transparency, decentralization, and immutability. Various platforms have built complex functionality on a blockchain.
In its early stages, AZFundChain has covered more ground than a crowdfunding app or a platform would need to. It is bound to be preferred by creators and donors alike. Crowdfunding and peer-to-peer lending is a multi-billion dollar market and this is the first step towards making this space more efficient and friendly.