Using Blockchain for Crowdfunding African Startups. A Decentralized Approach

Usually, when starting a business, a whole lot of capital is required. Whilst getting a capital might not be a big deal for some business starters, most entrepreneurs have been faced with the issue of getting their startup capital. Again, startups and other new businesses have been observed to have a more difficult time qualifying for business loans.

In light of this, we have crowdfunding, which has become an extremely handy alternative for business owners to raise capital.

However, things are becoming more interesting with the emergence of cryptocurrencies and blockchain technology. The growing popularity of cryptocurrencies has opened the path to the next level of crowdfunding advancement.

What Is Blockchain?

Blockchain, as the name suggests, consists of multiple blocks which are intertwined. At the most basic level, blockchain can be described as a chain of digital information which is stored in a public database.

These digital pieces of information, particularly comprise three parts as indicated below:

  • Information about the transaction. This would include the date, time and amount of the most recent transaction.
  • Information about the participants in the transaction.
  • Information that differentiates a block from other blocks. Each block has a unique code known as “hash”.

In order for a block to be added to the blockchain, a transaction must have occurred. The transaction would be verified and stored on a block which would be given a unique code called a “hash”.

However, the blockchain network alleviates security risks in various ways. One and most important of all is in their storage. New blocks added to the blockchain are usually added to the end of the ledger, thereby, giving it a chronological arrangement.

Every block is connected together like a chain, with every new block bearing its own hash and the hash of the block before it. Altering a single block would result in the need to alter the next one and the next and on and on.

This is important to security because a hacker would need to edit every single hash on the blockchain in order to hack a single block. The possibility of that happening, however, is near impossible.

The Concept Of Crowdfunding

Crowdfunding is the monetary efforts of collective individuals in financing an entrepreneur’s project or business venture. The funds are raised in small amounts by each individual to support a person’s business venture.

Already, so many platforms have been created with the aim of making it easy for investors and entrepreneurs alike to connect. Anyone who has a business idea can easily pitch it on the platform, to any available or interested investor. It is important to note that crowdfunding projects are either reward-based or equity-based.

Crowdfunding is very useful to entrepreneurs because it is a relatively inexpensive and easy way of raising funds for capital, without having to give up control to investors. It also gives investors an opportunity to earn an equity position in a venture.

Crowdfunding Startups Using Blockchain

With crowdfunding, it has become easier for startups to connect with prospective investors. While the traditional crowdfunding involves people with business ideas, pitching their ideas to the community in order to get funds, entrepreneurs now have another way to secure capital.

The emergence and subsequent popularity of cryptocurrencies has opened the way to the next level of crowdfunding’s evolution.

Blockchain-based crowdfunding decentralizes the funding model, creating more opportunities for projects that otherwise wouldn’t get any funding. Many crowdfunding platforms charge 5% of the total funds received, along with the payment of a processing fee which could range from 3-5%. Blockchain makes things easier by removing this hindrance.

Blockchain is totally decentralized and it comes with an advantage which brings investors directly to startups. This means business starters don’t have to depend on any platform to raise funds. Any venture using a blockchain-based crowdfunding can get funded while any person with an internet connection can donate towards any project.

Apart from this, blockchain crowdfunding is aimed towards providing a solution to the security-related issues that can be encountered in crowdfunding.

Ardor Blockchain: A Case Study

In Africa, presently, a few blockchain companies have been working towards the allocation, supervision, and trading of security tokens. One of the most successful so far, is the Ardor Blockchain built and managed by Jelurida, a Switzerland based Blockchain company, with a regional headquarters operating in Lagos, Nigeria is a typical example.

The Ardor blockchain is a developed open-source blockchain platform where users are able to engage, carry out transactions, and even develop apps.

The blockchain platform operates a parent-child chain system where all trades are processed by the Ardor “parent” chain.

The Ardor blockchain operates a decentralized monetary system where users can create cryptocurrencies. While the platform itself comes with an inbuilt coin exchange, all child chains also have their own native token which can be used for transaction payments and also as a unit of value.

The blockchain approach to crowdfunding is different from the norm where the inventors or entrepreneurs in question are required to offer their products or equity in the company in exchange for financial assistance.

The Ardor blockchain makes the funding process safe, and offers a totally translucent access from anywhere around the globe. With the help of a favorable regulatory framework in the developed market, startups can now make and sell their own crypto to potential investors. Blockchain provides an immutable record to account for these tokens. Since the records would be impossible to modify, it ultimately provides security.

Blockchain, amongst all its benefits, is creating new and interesting opportunities in crowdfunding. With the integration of the crowdfunding system into blockchain technology, crowdfunding can become easy, and more importantly, a legitimate standard of financing a wide range of businesses and projects.

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