Say you’re interested in getting your company off the ground, but you’ve run into an immovable object. You’ve been denied for a loan by several banks, but your heart is set on becoming the next titan of industry. You even spent seven months crafting and perfecting your business plan. Everything’s in order except the most important thing: funding.
You don’t have to be an aspiring entrepreneur to empathize with this quandary. Most everybody has dreams they’d like to pursue, but don’t have the finances to get the ball rolling. Crowdfunding evolved as a direct response to these sort of scenarios. And now blockchain technology is being pushed as a potential fix for the cracks in the crowdfunding model.
Experts are in agreement: applications of blockchain in crowdfunding are largely untested. Initial Coin Offerings (ICOs) have emerged as a reliable fundraising tool, but concerns over legality hinder their collective growth. Startups using blockchain in crowdfunding are turning their sights on more compliant means of fundraising. As they do so, the use cases for blockchain in crowdfunding are likely to be explored more thoroughly.
1. Dan Abbate, Founder of 81-c
“Blockchain in Crowdfunding today is in its infancy. The technology has proven itself over the last 10+ years but the application and mass adoption of it in various industries is only just beginning. In crowdfunding specifically, the advantage blockchain has for relatively quick mass adoption is that there are only two users in the transaction. The company raising money and the investor investing the money. Other blockchain applications have many multiples of users within an entire industry along massive global supply chains which would all need to simultaneously begin using the technology for it to realize its full potential and usefulness. Obviously, an application that requires only two parties – like crowdfunding – vs. many will lead to mass adoption much sooner.”
2. Howard Marks, CEO and Co-founder of StartEngine
“We are in the middle of a transitional period. Last year, people realized that an ICO as a fundraising mechanism was by and large illegal and more often than not a bad investment, so we are left in a self-created winter as regulators enter the market and things correct themselves. We are moving in the right direction, but Security Token Offerings are still catching on in the marketplace. To date, they have largely been conducted under Regulation D 506(c). We’ve yet to see a Regulation A+ token offering qualified by the SEC, and last year Regulation Crowdfunding security token offerings raised just under $5M.”
3. Douglas S. Ellenoff, Business Law Attorney at Ellenoff Grossman & Schole LLP
“Interestingly, as an emerging industry itself, Crowdfunding is getting its own footing as it enters into its third year of being a legitimate pathway towards capital formation for entrepreneurs. For the most part though, blockchain in the form of ICOs has by design circumvented crowdfunding for their funding initiatives and done direct to investor fundraising and not through a FINRA approved portal. They may seem similar but Crowdfunding is regulated and lawful.”
4. Dr. Richard Swart, Partnership Advisor at CrowdSmart
“While many platforms are repositioning themselves as crypto issuance firms, or otherwise moving towards crypto, the vast majority of the platforms have not made the transition to blockchain infrastructure.”
5. Mark Roderick, Crowdfunding Attorney at Flaster Greenberg
“So far, blockchain is playing a very limited, peripheral role in Crowdfunding. Many blockchain companies have been funded through Crowdfunding (ICOs and otherwise), but the industry still operates on “old” technology.”
6. Bryan Myint, Managing Director of Republic Crypto
“We’re in a delicate state in crowdfunding. Blockchain enables value to flow freely between two parties, but lacks transparency. Blockchain needs to figure out how to combine both transparency and efficient value transfer.”
7. Florian Bercault, President and Co-founder of Estimeo
“France was one of the first countries to offer a stable regulatory framework for the crowdfunding industry, which in 2014 granted to crowdlending a derogation from the banking monopoly and to crowdequity a relaxation of the rules relating to private placement.
Then, in 2017 and 2018, the ICO phenomenon has emerged and its technology started to compete with the crowdfunding platforms’ ways of financing. From then, the industry started taking a real interest in Blockchain, especially for its ability to transfer asset, and in all transparency.
In 2017, a law taken by the former Minister for minister Economic Affairs, Emmanuel Macron, created the “minibons” (French specific type of bonds) and allowed them to be exchanged in a shared electronic recording system (P2P). It means that every commissioned crowdfunding platform can use the blockchain to manage a secondary market of minibons.
Also, several crowdfunding platforms have a use of blockchain technology. For instance, the cryptocurrency SolarCoin help to finance electricity production. In more alternative ways with Kriptown, Initial Token Offering are used as a way to create a stock market for startups, half-way between IPOs and ICOs.”
8. Troy Norcross, Co-Founder of Blockchain Rookies
“Blockchain is an underlying technology. Blockchains are platforms upon which many different businesses can be built, including businesses addressing the challenges of crowdfunding. Very early initial coin offerings (ICOs) were created by software teams to help them finance projects. This was a form of crowdfunding where tokens were sold and the funds raised were used to develop projects. In 2017 we saw a huge surge in ICOs and then in 2018 we saw multiple countries start regulating ICOs to where today it is not feasible to start an ICO.
There is a lot of activity in the space as regulators in multiple jurisdictions try to get to grips with different types of projects that use tokens as a means to provide liquidity, access and speed. Crowdfunding tokens are likely to be considered securities and new crowdfunding projects will likely be classified as STOs – Security Token Offerings.
Bottom line: Crowdfunding using blockchain technology and tokens is in an uncertain state as regulators get to grips with this new technology and develop regulation that is fit for purpose.”