Introduction
It has been 13 years that Satoshi Nakamoto first presented the Bitcoin white paper. In these thirteen years, the distributed ledger technology (the blockchain) described in Satoshi’s Bitcoin white paper has taken on new formats, opening a new world of possibilities to sectors such as traditional finance. One of these evolutionary trends has been the emergence of the blockchain as a prime source of fundraising to conventional methods. The Initial Coin Offerings (ICOs) of 2016 and 2017 introduced the world to crypto-based crowdfunding, and this has been replaced by decentralized finance (DeFi) and its smart contracts.
There are many reasons why people raise funds. People typically raise funds for business or for pressing immediate and corporate financial needs. Whatever the scenario, fundraising efforts need to address the expectations of the client. Those raising funds expect to reach the financial goals set for the campaigns, with the ability to receive these funds quickly and with as few bottlenecks as possible.
Fundraising options have expanded from self-funding and peer-to-peer loans to early examples of what we now call angel investors, bank loans, government grants, and internet-based crowdfunding. In recent years, a new option – blockchain-based crowdfunding – has arisen. This article will show how fundraising campaigns that use distributed ledger technology as their backbone trump fundraisers of traditional finance-based campaigns.
Issues Confronting Traditional Fundraising Efforts
Those involved in traditional fundraising campaigns are very familiar with the problems that beset them. These challenges center around the following points:
- 1. Transparency
- 2. Bureaucracy
- 3. Reach
- 4. Accessibility
- 5. Speed
One of the problems of traditional fundraising is transparency. To what extent do donor funds go to where they are supposed to? The many cases of diversion of donated funds have prompted donors worldwide to put in place measures to ensure that funds raised are used for the intentions and not diverted. Tracking, monitoring, and evaluation of donated or contributed funds involve a lot of human and material resources. To that point, it is not always easy to track every dime.
Traditional funding methods also come with too much red tape. The bureaucracy and protocols that stand in the way of accessing disbursed funds are sometimes too much to handle. For instance, it is a typical trend for financial institutions to ask the recipient to provide documentary evidence to prove the sources of the funds. This bottleneck can also create undue delays that could defeat the entire aim of the fundraising campaign in some cases.
Another source of worry for fundraisers has to do with reach. A lot of money is sitting in the pockets of investors who want to distribute these funds. But the geographical distance between these bigwigs, mostly in resource-rich environments, and those who need their money in resource-deprived environments can be difficult to surmount. With no means of reaching the investors, resource-deprived fundraisers have to do with what is locally available in some cases.
