Crowdfunding and the Blockchain
Centralized infrastructure often limits the growing potential of crowdfunding in the real world. Blockchain technology could help us solve this problem.
Updated July 7, 2022 • 3 min read
Blockchain is widely considered a democratic tool that uses decentralized systems to give people the freedom to collaborate and transact as they see fit. Using blockchain as a tool for crowdsourcing can in many cases expand the possible pool of donors by using tax deductions as an incentive — thereby promoting the ability to give with fewer restrictions and providing transparency through the giving process. In short, blockchain crowdfunding can be seen as a way to allow more capital to be donated in a nontraditional way while reducing the need for large-scale facilitators and centralized gatekeepers.
What Is Crowdfunding?
Crowdfunding is the act of sourcing donations from a variety of donors for a specific purpose — such as providing humanitarian aid to developing nations or helping a non-governmental organization (NGO) triage a disaster stricken region. This method of funding has the potential to play a substantive, positive role in society. From a blockchain industry perspective, crowdfunding might be seen as a natural progression as the crypto space expands. Crypto is still relatively new as an asset class, yet we have witnessed considerable progress over the last several years in terms of adoption and user growth. With this continued growth, decentralized crowdfunding platforms are becoming more commonplace.
Why Donate Crypto?
Whether it be donations to a political cause or to an organization, crypto is usually treated as property in the United States, and thus many U.S. taxpayers can qualify a crypto donation as a charitable contribution tax deduction. Donations in crypto can allow organizations to take advantage of a new set of potential donors who would prefer to donate via blockchain rather than some of the more traditional methods that might require them to incur capital gains taxes. Especially during bull markets, there are many people and organizations who have made large gains and would like to offset some of that with donations. Efficiency and low cost are also two of many additional reasons why donating crypto to charitable causes via crowdfunding is becoming increasingly popular.
Blockchain Crowdfunding and Transparency
Many crypto wallets allow for self custody, enabling their users to control their own assets. Added to this structure, the decentralized design of many blockchains can provide clarity on where money goes. Ensuring that donations go to their intended destination is a major critique of donating to major organizations today, and blockchains can help address that problem. Leveraging transparent crypto wallets, specific address data, and other data from the blockchain can help determine if funds were received by the wallet associated with the intended organization or beneficiary. Various organizations are developing blockchain technology that can help donors to transparently trace funds throughout the entirety of the donation process, making it easier for donors to hold a fundraising entity accountable, and incentivizing organizations to do what they say they will with the received funding.
Limited Barriers to Entry
Accepting donations on the blockchain can allow an organization to minimize reliance on intermediaries. Not only can this structure help reduce the costs of sending, receiving, and deploying donated funds, but it can also help reduce dependency on political and/or business entities that might unfairly limit which causes can receive donations and which ones cannot. Most donors want crowdfunding initiatives to be funded based on the preferences of the people who fund them while mitigating undue influence from outside forces, which is why blockchain crowdfunding platforms are on the rise.
Crowdfunding Blockchain Startups and Decentralization
Decentralization is really the crux of blockchain. The ability to minimize undue influence from third-party systems that impose their own regulations — while encouraging peer-to-peer (P2P) transactions — is one of the defining characteristics that can make blockchain technology so powerful. Crowdfunding blockchain startups are increasingly becoming a key way to give back to the new crop of projects that seek to improve existing blockchain infrastructure. Meanwhile, crowdfunding humanitarian efforts is rapidly becoming a key way to give back to the world at large.
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