What is crowdfunding?

03 Dec, 2019 David Kemp

Crowdfunding is the collective cooperation of people who voluntarily provide their money and other resources in order to support the activities of individuals or organizations to achieve this goal. Most often it is conducted through the Internet.

Features of crowdfunding

At the initial stage, the developer needs to attract public attention to his project. He may use a special website for such purposes.. It publishes white paper, road map, any other needed information about the upcoming project and the necessary amount of money for its implementation. Several websites-platforms have been developed being specifically designed for crowdfunding. One of them is Kickstarter. If the developer can raise the required amount, then the money will be transferred to him. Otherwise, the system will return them to depositors.

Another popular crowdfunding platform is IndieGOGO. It allows you to publish projects of different directions, including those related to charity and funding. Here the startup owner receives the collected funds regardless of the amount. 

Disadvantages of crowdfunding 

Specialized sites want and strive to protect investors from scams, but they do not always succeed. Such platforms do not provide a guarantee that the investment project will be fully implemented. 

Another drawback is the complexity of creating a payment system, the implementation of projects by residents of certain states and the construction of a special website.

How money raised through crowdfunding is spent 

The raised money can be spent for such purposes: 

  • Exchange for a souvenir or a sample of products. For participation in the fundraising the organizer can send gifts to donors.
  • Investment. Investments in the startup are aimed at making a profit in the future after its launch.
  • Donation. The proceeds will be used to develop free apps and games.
  • Charity. Such contributions are entirely voluntary, non-fixed and gratuitous. The raised money will be spent on pensioners, disabled people, orphans or homeless animals. Some individual projects are aimed at raising funds for the treatment of the child.
  • Financial support for a specific project or company. A developing organization may ask like-minded people to raise money to launch a startup.

Crowdfunding allows you to attract a significant amount for the development of a cryptocurrency project. The main drawback of this method is the complexity of forecasting. Since investors are provided with small guarantees of profit in the future, it is not necessary to count on significant investments by one person. The missing amount can be raised through crowdsale. You can read more about it in the article "What is crowdsale?". If you are planning to launch a startup, make sure to try these methods of attracting investments.