The Missing Link: How Blockchain Technology is Revolutionizing Investing

Blockchain's record-keeping technology makes crowdfunding with cryptocurrency more secure. Welcome to the future of investing.

Photo: NASA via <a href="https://unsplash.com/photos/Q1p7bh3SHj8">Unsplash</a>
Photo: NASA via Unsplash

A few years ago, crowdfunding changed the way we look at investing. As a result of sites like GoFundMe and Kickstarter, anyone can invest in someone else’s creative, personal, or professional endeavor—and have a stake in it. Getting businesses off the ground has never been more accessible for startups, and for investors, discovering the newest billion-dollar idea is just a few clicks away.

There are tons of benefits to crowdfunding and angel funding, but there are also some limitations that keep skeptics, well, skeptical. High fees, lack of regulations, and potential scams are a few of the risks associated with crowdfunding, but there’s a new development that’s giving this form of investing a better rap—blockchain technology.

Blockchain is a record-keeping technology that stores data in blocks that are chained together in chronological order. Anytime a transaction is made, it’s recorded, and because blockchains are often decentralized, no one person or group has control over it. Instead, data is irreversible, permanently recorded, and viewable to everyone. 

With valid criticisms and concerns over crowdfunding and angel funding, curating a world of investing suitable for the future will take time. Blockchain technology provides a positive start and presents the opportunity to advance the crowdfunding space further. 

Less restrictions, more security 

To understand how blockchain technology and cryptocurrency work, it’s important to be familiar with ICOs. Initial Coin Offerings (ICOs) are essentially the crypto equivalent to Initial Public Offerings (IPOs). They’re launched by companies—often startups—looking to raise money in exchange for a stake in the company. In order to participate in the unregulated ICO world, you’ll first need to purchase a form of digital currency and understand how cryptocurrency works. ICOs have the potential to yield huge returns on investment, but some turn out to be fraudulent. Without any real regulations, investors have to be cautious when investing in an ICO.

These blurred lines when it comes to regulations are a huge concern for people who aren’t yet on board with cryptocurrency. The U.S. Securities and Exchange Commission (SEC) and other financial institutions have remained pretty quiet on the topic of how to handle cryptocurrency, and without a universal understanding of what it means to invest with crypto, inventors and investors are kind of free to do whatever they want, which makes this crowdfunding seem unreliable.

Nick Tomaino, principal at Ruma Capital, put it best by stating people are “overweighting vision and underweighting execution when making investment decisions.” Someone might have a promising launch as a result of crowdfunding, but the outcome of the investment and the endeavor itself falls short.

Blockchain, however, adds a level of security that makes using cryptocurrency less risky. These databases keep track of changes securely, and in a way that’s publicly verifiable which makes it really challenging to commit fraud. By keeping track of how ownership of every single transaction changes, there’s always a source to go to should sketchy activity occur. 

The decentralized nature of blockchain makes it so there’s no relying on any platform to enable individuals to raise funds. Any project has a chance of being seen on a global scale and getting funded as a result. Also, while the upkeep of blockchain can be costly, decentralization also eliminates transaction fees. Overall, blockchain makes crowdfunding more accessible and affordable, giving both creators and investors amazing opportunities to build something well worth it. 

MarketSmiths Case Study

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> Read the full study 

A new world of investing

Investing in any form comes with risk, and much of that risk is attributed to the current state of the market. Cryptocurrency is more vulnerable to market fluctuations than any other investment form, and it’s prone to stronger fluctuations too. Individuals who hold onto cryptocurrency for long periods of time also have an increased risk of being impacted by changes in the market.  

Blockchain can rely on asset tokenization, which makes it possible for investors to invest and see profits come from even just a concept of a business, rather than needing a tangible asset. Investors are granted small ownership of the company corresponding to the amount they put in. When the company eventually reaches success, investors profit an equivalent amount to that success. This takes away the hesitancy surrounding crowdfunding that fears empty promises will cost investors money. This process promises fractional enterprise or product ownership. 

Cryptocurrency in its entirety needs to continue to be ironed out before the majority of people feel comfortable using it. It’s a huge asset to crowdfunding, which is quickly becoming a primary method for startups and creators to bring their visions to life. Blockchain technology takes some of the worry away from using cryptocurrency in a crowdfunding setting, and as technology continues to advance, we could find ourselves in the future of investing sooner than we thought.

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Katie Bashista

Katie Bashista

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