How Crowdsale or Crowdfunding in Blockchain Works?

• Toshendra Kumar Sharma
• October 14, 2022

Let’s say you have got an idea to develop a new innovative gadget (a pen size printer, [imaginary gadget of course]) which will let anyone print the pages on the go at a very low cost. The idea sounds fantastic but you need initial capital to support the production as well as your ongoing research. You went to some investors but they turned you down badly. But you know that this idea is worth millions of dollars & public will like it for sure.

You realize that you can crowdsource the fund from the public. Here, you have multiple options like Kickstarter, IndieGoGo etc. who are the third party to facilitate your crowd fundraising. What if you don’t want to depend on them as well and want to do it by directly dealing with the thousands of people directly without any problem.

Of course dealing with thousands of people, their payment security and keeping track of every single contribution brings another level of challenge for you. Blockchain can solve all of such problems in a fraction of your efforts and give everyone a transparency & trust in your fundraising process.

Type 1: Simple version where you get the fund and funders will get the virtual token of the Gadget which they will give you back later in the exchange of the actual product (once the actual product is ready). This is how it will work. 

1. Asset Token: You will create a virtual token (smart contract) which we will issue to every supporter/funder against their payment. If funding is successful they can prove the ownership of that token and get the physical version of the gadget couriered to their address.
2. Crowd sale Application: Then you will create a new smart contract from scratch using which people can send you their cryptocurrency Ethereum and get their virtual gadget token. If funding fails to reach the minimum target funders can claim the refund and get their money back. Remember this is all being done transparently without involving any third party.

 

Type 2: Complex version where your project gets the fund (Not you) and funder will get the token which will represent the ownership in the new project/autonomous organization. This token can be used to vote for the proposal (like voting rights of the shareholders) in the project to use the fund which your project has raised giving everyone the trust in the fund used by the project. Since everyone who funded you is the owner of the project and fund cannot be used until the majority of the people agree with a particular proposal. This will work as a democratic organization where shareholders will vote for the fund usage. 

1. Decentralized Autonomous Organization: You will create a DAO whose ownership will be represented by the Shares Tokens (given below). This DAO will have a capability to take the proposal & also take the vote in favor or against the proposals. The winning proposals can be executed by any of the shareholders.
2. Share Token: You will create a virtual token (smart contract) which will represent the shares of the DAO (Decentralized Autonomous Organization). We will then issue these shares to every supporter/funder against their payment. If funding is successful they can use the token to vote in DAO, if it failed they can take the refund of their payment using the share token.
3. Crowd sale Application: Then you will create a new smart contract from scratch using which people can send their cryptocurrency Ethereum to the crowd sale application and get their virtual shares (token) of the DAO. If funding failed to reach the minimum target funders can claim the refund and get their money back. Remember this is all being done transparently without involving any third party.

If you want to learn how to build a Crowdsale or Crowdfunding App in Blockchain, then you must try this video course.