Crowdfunding has been born as a source to contribute to great ideas and humanitarian causes, but in recent years it has become an effective way to invest in early stage startups and generate great returns.
These changes happen because of the creation of the regulatory frameworks. Or, as in this case, due to the release of several equity crowdfunding platforms, such as Seedrs in the UK, Indiegogo in the US. In recent years there has been a massive breakthrough, thanks to the invention of a new type of crowdfunding called as ICOs.
An initial coin offering (ICO) is a type of funding using cryptocurrencies. In an ICO, a quantity of cryptocurrency is sold in the form of digital “tokens” (“coins”) to speculators or investors, in exchange for legal tender or other cryptocurrencies such as Bitcoin or Ethereum.
In fact, ICO’s raised funds without any platform from a crowd of investors, who often overfund these crypto-companies in order to have great revenues.
A lot of speculators got burned from these types of investment. The cryptoboom made everyone believe in eternal growth, but ever since December 2017 that bubble has been slowly, but steadily declining.
Blockchain and micro investments
In fact, people have understood that Blockchain applications have gone beyond cryptocurrencies for news outlets and have created immense hype in investing communities. The mainstream media has reported beyond the stereotypical narrative of “bitcoin is an energy waste” and “crypto is only used for drugs and weapons”. Even the European Union has adapted a “Blockchain yes, Bitcoin no” attitude.
Through Blockchain technology, companies can effectively democratize fundraising by ensuring free access to the world population.
70% of the world’s population is classified as potential investors who do not possess large capital given their limited resources.
This group of retail investors is actively looking for solutions which will enable them to invest small sums of money where only large capital is accepted, which usually constitutes for the most profitable investments.
But until now, entrepreneurs have had limited opportunities to fund their businesses, and investors a difficult time assessing small and medium enterprises.
Now micro investments of a few dollars are allowed thanks its low cost architecture.
For years, the only way to have a return on the investment was to participate in a reward based crowdfunding campaign; but in this case the return would have been only “physical”: the investor would have received only the product.
In recent years, more and more people wanted to invest in early stage companies in order to gain a great return in the future, likewise in a stock exchange.
For this necessity of investing the equity crowdfunding was born.
One of the most important platforms for the equity crowdfunding is Seedrs, a platform that also create a secondary market for the equities sold on the platform.
This type of investments is rapidly spreading around the world and it is estimated that it will overcome the venture capital sector in the next few years.
What if we combined equity crowdfunding with the blockchain?
By combining these two trends, investors will be able to do micro-investments in early stage companies without worrying about the poor liquidity of the market.
Will this increase liquidity?
Yes. It is simple: everything that is recorded on a blockchain will be as liquid as a cryptocurrency. Market activities can be successfully verified by a safe system which costs only need to cover electricity and processing cost.
As a consequence, by tokenizing equity of early stage companies, a new liquid and easy-accessible market will be created.
And this is exactly what we are realizing in Taodust, keep up with our journey!
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