Blockchain, Smart Contracts and ICOs: A “Real World” Business Case
Blockchain technology provides decentralized and distributed platforms. These platforms record transactions in a public and transparent fashion. They promote speed and security, and can cut management and operational overheads. For instance, blockchains make intermediaries of any kind redundant. In one stroke, it removes the costs, delays and risks attached to such intermediaries.
One of the most useful tools developed in tandem with blockchain is the Smart Contract. Also called self-executing contracts, they are contracts in computer code. Storage and replication of these contracts takes place on the system. The computers running the blockchain supervise the working of smart contracts. Smart contracts automatically carry out processes and enforce obligations or penalties. Their wide applicability includes the finance, legal, and insurance sectors. Crowdfunding can also be efficiently handled in this way.
Fundraising and ICOs
The advent of blockchain and smart contracts has signaled a shift in business trends. Fledgling companies as well as established businesses stand to benefit greatly. And ease of fundraising has emerged as the front-runner among prospective benefits.
Raising capital is part of the foundation of entrepreneurship. Traditionally, companies have relied on Initial Public Offerings (IPOs) and angel investors. IPOs typically do not take place in the initial stages of a project. They come into play when an established company wishes to expand even further. The public can invest in the company in return for a stake in it.
Crowdfunding is a fairly recent phenomenon, seen primarily in the creative sphere. Content creators receive financial support from their fans. Paypal and Patreon are among the top crowdfunding platforms.
Crowdfunding became popular due to its simple and inexpensive system. It allows the removal of minimum or maximum limits on investment. It also enables investment from a broad spectrum of interested parties.
Initial Coin Offerings (ICOs) offer several improvements upon more traditional fundraising methods. In form, they are closest to the crowdfunding model. Unlike IPOs, ICOs and crowdfunding both take place in the initial phases of a project. They attract a range of interested investors. But, crowdfunding tends to be more localized in comparison.
ICOs are conducted on blockchain based platforms. The projects funded this way tend to be more tech related. Moreover, contributors to a crowdfunding event expect no more than acknowledgement. They may also receive small tokens of appreciation. Their contribution does not earn them a stake in the project. ICO contributors on the other hand are similar to IPO participants in this respect. They become stakeholders, participating in profits as well as losses of the venture.
How Blockchain Improves Day to Day Running of Businesses
A great many operational overheads come in the way of small businesses looking to expand. Legal cost and transaction fees are just the tip of the iceberg. Both could, however, soon become a thing of the past thanks to blockchain technology. Blockchain integration enables transfer of money without the use of intermediary services. Smart contracts have reduced the need for legal due diligence. Blockchains can enable simplified and inexpensive notary services.
Security is another field that has been improved by these technological innovations. The cost of fraud is estimated at $18.5 billion a year. The password-based security format currently in use is built and stored on insecure systems. But now, digital identities can be tracked and managed securely using blockchain. Authentication can be done through digital signatures that are based on public key cryptography.
Transparency and communication along the length of the supply chain can be improved. Permanent digital records can keep stakeholders apprised of the status of the project at each step along the chain. These records can also easily be audited by any interested party.