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Using Blockchain for Crowdfunding African Startups. A Decentralized Approach

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Crowdfunding using blockchain

Usually, when starting a business, a whole lot of capital is required. Whilst getting a capital might not be a big deal for some business starters, most entrepreneurs have been faced with the issue of getting their startup capital. Again, startups and other new businesses have been observed to have a more difficult time qualifying for business loans.

In light of this, we have crowdfunding, which has become an extremely handy alternative for business owners to raise capital.

However, things are becoming more interesting with the emergence of cryptocurrencies and blockchain technology. The growing popularity of cryptocurrencies has opened the path to the next level of crowdfunding advancement.

What Is Blockchain?

Blockchain, as the name suggests, consists of multiple blocks which are intertwined. At the most basic level, blockchain can be described as a chain of digital information which is stored in a public database.

These digital pieces of information, particularly comprise three parts as indicated below:

  • Information about the transaction. This would include the date, time and amount of the most recent transaction.
  • Information about the participants in the transaction.
  • Information that differentiates a block from other blocks. Each block has a unique code known as “hash”.

In order for a block to be added to the blockchain, a transaction must have occurred. The transaction would be verified and stored on a block which would be given a unique code called a “hash”.

However, the blockchain network alleviates security risks in various ways. One and most important of all is in their storage. New blocks added to the blockchain are usually added to the end of the ledger, thereby, giving it a chronological arrangement.

Every block is connected together like a chain, with every new block bearing its own hash and the hash of the block before it. Altering a single block would result in the need to alter the next one and the next and on and on.

This is important to security because a hacker would need to edit every single hash on the blockchain in order to hack a single block. The possibility of that happening, however, is near impossible.

The Concept Of Crowdfunding

Crowdfunding is the monetary efforts of collective individuals in financing an entrepreneur’s project or business venture. The funds are raised in small amounts by each individual to support a person’s business venture.

Already, so many platforms have been created with the aim of making it easy for investors and entrepreneurs alike to connect. Anyone who has a business idea can easily pitch it on the platform, to any available or interested investor. It is important to note that crowdfunding projects are either reward-based or equity-based.

Crowdfunding is very useful to entrepreneurs because it is a relatively inexpensive and easy way of raising funds for capital, without having to give up control to investors. It also gives investors an opportunity to earn an equity position in a venture.

Crowdfunding Startups Using Blockchain

With crowdfunding, it has become easier for startups to connect with prospective investors. While the traditional crowdfunding involves people with business ideas, pitching their ideas to the community in order to get funds, entrepreneurs now have another way to secure capital.

The emergence and subsequent popularity of cryptocurrencies has opened the way to the next level of crowdfunding’s evolution.

Blockchain-based crowdfunding decentralizes the funding model, creating more opportunities for projects that otherwise wouldn’t get any funding. Many crowdfunding platforms charge 5% of the total funds received, along with the payment of a processing fee which could range from 3-5%. Blockchain makes things easier by removing this hindrance.

Blockchain is totally decentralized and it comes with an advantage which brings investors directly to startups. This means business starters don’t have to depend on any platform to raise funds. Any venture using a blockchain-based crowdfunding can get funded while any person with an internet connection can donate towards any project.

Apart from this, blockchain crowdfunding is aimed towards providing a solution to the security-related issues that can be encountered in crowdfunding.

Ardor Blockchain: A Case Study

In Africa, presently, a few blockchain companies have been working towards the allocation, supervision, and trading of security tokens. One of the most successful so far, is the Ardor Blockchain built and managed by Jelurida, a Switzerland based Blockchain company, with a regional headquarters operating in Lagos, Nigeria is a typical example.

The Ardor blockchain is a developed open-source blockchain platform where users are able to engage, carry out transactions, and even develop apps.

The blockchain platform operates a parent-child chain system where all trades are processed by the Ardor “parent” chain.

The Ardor blockchain operates a decentralized monetary system where users can create cryptocurrencies. While the platform itself comes with an inbuilt coin exchange, all child chains also have their own native token which can be used for transaction payments and also as a unit of value.

The blockchain approach to crowdfunding is different from the norm where the inventors or entrepreneurs in question are required to offer their products or equity in the company in exchange for financial assistance.

The Ardor blockchain makes the funding process safe, and offers a totally translucent access from anywhere around the globe. With the help of a favorable regulatory framework in the developed market, startups can now make and sell their own crypto to potential investors. Blockchain provides an immutable record to account for these tokens. Since the records would be impossible to modify, it ultimately provides security.

Blockchain, amongst all its benefits, is creating new and interesting opportunities in crowdfunding. With the integration of the crowdfunding system into blockchain technology, crowdfunding can become easy, and more importantly, a legitimate standard of financing a wide range of businesses and projects.

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Crypto Assets

Crypto prices drop as global market fear increases

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Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.

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Bitcoin in Africa

The rise of CBDC in African economies

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Many nations have taken cues from the world of crypto and its resounding successes over the last decade. In order to avoid getting left behind, governments worldwide are increasingly turning their attention towards implementing some form of digital currency, a CBDC which in full is Central Bank Digital Currency. Although inspired by cryptocurrencies, CBDC’s are quite different from traditional crypto platforms. The main differences are that CBDC’s are unlikely to be decentralized, the supply of this currency regulated by the host’s country’s central bank as the CBDC is designed to operate as a sovereign legal tender, the digitized form of the host country’s fiat currency. Thus, a central bank may issue digitized tokens of its currency of which their value is pegged to the fiat currency of the nation in question, making CBDC’s stablecoins.

Africa has seen a rise in the use of cryptocurrencies and it’s still pushing frontiers in this sector. Although the use of crypto in many African nations is becoming more and more pervasive by the day, the tone of governments in many of these countries toward the sector is cautious at best and threatening at worst. However, a few nations have voiced interests in creating digitized versions of their legal tender to function as a CBDC. Amongst these are Ghana, Nigeria, Morocco, Kenya and Tunisia.

Many of these projects are still in the research phase or developmental phase however. A good example is Ghana’s proposed CBDC, the E-cedi being developed in partnership with German company, Giesecke + Devrient. Nigeria’s CBDC project, the eNaira has been announced and according to Nigeria’s central bank, this CBDC will be launched sometime in 2021. To that end, the CBN has partnered with fintech company, Bitt Inc. to serve as the technical partner in the eNaira’s development. Reportedly, the CBN had made the decision to digitize the Nigerian Naira in 2017.

While the pursuance of digital currencies in African nations is a welcome development, implementation of these schemes isn’t without challenges. Chief among the issues countries in Africa face would be the already existing financial service inequality and poor penetration of internet access in the continent. These challenges must be tackled in order to allow for mainstream adoption of CBDCs and the subsequent provision of financial inclusion. The benefits largely depend on the peculiarities of the nation deploying them. For instance, a digital currency is thought to help Nigeria increase foreign remittances, it’s second largest source of forex after oil. Whatever the outcome of these projects, it is becoming apparent that CBDC’s have come to stay.

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Bitcoin trades above $51k ahead of El Salvador’s adoption

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Bitcoin growth

Bitcoin price has rallied above $51,000 ahead of El Salvador’s adoption. The immediate surge in price may be due to the social media campaign that everyone should buy sats of Bitcoin to support El Salvador’s plan to make the coin a legal tender or it may be due to the news of El Salvador’s adoption of the coin as a legal tender on September 7. Users of social media platforms like Twitter and Reddit are discussing how they will buy Bitcoin of $30 each to mark the new El Salvador Bitcoin law.

The surge in Bitcoin’s price began in the last 24hrs with the price rallying around $51,955 with a 3.37% increase. This is an all-time high after the April crash that brought the price of Bitcoin from $64k down to $28k. The move by El Salvador to be the first country that accepts Bitcoin as a legal tender and the social media campaign that leads to a surge in price ahead September 7 are a repetition of events that occurred late last year and early this year with regards to institutional investors and how the price of Bitcoin skyrocketed.

El Salvador, a country in Central America, has been preparing heavily to adopt Bitcoin by installing ATMs to allow citizens to convert the token into US dollars. Last week, the country’s Legislative Assembly passed a law to allow for the creation of a $150m Trust to support the conversion of Bitcoins to US dollars.

To promote the use of Bitcoin, the government states that it will give the adult population of El Salvador $30 in Bitcoin once they download “Chivo” the wallet issued by the government. This was confirmed by the Finance Minister, Alejandro Zelaya.

What this means for Bitcoin investors

Apart from the adoption by Salvadorians, on-chain analytics show that Bitcoin is in high demand. The fourth halving that occurred will make Bitcoin become a scarce token in the nearest future. Thereby increasing the price sporadically.

With El Salvador’s interest in Bitcoin, other countries are likely to follow suit- Panama is considering following El Salvador’s lead. History will repeat itself as this development will serve as another crypto rout that occurred early this year when Tesla and MicroStrategy announced their support for Bitcoin.

El Salvador’s new law allows the use of Bitcoin as a legal tender it can be used to buy goods, pay for taxes and bank loans. This means more demand for Bitcoin, with the fourth halving that occurred, it means less supply. A common rule of economics for demand and supply will apply. Prices are projected to keep rising. At the time of writing this report, Bitcoin is trading at $51,839 with a projection of $52k before the end of today and higher tomorrow when Salvadorians begin to use the token.

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