Is blockchain crowdfunding the way of the future?
In the traditional model of tech crowdfunding—and we’re talking about a tradition stretching back, ooh, all of eight years at this point—an inventor comes up with an idea, pitches it to the world via a platform like Kickstarter, then collects down payments from excited future customers. After paying a commission to the platform, as well as fees to whoever processed the payment, she uses the resulting pile of cash to build prototypes, hire staff, rent office space, etc., eventually bringing the product to market. If everything works out, those early investors are rewarded for their foresight by being the first on their block to receive the new Smart Sock or Bluetooth Q-Tip, with some T-shirts, coffee mugs, or other whimsical merch thrown in to sweeten the deal.
But all that is changing. The explosion of Bitcoin, Ethereum, and other blockchain-backed crytpocurrencies has inspired a whole new model by which inventors can get funding for products that are too niche or too visionary to appeal to traditional investors. So if there’s a design for an antigravity hoverboard gathering dust in your bottom drawer, the moment may have arrived to dust it off.
How It Works
The basic concept of cryptocurrency is pretty simple (just look past the nosebleed-inducing math that makes it possible in the first place). Rather than asking the public for investments of old-fashioned money, the inventor issues a new virtual currency tied to a specific product, each unit of which represents a defined share of future profits. Just like shares in an actual stock market, these coins or tokens can then be freely traded or collected, letting those who truly believe in a project build an actual financial stake in its success. T-shirts and mousepads are fine, but nothing parts people from their money quicker than the prospect of getting rich.
Of course, if the product fails to make it to market—for any of the thousand reasons that most products and businesses fail—those virtual coins won’t be worth the metal they aren’t made from. But now, some enterprising firms are exploring ways to minimize that risk, and stack the deck in investors’ favor.
One firm, Hackspace Capital, oversees a number of promising, carefully vetted products, and has issued a cryptocurrency—the HAC token—that represents an investment in the entire portfolio. In the event that a product doesn’t make it to market, investors are thus protected from loss. They retain full possession of their HAC tokens, which they can either invest in one of Hackspace’s other products, trade for Bitcoin or other cryptocurrencies, or simply cash in for what anarchists refer to as “fiat currency” (“money,” to most of us) and go on their way.
The lower the risk, of course, the more attractive the investment, which in theory means more money, more quickly, for the inventors. It’s a virtuous circle, a classic win-win…if not a win-win-win, with the third win going to anyone passively holding HAC tokens in their portfolio of cryptocurrencies, whether or not they care about investing in a particular project. Because HAC tokens entitle every bearer to a 20% discount on any and all of Hackspace’s products, the ancient and infallible laws of the free market should exert a perpetual upward pressure on the dollar value of a HAC token, a pressure that won’t just increase but multiply as Hackspace expands its range of products.
Even better, by the time any product is offered to the public for preorder, Hackspace (via partner EnCata) has already worked with the inventor for three to six months, ironing out kinks and legal issues, writing a realistic business plan, conducting market research, and—that holy grail of the startup world—constructing a working prototype. In other words, these aren’t the pie-in-the-sky ion drives and teleport machines you tend to find on other crowdfunding platforms. These are fully developed, reality-tested products seeking a specific sum of money—usually somewhere between $500,000 and $2 million—for their first round of mass production.
Products that have already run the gauntlet include HandEnergy, a white ball that harnesses the motion of the human hand to charge phones and other devices while somehow doubling as a game controller. In the pipeline is the Smart Pourer, a high-tech bottle cap that can determine the alcohol content of whatever liquid flows through it (finally vindicating your suspicions that the bar on the corner waters down its Scotch), cut drinkers off when they’ve had enough, and even bill them through their smartphones for what they’ve already consumed.
If all this sounds too good to be true, keep in mind that 20 years ago you could have said the same (and people did) about the economics of the Internet as a whole. When you’re changing the world—particularly when it involves the elimination of middlemen and speeding the flow of capital to where it’s needed—non-zero-sum math is the rule, not the exception. Yesterday’s “too good to be true” becomes today’s “duh, obviously” with an awesome regularity.
Well, except for hoverboards and flying cars. We still don’t really have those. So, actually, yes. Let’s do this.