The One Problem No Crowdfunding Platform Has Solved
Crowdfunding is a promise.
It’s an agreement made between two parties. A backer who believes in the vision of a project, and the creator of the project who will receive the contributions. In this agreement, the funds will be used to realise the creator’s vision, while the creator uses the funds to let the vision materialize for the backers.
At hand could be anything – a material product. It may be a winning game idea that publishers have yet to think of. A life-changing gadget no tech giant has come up with. Or a promise to make journalism or science better. The list goes on. Or it could be something as simple as a small act of goodwill.
Yet history has shown that more often than not, just as many projects ascend into the social consciousness, nearly as many things are just not meant to be. Projects frequently get delayed, leaving angry backers in the wake. Scams leave backers (and in at least one case, the project starter) high and dry.
How Platforms Safeguard Their Users
The different platforms out there have all come up with their own ways to protect users. Platforms implement systems such as “all-or-nothing” funding mechanics, identity verification of project creators (sometimes personally), direct contact with beneficiaries; frequently, it is a combination of several processes. In the event of a dispute, platforms will intervene if the campaign is still in progress – otherwise, legal action will need to be explored.
In addition, these sites offer support articles that educate both parties on best practices to use the platform and keep themselves safe. Even more resources await behind a quick online search (and here).
However, this may not be enough. Remember when we said at the beginning that crowdfunding was a promise between two parties? For all the different safeguards that crowdfunding platforms use, none of them have been able to address the elephant in the room, which can happen at any stage:
What happens if a promise is broken?
Boulevard of Broken Dreams
If the history of crowdfunding has ever shown us anything, it is that disputes can frequently arise in crowdfunding projects. Even projects that attain their funding targets and beyond are not immune to it – dispute can and will arise. It is a common occurrence for apparently successful projects to later on appear in the media as they melt down.
The Pirate3D Printer is one example – formerly the poster child of a dream Singaporean crowdfunding campaign, it shuttered after 2 years from a series of business missteps, leaving 60% of its financial supporters in the lurch and a very sour feeling in their mouths.
In another crowdfunding project for a Vietnamese tourist to buy an iPhone after being ripped off by an unethical dealer, the tourist eventually declined the phone. However, unhappiness soon emerged among the backers after the creator auctioned off the phone. The funds were used to help a Vietnamese woman fly home after she claimed to be a victim of human trafficking. While it was still a charitable act, the dispute is still ongoing, and the remaining funds remain in limbo as of most recent reporting.
Avenues of Recourse
Regardless of the creators’ intentions, the current problem with crowdfunding platforms today is that backers frequently lose control over their funds once it changes hands. On platforms with all-or-nothing mechanisms, some hope exists of getting your funds back if a project fails. This varies across platforms – a wide range of guides are available, including our own for you to get started! For those that succeed, contributions are immediately transferred to the creators.
Backers now must bank on this promise, but when the promise is stripped away there is no guarantee of recourse. Crowdfunding platforms work around the clock to put the brakes on many dubious campaigns. However, these forms of recourse are not guaranteed. In these cases, backers need to turn to class-action lawsuits, or consumer protection agencies – all long and tedious processes.
For creators, it is difficult to set a project in stone as sudden developments can throw plans off track. They need to find a way to source for insights and measure consensus, in order to keep their backers onboard and safeguard themselves.
In these cases, we believe that technology needs to step in to reintroduce promise into crowdfunding. A mechanism must exist to measure the amount of belief in the promise, and only deliver funds when a consensus is reached. In simple terms, this is a democratic vote that delivers funds only when the backers can collectively agree to it.
A Potential Solution
Our belief manifests as Black Lotus – an upcoming solution that explores an escrow and a voting process to measure consensus within the community. This mechanism provides at least a guaranteed partial recourse for backers like you and I in case a project does fall apart, since the funds in escrow have yet to change hands.
This implementation can no doubt easily be done using “traditional” cloud computing mechanisms. However, Black Lotus is opting to explore new, emerging technologies such as blockchain. This is to secure data as well as remove singular points of failure (as is the case with centralisation). The full details are very technical, but you can read about Black Lotus here.
What do you think of the future prospects of crowdfunding? Let us know what you think!