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Dispute Mediation Without the Mediator

Like any other product or service, crowdfunding platforms need customers. Common sense dictates that no sane customer is going to consume an obviously flawed product. Yet the downsides of crowdfunding have reared its ugly head several times. In a study “Understanding Temporal Backing Patterns in Online Crowdfunding Communities” by Y. Liao it was found that this has caused user retention to fall – particularly for two segments that they classified as “early” and “cautious”.

This may not be good news for crowdfunding platforms which need a customer base to operate, and potentially for creators who rely on the “herd effect” of early backers.

What Platforms are doing

Platforms are already taking a variety of approaches to protecting users on their crowdfunding. The first approach is by direct identity verification. Most platform run ID checks on a project creator before they can receive the collected funds, frequently through third-party KYC agencies. Some platforms, particularly in donation crowdfunding, go further to personally verify the authenticity of projects.

Some reward crowdfunding platforms such as Kickstarter also place requirements on the content that makes it to their website. Project creators are required to furnish proof of a working prototype in order to be listed on Kickstarter. One such project, the Skarp Laser Razor, found this out the hard way. The project has since moved to Indiegogo, a recognizable platform that takes an “open marketplace” approach at the expense of a squeaky-clean positive brand perception.

Current issues

Regional availability

Crowdfunding itself is powerful and has given numerous projects an avenue for funding where they previously had none. However, this is not the case throughout the world. Most crowdfunding platforms are limited to users in specific countries. Kickstarter for instance maintains a list of supported countries. Indiegogo has a wider reach of countries supported, though it charges an international wire fee for sending the collected funds depending on where the backer is staying.

Localised crowdfunding platforms are also available in most markets. Being locally built can confer some advantages, such as a deeper and intimate knowledge of the local market. This allows for greater integration with the local community that an international “giant” may not have. Giving.sg is a government-sanctioned crowdfunding platform in Singapore and a centralized area for local charities to raise funds. In agriculture-dependent Philippines, crowdfunding platforms dealing with agriculture have appeared on the market. The downside of this is that they are isolated within their own “ecosystem” – the local market. Gaining access to the “outside” economy where the majority of funds are would entail going through the same teething issues and going up against the “big names”.

Resource Consuming

Current crowdfunding models can prove to be very resource-consuming for the platforms. A viral fundraiser to “help a homeless man” turned out to be an elaborate scam, but the discovery had been made too late. By then, the funds had already changed hands. Despite being at no fault of their own, GoFundMe refunded all the backers their contributions, out from their own pocket.

That is not to say that GoFundMe’s business model is flawed. They and any other platform could easily take a completely hands-off, “caveat emptor” approach – but that would drive people away, onto a “safer” platform that did have safeguards in place. While platforms encourage users to perform their own due diligence, countless of scams and failures have shown time and again that every fallout is a setback to crowdfunding. Platforms must find ways to turn things around in order to remain operational. This includes cooperation with law enforcement in the worst-case scenario.

Other aspects such as project and identity verification, while essential, add to the strain on resources and provides additional barriers for involved parties.

Consent and Consensus

Crowdfunding serves as a form of market validation for the viability of ideas, but current models don’t allow much wriggle room for flexibility. No company can be expected to remain stationary in this age where change can effectively happen overnight – the cryptocurrency price crash being one notorious example that has claimed many a blockchain startup.

It’s simply not possible to please everyone, no matter how hard you try. At the risk of sounding condescending, you try it and tell me how it goes. This is especially so as the crowd gets bigger, and the diversity of opinions increase. In the current crowdfunding model, it is generally assumed that a contribution is synonymous with consensus. This assumption does makes logical sense; no sane person would part their precious resources to something that meant nothing to them.

Current crowdfunding projects on crowdfunding platforms are run by teams responsible for delivering the project. In the paper “Crowdfunding Users as Stakeholders”, this represents “centralization” since decision making comes from the top.

However, the paper puts forward an interesting prospect – the necessity of “de-centralization, diversity and independence of individuals within a theoretically intelligent crowd”. In particular, the paper points out that “the idea of the wisdom of the crowds is not that a group will always give you the right answer but that on average it will consistently come up with a better answer than any individual could provide.”

What A Solution Needs

A wealth of ideas and resources exist out there, waiting for a way to be utilized to their maximum potential.

The advantages of decentralized decision-making were well documented in the study. The authors of the study however postulate that there is “practical value in centralized leadership and direction for crowdfunding projects”. This was based on the core tenet of not harming backers’ trust in founders and remains a core aspect of current crowdfunding models.

This tenet has been rocked time and time again throughout the history of crowdfunding. To us, it is sufficient proof that for all of crowdfunding’s merits, there are real problems that need to be addressed.

Related: Why You Flock To Crowdfunding Projects Like Sheep

Our solution here is an open marketplace, with crowdsourced validation and policing. It sounds chaotic at first glance, and it will be. Such is human nature – but technology now provides the means for both parties to tune out noisy communications. Black Lotus offers greater accountability. But most of all, it allows one to crowdsource for opinions and ascertain meaningful consensus from the community while tuning out “noise” – dissenting opinions like personal attacks that have nothing to do with the growth of the project itself.

A Potential Solution

In this alternative model, the community curates its own projects, and decides what gets funded or not. In addition, the community continues to have a say in a project’s progress even after the fundraising period. Throughout the progress of the project, creators must be able to demonstrate meaningful progress to maintain the trust between involved parties. This raises the bar for accountability – plus safeguards the backer if the agreement between both parties breaks down.

The difference in Black Lotus and other platforms is the belief that creators should not be the one doing all the legwork. In the same vein that creators need to deliver, backers need to believe. We can already see this happening on traditional crowdfunding models. The general vigilance of the crowd has helped out several projects as scams. “Simple Economics of Crowdfunding” highlights one example where backers identified a game crowdfunding project as a fake, with the materials “borrowed” from a variety of places. Another saga hit home this other valid point – that no platform could police the sheer volume of projects coming in.

Black Lotus encourages such contributions and provides every user with a way to build their reputation. This is the first step towards a truly democratic, collaborative crowdfunding model. It also paves the way to future opportunities like crowdsourced help, which we can already see this in action on sites like Wikipedia. Another example, this one in a gig-based form, is Fiverr.

In short, our solution is designed to reflect the communal majority, rather than policing what society “is supposed” to say. After all, the success of your idea depends on whether the majority of your target segment agrees with you.

You may read more about the workings of Black Lotus here: lotuschain.io

What are your thoughts?

One Response to Dispute Mediation Without the Mediator

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