Success with blockchain — opportunities and risks of crowdfunding
You've probably heard of moving crowdfunding campaigns yourself, with which private individuals collect money in order to be able to cover the high treatment costs following health problems. Perhaps you have even helped to finance the implementation of a brilliant idea yourself. But crowdfunding campaigns are uncertain, susceptible to fraud and rarely successful. Blockchain technology could change this permanently. The crowdinvesting real estate market could also benefit from this to a large extent. But one thing at a time.
What is the score of crowdfunding?
Crowdfunding platforms recently reached their absolute zenith. Obtaining financing through micro-investments from private individuals for all sorts of projects, business ventures or charitable causes remains popular. Platforms such as Kickstarter, GoFundMe and Indiegogo have turned swarm financing into profitable business models. In Europe alone, crowdfunding campaigns generated around 5.7 billion euros last year. However, with the increasing popularity of crowdfunding, the problems of the financing model are also becoming increasingly apparent. It is estimated that more than three quarters of all campaigns do not reach their funding target. And even if campaigns are successful, who guarantees donors that the money is actually used for the campaign purpose? The biggest problems of crowdfunding are therefore currently: ineffectiveness, uncertainty, and the financing model based entirely on trust. But help has long been in sight. Blockchain technology has the potential to change the crowdfunding industry and make it more secure. Find out how this works and what it means for you and your investment in real estate projects here.
Crowdfunding for advanced users: real estate crowdfunding
Real estate crowdfunding combines all the advantages of an investment with the simplicity of well-known swarm financing mechanisms. Instead of letting your money go sour on the savings account at zero interest rates, you can invest in real estate projects across Germany and get hefty returns. The business model is booming so much that the seven largest providers of real estate crowdfunding platforms raised more than 200 million euros for the first time in 2018. Industry experts even expect the volume to double in 2019. Since the merger of the Federal Association for Crowdfunding, a total of 370 million euros has been raised for over 200 real estate projects. That is remarkable, without question. But if you look at the larger market, you quickly realize that the real estate crowdinvesting market is still in its infancy. In 2015 alone, the savings banks gave loan commitments of over 52 billion euros for private construction financing. There is therefore still plenty of upward growth potential. But the nature of the German crowdinvesting market has slowed down growth so far. The German market is still suffering from a number of teething problems. For example, a prospectus requirement for publicly offered securities and investments was introduced to protect investors. These brochures, which are expensive and time-consuming to prepare, break down all the information and risks of a public investment. It is true that the prospectus requirements have now been amended by the legislator. But cumbersome structures complicate crowd investment in real estate. It was always particularly problematic for investors that there was no way to exit investments. The lack of a secondary market made investments inflexible investments. This reduced the attractiveness of investments and deterred many interested parties.
The blockchain as a game changer
Crypto technology and a blockchain come in handy here. Blockchain-based investment platforms offer you the opportunity to invest in real estate in a completely secure, transparent and flexible way. If the investment takes place via a blockchain, you will receive a certain number of so-called tokens in accordance with the amount of your participation in a construction project. These tokens are nothing more than units of a cryptocurrency that is created explicitly for the property you are investing in. How many tokens you “bought” and under which conditions is forgery-proof and transparently stored in the blockchain. Thanks to blockchain, there is no longer a need for intermediaries to invest in a project. The enormously high notary fees are eliminated. Probably the biggest advantage for you and all other investors? Crypto technology finally allows investments to be traded! If you want to get out of your investment, you can easily sell tokens. The funding phase of a project has already ended but you wish you could invest even more? No problem thanks to blockchain technology. Because at the same time of your purchase request, another investor who wants to create liquidity wants to surrender his investment. They then buy this investor's tokens effectively, easily and without intermediaries. The transaction is stored on the blockchain and ultimately took no longer than a few minutes. Real estate crowdfunding with blockchain technology is already a real game changer!
