Connect with us

Educational

What is Equity Crowdfunding?

mm

Updated

 on

Equity crowdfunding occurs when private companies raise capital from the public through the sale of securities. These financial instruments can include shares, convertible notes, revenue shares, debts, and tokens. Today, equity crowdfunding is an important part of the global financial markets because it provides SMEs a more cost-effective strategy to raise capital versus traditional IPOs.

Interestingly, equity crowdfunding is a relatively new investment tool. President Obama enabled equity crowdfunding back in 2011 when he signed the JOBS Act, but it wasn’t until the last five years that the practice became popular. One of the reasons it took so long for equity crowdfunding to gain popularity is that it took until May 2016 for key regulations to come into effect.

How Does Equity Crowdfunding Work?

Equity crowdfunding works very similar in function to the popular crowdfunding website, Kickstarter. Basically, investors seek out private firms that meet their criteria. Once a suitable investment is found, an investor visits a funding portal website that gives them access to the opportunity and its details. Here, investors are able to explore different equity crowdfunding investment opportunities for the firm.

Unlike Kickstarter, investors don’t receive early access to a product or service for their contributions. Instead, investors in equity crowdfunding campaigns seek to make a profit for their participation. In most instances, investors receive shares, rights, and other benefits for their investment.

Kickstarter via Homepage

Kickstarter via Homepage

It’s important to understand why equity crowdfunding provides entrepreneurs with different opportunities compared to trading shares on the stock markets. For one, equity crowdfunding firms are private companies and in most instances, startups. In the past, IPOs were the only form of crowdfunding a company could engage in. This practice restricted access to the markets for SMEs for many entrepreneurs.

Many companies simply lacked the funding to cover the huge financial and legal requirements needed to host an  Initial Public Offering (IPO). In turn, only the largest firms could generate the funding needed to launch an IPO successfully. Consequently, studies show that IPOs continue to see a decline in use as more affordable options are now available.

Additionally, these practices left investors out of the loop as well. Many IPOs are only open to accredited investors. Accredited investors make at least $200,000 per year, or can show over $1 million in assets. Notably, your assets must exclude your home. As you could imagine, this system left your average investors shut out from the most lucrative investments.

Benefits of Equity Crowdfunding

Thanks to the rise of equity crowdfunding platforms, now everyone has access to these valuable opportunities. Prior to the rise in internet crowdfunding platforms, investors were mostly VC and angel investors. These were the only individuals that had the funding to both make a major investment and wait for the mandatory lockup period before receiving returns.

No Lockup Period

Notably, investors that participated in private equity crowdfunding before the 2016 regulations implemented had to wait to access their funds for a designated lockup period, similarly to IPOs. During this time, investors were unable to trade or cash out their investment. This lock-up left investors exposed to major losses. Thankfully, the new regulations opened the door for secondary trading of these financial instruments via Alternative Trading Systems (ATS). In this way, ATS provide much-needed liquidity to the market.

Aside from the obvious financial gains equity crowdfunding brings to the table, there are plenty of other reasons why a firm would follow this strategy. For one, businesses gain strong brand support from investors. Each investor in your firm acts as a brand ambassador for your company. Since these investors need you to succeed in order to make a profit, they will often diligently spread the word about your business and products.

More Control

There are also managerial aspects that make equity crowdfunding a more attractive option to consider. For one, an entrepreneur raising capital via equity crowdfunding has total control over the offering. The entrepreneur can chose the valuation, how much capital to raise, what to sell, how much to sell, and at what price. They can even specify a minimum funding goal to ensure the firm receives enough backing to proceed with its plans. In comparison, a company engaged in an IPO is beholden to its investor’s terms.

Keep it Reasonable

Of course, with all of this flexibility also comes new responsibilities. Only companies that can produce a reasonable valuation and terms see success in the equity crowdfunding space. Investors are looking for great opportunities with minimal risk.

Crowdfunding Regulations and Rules

There are some key requirements a company must first meet prior to launching an equity crowdfunding campaign. First, the firm has to be privately owned and not listed on any stock exchange globally. Secondly, all investors must prove their identity and that they are over the age of 18. Additionally, many equity crowdfunding campaigns include limits on how much capital an individual can invest based on their income and net worth.

Crowdfunding Rules

Currently, each region has its own equity crowdfunding regulations in place. In the US, there are two main types of equity crowdfunding campaigns – Regulation Crowdfunding and Regulation A+. Both provide SMEs with a more efficient and less-costly alternative than hosting an IPO.

Regulation Crowdfunding

Regulation Crowdfunding allows companies to raise up to $1.07M annually. Currently, these companies can start raising capital for free after filing a Form C with the SEC. Importantly, if the firm seeks to raise more than $107,000, an independent CPA must review the company’s financials for the past two fiscal years.

Regulation A+

Regulation A+ companies can raise up to $50M annually. Companies that seek to go this route must first undergo a financial audit for the past two fiscal years. Additionally, they must hire a securities attorney in order to create a Form 1-A. This form must get submitted to the SEC for qualification. Unfortunately, the qualification can take some time to complete. On average it takes 3-5 months at the minimum.

Importantly, companies are unable to raise funds during this time frame, but, they are able to collect investor information to better rate investor excitement levels. This practice is called “testing the waters” and it’s a powerful tool that enables firms to receive valuable market feedback prior to the official launch of their crowdfunding strategy.

What is Real Estate Crowdfunding?

Importantly, equity crowdfunding platforms have given way to a new way to invest in commercial real estate, real estate crowdfunding. Real estate crowdfunding involves a group of investors who each contribute money to a specific real estate deal. Importantly, this strategy lowers the entry bar for investors and provides real estate owners access to global capital. As such, the practice has exploded in popularity in recent years, especially since the introduction of blockchain technology.

How Real Estate Crowdfunding Works

In most real estate crowdfunding transactions, a developer or experienced real estate professional identifies an investment opportunity. This real estate professional may decide that they don’t want to fund the entire project. This decision could be because of a lack of funds or a desire to utilize other peoples funding to complete the project. Either way, the professional would then open the opportunity to investors.

Key Players

There are three key players in any crowdfunded real estate investment. All crowdfunding real estate ventures begin with the sponsor. The sponsor is the individual or company that identifies, plans, and oversees the investment. Their responsibilities can include purchasing the asset, organizing needed work, arranging the financing, and handling the eventual sale of the property. For their labors, sponsors require a certain share of any profits they earn.

Crowdfunding Platform

The second key component of any crowdfunding real estate transaction is the platform. Think of these platforms as the middleman between investors and sponsors. Their primary purpose is to link investors and sponsors. As such, they are also responsible for collecting funds from investors. Along with this task comes a host of other responsibilities such as verifying standards, guarantying that investors meet the requirements for investment, advertising deals to potential investors, and dealing with regulatory issues.

StartEngine Equity Crowdfunding via Homepage

StartEngine Equity Crowdfunding via Homepage

Investor

The investor is the final piece of the puzzle. An investor trades their funds for some form of income distributions from the profit the property generates. Additionally, they will receive a proportional payout from any eventual profitable sale of the property. In some instances, certain voting rights are a part of the deal. for example, these rights could include whether or not to accept an offer on the property.

Advantages of Crowdfunded Real Estate

There are some major advantages realized through real estate crowdfunding strategies. For one, there is a much higher potential for increased returns when compared to other major asset classes. Additionally, investors gain access to assets that may otherwise be inaccessible to them. A such, crowdfunding real estate is an awesome way to diversify your portfolio.

Importantly, equity crowdfunded real estate platforms usually focus on a specific property. This is opposed to real estate investment trusts (REITs) that can involve billions in properties. Consequently, crowdfunded real estate investors can enjoy the benefits of single-property investments without the financial exposure of actually becoming a landlord. In the end, these investors get the best of both worlds. They receive an income as well as a targeted lump-sum return without major risk exposure.

Top Crowdfunding Websites

Now that you have a firm understanding of what equity crowdfunding is, and how it benefits the entire market, you are ready to explore some of the top platforms providing these services. Importantly, many of these companies now utilize blockchain technology to reduce the overall costs needed to manage and implement their equity crowdfunding concepts.

SeedInvest

SeedInvest was founded in 2012 and launched in 2013. The platform is unique in that it has a stricter acceptance policy. Only handpicked start-ups in upcoming future tech industries gain access to this powerful tool. Specifically, a firm needs to deal with blockchain, augmented reality, 3d printing, artificial intelligence, robotics, or space technologies. Importantly, SeedInvest‘s pickiness has paid off as the firm has successfully helped raise money for over 150 companies to date.

Microventures

The Austin-based crowdfunding platform Microventures entered the market in 2009. The company focuses solely on late-stage companies as part of its niche market. Late Stage companies are firms that are expected to go public within the next couple of years. As such, these companies are usually well-known players in the sector. For example, you can invest in SpaceX, Lyft, Pinterest, and Robinhood via Microventures. Importantly, the company only allows accredited investors to join because each investment ranges from the $5000 to $50000 range.

WeFunder

WeFunder entered the market in 2011. This San-Francisco-based firm originated from the Y Combinator accelerator program. Importantly, the Y Combinator helped launch some of the most successful ventures to date. These ventures include companies such as Coinbase and Airbnb. Also, due to the fact that WeFunder is one of the oldest platforms in the market, the company participated in writing the JOBS Act with the Obama administration.

Fundable

Fundable entered the market on May 22, 2012, as a rewards-based investment vehicle. Investors would pledge funds in exchange for pre-orders. In 2012, the firm switched over to a true equity crowdfunding strategy. Notably, Fundable’s equity crowdfunding tools are only available to accredited investors at this time.

StartEngine

StartEngine entered the market in 2014 with the goal to provide more flexibility for entrepreneurs in the space. Unlike most of the competition, StartEngine is laxer on what type of firms and investors can utilize its services. As such, investors need to use a little more due diligence when investing on the platform. Importantly, StartEngine showcased its abilities after successfully raising $10M via a self-hosted STO in 2018.

Equity Crowdfunding – The Future is Today

Today, equity crowdfunding is an essential tool used by startups to access capital markets. Consequently, you can expect to see this style of crowdfunding increase in adoption due to its lower costs and more efficient business model. Thankfully, blockchain technology continues to streamline the entire equity crowdfunding process. If the trends continue, equity crowdfunding is set to overtake the stock market as the premier crowdfunding strategy in the coming decades.

Spread the love

David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Educational

What is Distributed Ledger Technology (DLT)?

mm

Updated

 on

Distributed Ledger Technology (DLT) is one of the fastest-growing tech sectors in the world. While most people consider the terms blockchain and DLT as interchangeable, this is not the case. In fact, blockchains are just one small portion of the DLT sector. Importantly, a distributed ledger is a database that exists in duplicate across multiple points of a network.

As the name suggests, the main characteristic of these networks is their decentralization. Consequently, all DLTs contain the technological infrastructure and associated protocols required to run a distributed network. These processes include the ability to collect, validate, and access immutable data across several nodes of the same network.

How Distributed Ledger Technology Works

DLTs can function in many different ways. However, all DLTs rely on some form of consensus to confirm the state of the network. A consensus mechanism is a protocol that allows network participants to validate the network’s state. In terms of blockchain distributed ledger technology, the most common forms of consensus mechanisms are the Proof-of-Work (PoW) and the Proof-of-Stake (POS) systems.

Both of thee mechanisms accomplish the same task, albeit through different means. In a PoW system, network nodes compete to solve a complex mathematical equation. The first node to complete the equation gets to add the next block to the blockchain. This process is very secure but it does require intensive electrical usage. These high energy demands led developers to seek viable alternatives.

Bitcoin Whitepaper

Bitcoin Whitepaper – Distributed Ledger Technology

In a PoS system computers still compete to add the next block, but in a different manner. Users validate blocks utilizing a staking mechanism. Staking is the act of placing your coins in a synchronized network wallet. The nodes with the most coins and the longest staking times are more likely to get to add the next block of transactions and receive the reward.

Benefits of Distributed Ledger Technology

The benefits of DLT are too immense to ignore. DLT networks provide a transparent and secure method for businesses and individuals to conduct true peer-to-peer commerce. These systems provide effective management of dynamic data at levels that were unimaginable just a few years prior.

Trustless Nature

DLTs are a huge upgrade over centralized systems for many reasons. For one, these networks supply an immutability and transparency record of all transactions. In a public DLT, anyone can go into the network and verify what transactions transpired. This openness affords users more confidence.

Secure Alternative

Decentralization underpins the whole concept of a DLT. These networks are more secure because they remove any centralized attack vector. In a DLT network, the risk shift from one centralized target over to thousands of smaller vectors. Since these smaller nodes don’t possess vast amounts of valuable assets such as a central governing authority, they are less likely to experience a major attack.

Additionally, DLTs utilize high tech security to ensure their network remains pure. Nodes that enter malicious or false data get expelled from the network immediately. This strategy helps to streamline the entire consensus process.

Cost Reduction

The trustless nature of DLTs makes them an attractive alternative for firms seeking a secure network solution. DLTs such as Blockchain networks eliminate the need for third-party verification systems. Since each of these systems add more costs and time to each transaction, eliminating them increases efficiency significantly. Companies understand the peer-to-peer nature of these networks makes them more affordable to run than a centralized system.

Differences between Blockchain and DLTs

As of recently, the terms blockchain and DLT seem to have been muddied. Understanding the differences between these terms is an important step in becoming a more informed investor. Think of blockchain as only a tiny section of the distributed ledger sector. Importantly, not all DLTs are blockchains. In fact, DLTs have been around for centuries, long before the first computer ever existed.

Blockchain vs Distributed Ledger Technology - Cryptodigest

Blockchain vs Distributed Ledger Technology – Cryptodigest

Additionally, not all blockchains are decentralized but they are DLTs. Centralized blockchains utilize a network of nodes but they rely on a central authority for the final transaction verification. These systems are more popular within traditional financial systems because they enable the centralized party the ability to alter and correct transactions when necessary. It’s worth your time to study up on the exact differences. In this way, entrepreneurs and business leaders can determine which solution best fits their strategy.

History of DLTs

DLTs have a long and remarkable history. While the most common form of DLT spoken about today is blockchain, these systems have been in use for centuries. It’s vital to understand that blockchain tech improved upon DLTs because it was the first system to solve the double-spending problem.

Basically, electronic currencies that rely on DLTs were already around before Bitcoin. However, no one had configured how to remove the ability for nefarious actors to double-spend digital currency. It wasn’t until Satoshi Nakamoto introduced Bitcoin’s whitepaper that these issues finally came to an end and digital currencies took flight.

Some of the earliest forms of DLTs began in ancient times. Historians reported that in ancient Rome, there was a distributed ledger that allowed its citizens to make purchases in any region of the empire. This ledger helped to spur economic activity across the empire and helped Rome achieve its historic status.

Digital DLTs

Digital versions of DLTs began to pop up as early as 1991. At this time, the first concept of a DLT as its known today appeared. The first DLT was merely a concept written about in a paper by the two researchers named Stuart Haber and W. Scott Stornetta. In their paper named  “How to Time-Stamp a Digital Document the two discussed procedures for certifying the creation and modification of digital documents” the basics of a digital DLT began to take shape.

2002

In 2002 David Mazières and Dennis Shasha built on this concept with their work. These two innovative developers introduced the concept of “Building secure file systems out of Byzantine storage multi-user network file system called SUNDR (Secure Untrusted Data Repository)”. This document was the first to discuss the possibility of using blocks to organize transactions.

2005

In 2005 Nick Szabo famously proposed one of the earliest forms of digital cash – Bit gold. His proposal was revolutionary at the time. It introduced never before seen concepts such as client puzzle functions and the Proof-of-Work function. Many of these concepts made their way into Bitcoin’s core coding.

Nick Szabo - Bitcoin

Nick Szabo – Bitcoin

Interestingly, many people believed Nick Szabo to be the real Satoshi Nakamoto because of these similarities. Sadly, Szabo denied that he had anything to do with Bitcoin’s creation publicly. Despite his denial, there is still a large part of the crypto community that still insists that he played a direct role in the creation of the world’s first cryptocurrency.

2009 Bitcoin

Bitcoin changed everything. The introduction of blockchain networks to the DLT sector was a huge advancement. It meant for the first time in history, a reliable and verifiable digital currency could function.

Notably, the birth of Bitcoin marks an uptick in DLT development globally. It provided a catapult for advancements in this sector. Today, these developments continue to usher in new and exciting DLT innovations.

Distributed Ledger Technology –  Today

In 2015, the blockchain platform Iota Introduced a DLT that could leverage the Internet of Things (IoT) for validation purposes. The IoT consists of every smart device in the world. In this new type of DLT, a protocol known as Tangle would allow the billions of smart devices around the world to verify network conditions. In essence, this development created the largest DLT in existence.

R3 Corda

Another major DLT development occurred with the introduction of R3’s Corda DLT. Importantly, Corda is not a blockchain. R3’s new system utilizes pluggable notaries to accomplish consensus. Interestingly, a single Corda network may contain multiple notaries that provide their guarantees using a variety of different algorithms. In this way, Corda is not beholden to any particular consensus algorithm.

Risks of Distributed Ledger Technology

As DLT becomes more common in the market, its important to understand that like all technology, there are some risks to keep in mind. DLTs are great at conveying and verifying data. However, there is no guarantee that this data entered the system correctly. One of the biggest issues facing these immutable ledgers is data input discrepancies.

Basically, DLTs rely on exact data to accomplish their tasks. If an employee enters in some part of this data incorrectly, it creates a ripple effect that can cascade down the network. These concerns mean that any DLT enabled firm must exercise caution to ensure all data entry occurs without errors. To accomplish this task, firms should exercise due diligence whenever they enter content into a DLT.

DLT – A Better Alternative

It’s easy to see why so many businesses continue to look towards DLTs as a way to streamline business functionalities. As such, you can expect to see DLTs become a core part of many business systems moving forward. For now, these unique networks have endless potential to alter the way the world conducts business.

Spread the love
Continue Reading

Educational

What is DeFi (Decentralized Finance)?

mm

Updated

 on

Decentralized Finance (DeFi) is the merger of traditional bank services with decentralized technologies such as blockchain. DeFi can also go under the name Open Finance due to its inclusive format. Importantly, the DeFi community seeks to create alternatives to every financial service currently available. These services include items such as savings and checking accounts, loans, asset trading, insurance, and much more.

Importance of DeFi

DeFi continues to play an important role in the evolution of the financial sector for many reasons. For one, DeFi expands the functionality and reach of money. Since all you need to participate in the DeFi sector is a Smartphone, there is huge potential to expand the global economy. Consequently, analysts see this sector as one of the most important currently under development in the crypto space.

This commitment to the development of a DeFi ecosystem is easy to recognize. Importantly, DeFi is the fastest growing sector in blockchain. According to recent reports, DEFI tokens continually outperform their counterparts. Additionally, since this time period represents the beginning of this integration stage, the market now possesses the unique opportunity to see an entirely new industry blossom.

What are Dapps (Decentralized Applications)?

DeFi depends heavily on Dapps. To understand DeFi’s capabilities, you need to grasp the concept behind Dapps. Dapps are programs designed to function within decentralized networks. These networks can be blockchains, Tor networks, or Distributed Ledgers Technologies (DLT). The key component of these protocols is their decentralized nature. There is no central authority, corporations, or agency that monitors and approves the business functions of these applications.

Compound - DeFi Dapp

Compound – DeFi Dapp

In fact, Dapps require very little human intervention. Instead, these platforms integrate advanced smart contracts to streamline their business systems. Smart contracts are preprogrammed protocols that initiate upon receiving crypto to their address. Importantly smart contracts can handle a huge variety of tasks from customer approval to making payments.

Key Components of DeFi

Today, there are more DeFi apps than ever. These applications are already saving businesses and customer’s time and money. In fact, DeFi platforms have begun to emerge across nearly every financial sector. As the DeFi sector expands, it’s important to understand what characteristics all DeFi Dapps have in common. Here are the most common.

Open-Source

DeFi application should be open source. Open source coding refers to the fact that the coding is made public. In this way, anyone can audit it and validate its functionality, security, and capabilities. Open-source codes are far more stable and secure than private codes because of this community interaction. Additionally, it provides more confidence in the platform because users can rest assured that no hidden malicious coding is operating in the background.

Transparency

DeFi provides the world with new levels of transparency. Since most DeFi apps function on public blockchains such as Ethereum, all transactions are publicly available. In fact, all activity on the blockchain is public. The main difference in this approach versus a traditional bank account is that the accounts are not tied to anyone directly. Instead, accounts are pseudo-anonymous and only list a numerical address.

While the accounts are not directly linked to anyone’s name, in particular, there are ways for researchers to figure out who owns them if required. Programs such as block explorers can help people track and trace decentralized transactions of non-privacy focused coins.

Global Audience

Dapps represent an expansion in the way developers envision financial platforms. Anyone from around the world can participate in DeFi platforms. You just need a Smartphone with internet access and you can enter the DeFi community in minutes.

Consequently, DeFi Dapps have the ability to provide the unbanked of the world with access to financial services for the first time in recorded history. This openness is a huge upgrade from the current banking system that leaves around 40% of the global population without any form of banking.

Importantly, when you think of unbanked populations it’s easy to picture a village somewhere in the tropics or desert but the reality is much different. For example, a recent study found that 25% of US households remain unbanked. It’s in these locations that DeFi has an immediate effect.

Permissionless

The DeFi sector functions without gatekeepers. As such, anyone can develop a DeFi application and offer it to the world. Additionally, anyone can participate in DeFi Dapps without concern for approval. This strategy is far cry from today’s financial system that requires potential users to traverse a myriad of regulatory verification systems before they can participate in the global economy.

Interoperability

Another pillar of the DeFi community is interoperability. Interoperability is critical because it ensures that as more developers enter the space, all the previous work is not lost. Instead, users can stack their DeFi products to expand their exposure to this new age economy. For example, it’s common for a single user to utilize stablecoins, decentralized exchanges, and wallets together. This strategy is possible due to the seamless integration DeFi applications possess.

Flexibility

Due to the open nature of the DeFi environment, developers are able to exercise more flexibility in their platforms. Users gain considerable options through the integration of third-party application integrations as well. In fact, users can even choose to build their own interfaces if they find the current options insufficient.

DeFi in Lending

One of the sectors most affected by the introduction of DeFi is the lending sector. If you have ever applied for a loan, you know the process is time-consuming. Worst of all, you are forced to work with lending companies specially designed to maximize their returns. Luckily, the DeFi community has come up with some interesting ways to improve this market.

Compound

The Compound Dapp showcases the true power of DeFi and how it has the ability to transform how the world envisions the financial market’s role. Compound allows users to lend their crypto out to other users. In exchange for providing the loan, users receive interest in the form of cryptocurrency. Importantly, the platform utilizes smart contracts to match lenders and borrowers. Additionally, these smart contracts automatically make interest adjustments based on the market’s current state.

Decentralized Exchanges

Many consider decentralized exchanges as the logical next step in the evolution of the crypto sector. These peer-to-peer trading platforms provide users with a more streamlined UX , tighter security, and more flexibility. Traditional exchanges function via a centralized organization that facilitates, monitors, and approves all trades within the platform.

The problem with this approach is that it leaves too many attack vectors open. Hackers can target the exchange and make off with millions. A quick Google search demonstrates numerous examples of exchange hacks in which the central organization suffered huge losses. In many instances, these firms were forced to discontinue operations due to the losses.

Binance DEX via Homepage

Binance DEX via Homepage

Decentralized exchanges eliminate many of these concerns. When a user exchanges an asset via a decentralized exchange, the platform never holds the assets directly. Instead, smart contracts are used to enable a simultaneous wallet-to-wallet swap. In this way, there is no main point of weakness within the platform for a hacker to exploit.

Uniswap

The Uniswap platform introduced an innovative mechanism known as Automated Market Making. This protocol enables near-instant settlement between parties. Importantly, the protocol is set to close trades as close to the current market value as possible. You can even lend out your crypto and earn some interest via the platform’s Pooling feature.

New Age Savings with DeFi

DeFi enables some of the most basic financial actions to regain a new life. For example, the PoolTogether Dapp is a platform that savers can meet up at and participate in a no-loss game. In the game, everyone deposits crypto into an interest gaining wallet. At the end of the month, one lucky winner walks away with all of the interest earned. Amazingly, everyone else leaves with their initial investment in place.

DeFi Prediction Platforms

Another interesting development in the sector is the birth of prediction platforms. A prediction platform is used to analyze the current public opinion of a certain event. Tapping into the wisdom of the masses can be a valuable tool for businesses seeking more market insight.

Guesser

The platform Guesser allows you to make predictions and examine the results of others in the pool. Critically, you even earn crypto for your participation. Simply put an amount with your prediction, if you are right, you earn extra crypto for your wisdom.

How DeFi is Here to Stay

As the main systems of our society undergo a transformation towards decentralization, there will be more demand for DeFi Dapps in the future. These new-age applications continue to disrupt the current business systems in remarkable ways.

Soon, decentralized applications will set the new standard for the economy moving forward. Consequently, the global economy could receive a huge boost in participation in the coming years. For now, DeFi provides the world with a glimpse into a more democratic existence.

Spread the love
Continue Reading

Educational

What are Dapps (Decentralized Applications)?

mm

Updated

 on

Decentralized applications (Dapps) continue to change the world around us in remarkable ways. These new-age programs provide users with more functionality and security than ever. Additionally, these applications feature a robust design that is meant to leverage the decentralized nature of blockchain technology. As such, these programs run on a blockchain or P2P network of computers instead of a single computer.

Dapps are Decentralized

When you think of a traditional software program like MSWord, it’s important to understand that the protocol resides on a single computer system. Even if you are using the online version, the actual software is operated by a central organization, in this case, Microsoft. Consequently, Microsoft has full control over the application and its use.

This control provides the group with full authority over the app. Importantly, centralized apps, such as Facebook, require this style of structuring to function correctly. The organization plays a pivotal role in these software systems. If it was attacked, damaged, or removed for any reason, the system would fail to operate.

This is why Dapps are decentralized.

Dapp Characteristics

While Dapps can come in all shapes and sizes, they all share some common factors. Firstly, all Dapps are decentralized. Decentralization implies that all the application’s operations must be stored on a public blockchain. Next, Dapps incentivize users to participate in their network. In most instances, these incentives include payment via some form of cryptocurrency. It’s very common for the application to create a native utility token to facilitate this process.

Dapps Create New Business Opportunities

Dapps Create New Business Opportunities

Paramountly, Dapps utilize some form of a consensus mechanism to ensure the validity of the network. In a consensus mechanism, the network’s participants act as validators. They are also known as nodes or miners because they receive a reward for their efforts, like mining for gold. Nodes are who validates new transactions. Additionally, one of the nodes eventually is who gets to add the next “block” to the “chain” of transactions.  Ideally, a Dapp will also feature an open-source protocol.

Dapps and P2P Networks

All Dapps run on either a P2P network or a blockchain network. A P2P network is a network that allows users to exchange data and services directly.  In the case of websites, you can think of streaming websites such as Popcorn Time. When users enter the Popcorn Time P2P Tor network they receive access to a variety of other users who are offering downloads. The user then chooses which user to download the data from and a direct connection is established between the two parties.

Blockchain P2P

In a blockchain network, there is no central point of control. There is no company that ensures the blockchain is running correctly. Instead, every computer on the network works together to secure the network.  In most instances, the software is open source. Open-source software is generally more secure because it allows the community o test its capabilities. In this way, blockchain technology creates a truly decentralized experience for participants.

Dapps vs. Regular Apps

To put the power of Dapps in perspective, let’s imagine that you just placed a post for your new political book on Facebook. However, when you go back to check on the stats for your post just a few hours later, you realize the post was removed because your book’s content violated Facebook’s new terms of service.

In its centralized network, Facebook is the entity in control of the network. In other words, they are the king of the content provided. If they deem that what you have to say doesn’t fit into their narrative, they have every right to kick you out of the platform. The same way you could ask someone to leave your home if you disapproved of their conduct.

Dapps function much differently. If Facebook is like your home, think of Dapps as a public park. There is no central governing authority to tell you that your post must go. In fact, due to the immutable nature of blockchain technology, your post about your book will never come down.

Dapps Current Applications

The first Dapp to enter the market with success was Bitcoin. As such, Bitcoin is a self-sustaining public ledger. It is immutable and decentralized. Even more important, is the fact that Bitcoin entered the market as a direct response to the centralization experienced within the traditional financial sector.

Ethereum Changed the Game

If Bitcoin lit the Dapp candle, Ethereum poured gas on it. Ethereum’s whitepaper states that this cryptocurrency is a “protocol for building decentralized applications.” Every aspect of Ethereum’s network focuses on reducing development time, improving security, and ensuring scalability.

Ethereum Whitepaper

Ethereum Whitepaper

Ethereum changed the Dapp game forever. This unique platform introduced a new programming language specifically to simplify Dapp programming. Additionally, Ethereum developers can utilize the Turing-complete Ethereum Virtual Machine (EVM) to create smart contracts in minutes.

Brave New Browser

Today Ethereum Dapps dominate the market. Applications such as the Brave New Browser utilize ERC-20 compliant tokens to accomplish some amazing things. In the case of the next-generation browser Brave, users receive BAT tokens for their participation. Brave users actually receive payment for their data. Additionally, they gain far more control over their information. Users can decide who, when, and what to share. In this way, the Dapp Brave is revolutionizing what it means to surf the net.

STORJ

In another perfect example of the added capabilities that Dapps bring to the market, the platform STORJ allows users to rent out their unused computer space. The application helps users and those seeking more storage meet up and exchange services. In the end, one party receives computer storage capabilities at a fraction of the normal market costs, while the other party earns cryptocurrency for providing the space.

Summary – Dapps Potential

The future potential for Dapps is undeniable. Every week, new and exciting projects emerge in the market. As such, you should expect to continue to see these protocols integrated into every business sector over the coming years.

Spread the love
Continue Reading

Advertiser Disclosure: Securities.io is committed to rigorous editorial standards to provide our readers with accurate reviews and ratings. We may receive compensation when you click on links to products we reviewed.

Trading Risk Disclaimer: There is a very high degree of risk involved in trading securities. Trading in any type of financial product including forex, CFDs, stocks, and cryptocurrencies involves a high level of risk.

This risk is  higher with Cryptocurrencies due to markets being decentralized and non-regulated. You should be aware that you may lose a significant portion of your portfolio.

Securities.io is not a registered broker, analyst, or investment advisor.