Blockchain, AI providing traction to India's crowdfunding platforms

A World Bank report states that crowdfunding has emerged as a multi-billion dollar global industry, and a volume of 0 billion is expected by 2030.

By Apekshita Alkesh /Applied Economics and Management, Cornell University

Although crowdfunding in India is in a nascent phase, with only 15 major crowdfunding platforms (CFPs), the concept holds huge potential for the country's startup ecosystem. People can use these platforms to raise funds for projects and also to evaluate the public response, feasibility and popularity of the product. However, the notion of a regulated online CFP, in particular with all the computer jargon that accompanies it, is often not familiar to potential investors. This makes it imperative for them to understand the benefits of blockchain and artificial intelligence within a CFP and how CFPs will change the loan and P2P (peer-to-peer) investments and will also ensure security of their investments.

The history of fundraising India has witnessed unfortunate incidents such as the NSEL and CIS scams, which have highlighted that a regulatory vacuum in financial matters is a bad idea and can lead to money laundering, financing of terrorism and other dangerous rackets. Thus, India must bring these platforms online under a rigorous framework to legitimize the activities and help capital formation. Both NITI Aayog and DEA can work in this sense as an alternative division of markets within the SEBI, and this would be the simplest, strongest and least disruptive way to create a regulatory framework and can address problems of high rates of interest, misuse of funds, exaggerated performance data and high default rates typically found in a P2P loan market.

It is also imperative to consider ways to reduce the risk of low-income families being sucked into Ponzi schemes. Since the government does not have the right to tell people what to do with their money, it would not be practical to set a lower limit on the income that people can invest. If people want to invest in a particular project through CFP because they believe that the returns they receive are worth it, the government must take steps to inform them of all potential risks. Often, people invest in risky ventures through CFPs because the marketing material is misleading.
These potential risks can be mitigated through measures such as partnerships with private companies and the use of technologies such as blockchain. The private partnership can allow new project issuers to guarantee the feasibility of the project, sufficient funding and technical assistance. This strategy was adopted by the CFPs as Kickstarter and Indiegogo. CFPs can also use AI or blockchain to create an integrated mechanism in which people's investments are protected.

There are a number of blockchain applications as evidence of the concepts of the real world, and a growing future of its vast applications is almost a fact. The Blockchain data storage method offers a huge advantage for its use in a CFP, as it provides a non-destructive way of tracking data over time. Furthermore, it is decentralized and distributed over a vast network of computer systems, and therefore reduces the possibility of data tampering. Before a block can be added to the chain, there is a cryptographic puzzle that is solved and then shared with the network called "test of work". Because of these verification processes, every record is reliable.

Blockchain allows one-to-one exchange, but on a scale. Instead of a company or an intermediary that oversees transactions, it creates a software code. Each computer will have a node that runs the same software and ensures that every transaction is secure. This will provide a greater level of security for people investing in new initiatives or projects on regulated CFP. This system of financial transactions has been adopted in many financial organizations that trade cryptocurrency and other online assets. Using the blockchain, it can be verified whether a person is a legitimate seller or a producer of the item, since there are identity structures that can be cryptographically signed.

Since the blockchain mechanism creates a consensus among the distributed parties, there is almost zero chance of security breach to corrupt existing data. This blockchain application in CFP will ensure that all transactions are encrypted and that there is no possibility of fraud.

A World Bank report states that crowdfunding has emerged as a multi-billion dollar global industry, and is expected to have a volume of $ 300 billion by 2030. Given the huge penetration of India into mobile telephony , the increase in internet penetration in rural areas and the huge spread of social media the crowdfunding scenario seems very promising.