How Centralization Restricts Startups

Blockchain has the potential to revolutionize practically every industry. The facilitation of peer-to-peer transactions and immutable ledgers has created a plethora of opportunities across multiple sectors, and not just as a form of payment. It has the potential to take the brakes off innovation and allow small businesses to operate in ways that have, until recently, been impossible.

Centralized systems are intrinsically restrictive


Whether talking about an individual or a company, almost every discussion of DLT boils down to this one crucial element — every day we live in thrall to centralized systems that handle everything from how our personal data is used and stored to how we can interact with our money. Blockchain technology disrupts these antiquated systems.

With a centralized medium of exchange, the more specific your needs, the fewer options are available to you. Consider the difference between a “cash-in-hand” transaction and trying to send funds abroad. The former is quick, simple, and easy because it doesn’t require the permission of an outsider, and you do not need to prove your identity. What is important is that value is transferred to the correct person.

Simply put, central authorities make the process longer and costlier than is necessary. These same obstacles apply to small businesses and hinder their ability to operate.

Centralization holds back small businesses


An entrepreneur may have a vision, but without the capital to make that vision a reality, an idea alone is not enough. Traditionally, a company might attempt to raise funds by selling shares or taking out a loan, but this can be a costly and time-consuming process. The legal barriers alone can deter smaller start-ups from pursuing innovative new projects.

Not only are these obstacles a problem for the entrepreneur, but they hinder innovation by reducing the pool of participants—it’s a lose-lose situation. To facilitate progress, these obstacles need to be removed or at least made easier to manage, and that is exactly what blockchain technologies are doing.

Blockchain technology is changing the landscape


Traditional methods of funding provide myriad problems. A banker may refuse a loan to a client simply because he does not understand the proposal. If a project needs to garner support on an international scale, then the costs incurred by exchanging currencies, or the difficulties of operating in multiple jurisdictions may be too much for a small business to handle.

Since the emergence of Bitcoin in 2008, blockchain technology has provided developers with ways of tackling these problems and giving new projects a chance to thrive. Cryptographic tokens have provided a democratic approach to crowdfunding. Instead of relying on banks it is possible for a new start-up to raise capital from people who believe in their projects.

The benefits of blockchain solutions are now widely understood in the crypto community, and ICOs have become a popular way for new businesses to get their projects up and running. This is in no small part due to the lower transaction costs (which allows more of the capital raised to be injected directly into a project) but also because the technology removes intermediaries (like banks or lawyers) without compromising security.

This is the most enticing feature of decentralized technology, and with the advent of smart contracts, practices that used to rely on armies of middlemen are being handled with less friction.

Regulation and the evolution of token offerings


The needs of businesses are driving innovation, but blockchain technology has met with some criticism on the regulatory front as financial watchdogs seek to bring cryptocurrency under their jurisdictions. These concerns have led to the development of new systems of token offering. One of the newest of these methods is ILP (Initial Loan Procurement) and could become another popular funding method for small businesses. It could even rival ICOs.

Initial Loan Procurement is a new solution from blockhive (a company specializing in the incubation of projects that can benefit from blockchain technology), and its focus on regulatory compliance is not only apparent but a necessary feature of their system.

Blockhive’s fundraising model allows the issuance of digital loan agreements on the blockchain that allow creditors to be rewarded with profits made by the company and its partners. Regulatory compliance is paramount as loan agreements necessitate KYC and bank account details so that the creditor can receive returns.

It is a novel method for startups to raise capital as it allows the transference of loan rights while removing the intermediaries who slow these processes down. The underlying technology means that these agreements are immutable and that blockhive’s clients’ assets are protected as well as their identities.


Ensuring regulatory compliance now could secure the future


Though there is currently no consensus agreement between lawmakers regarding crypto, funding methods that necessitate a high standard of regulatory compliance are arguably more stable. In the wake of regulation, some companies will need to restructure their business models to ensure compliance, and this could provide businesses with an incentive to look toward methods of funding that are already taking steps to prevent this from happening. With token offerings becoming increasingly popular, those safeguarding the future of clients could have a significant advantage.


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