The recent popularity of blockchain and crowdfunding technologies are two excellent examples of the market's response to a growing need for disintermediation and decentralisation of financial systems.
Blockchain technologies are part of the wider family of Distributed Ledger technologies, which can be read and modified by multiple nodes in a network. In the absence of a central control body, in order to validate changes to the ledger, nodes must obtain consent through specific methods that characterise the various Distributed Ledger technologies.
The blockchain is therefore a sub-family of technologies, or rather, a set of technologies, in which the ledger is structured as a chain of blocks containing the transactions and the consent is distributed to all the nodes of the network that, therefore, can participate in the process of validation of transactions to be included in the ledger.
The blockchain is raising a number of ethical questions, as is often the case with all new technologies that impose themselves very quickly on the market. The main ethical questions relate to aspects such as the 'hyper-democratic' nature of the system, data transparency and risks to user privacy and self-regulation.
Blockchain and ethics
According to its most enthusiastic supporters, blockchain and cryptocurrencies (which in a sense constitute its most famous application) represent a new idea of freedom because they do not require any central authority. These technological solutions, in fact, replace the monetary power of banks and financial institutions by respecting the individuals and without imposing a monopoly.
Since blockchain is a public, shared and disintermediated system, its application can have important ethical implications. The system guarantees true financial privacy, providing a digital alternative to cash in a self-regulating scenario - in a way this is a further push towards a true cashless society.
Many sectors are already experimenting with the use of blockchain architecture. Curiously, it is the banks, theoretically the number one "enemy" of cryptocurrencies, that have been the first to understand their potential: a consortium of the world's largest banks is studying and experimenting with the use of blockchain, as are the World Bank and several stock exchanges, including the Nasdaq. Other sectors that are very interested are the financial sector in general, real estate, media, insurance, public administration, health, notary and legal activities, retail and others.
Crypto-crowdfunding
Blockchain architecture has also recently been applied in crowdfunding.
Some models involve issuing 'tokens' (tokens, coins) to investors in crowdfunding campaigns in proportion to the amount invested. These tokens can then be exchanged with other users, in practice constituting a more flexible version of traditional 'rewards'.
Another approach is to use existing digital currencies such as Bitcoins to fund projects, especially if they are in some way related to the same technologies. The advantage is that cryptocurrency investors are often also interested in investing in innovative projects in the same field, thus expanding the sector and increasing its value.
Sometimes, innovators and start-ups may even create their own cryptocurrency to finance their projects. In this case, the currency itself becomes the object of the crowdfunding investment. Campaigns get an initial injection of capital and with the capital set aside they can finance future developments. This new decentralised and disintermediated business model is called ICO (Initial Coin Offering).
Crowdfunding and Initial Coin Offering (ICO)
ICO (Initial Coin Offering) is a new form of crowdfunding that allows the promoters of an initiative to raise funds by issuing a virtual currency.
The issuer is usually a start-up that intends to finance the development of a service. As in a reward crowdfunding campaign, rewards are given against the money donated by supporters, which, in this case, consist of 'tokens' (virtual tokens) each of which represents one unit of a virtual currency. The uniqueness and authenticity of these tokens is guaranteed by a blockchain-based authentication system. Typically, with the tokens purchased, the supporter can use the services offered by the startup that issued them. If these services consist of property rights (e.g. the right to share the profits generated by the company that issued the tokens), the ICO becomes similar to equity crowdfunding (or peer-to-peer lending) and should therefore be subject to the rules and laws governing the solicitation of public savings.
In conclusion, blockchain technologies and crowdfunding have the potential to change financial markets in a democratic direction by lowering barriers to entry and broadening the base. Ethics play a very important role in how these technologies are regulated and how they are applied. In these sharing systems without central power, it is more crucial than ever to combine ethical values with technology.
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