Cupcakes for Everyone
How Ethereum Smart Crowdfunding Can Democratize Tech
This article proposes a simple and elegant way to sustainably fund free software and open source projects. It can also be used to fund ongoing releases of established projects and to publish music, movies, books and games. It’s great for angels and founders, because it preserves equity. And it’s a game changer for women, minorities, and the economically disadvantaged.
Ethereum Smart Crowdfunding is crowdfunding optimized for digital goods, such as media and software.
To see the potential of smart crowdfunding on the blockchain, you first need to understand why digital goods are different than cupcakes.
Cupcakes have a limited shelf life. They are fragile, perishable, and difficult to transport. If you decide to scale production from one dozen to twelve thousand cupcakes per week, your costs for flour, sugar, butter, and other ingredients will rise exponentially. You’re going to need a bigger kitchen too.
Digital assets like software, photographs, and music are different from cupcakes because they do not suffer from these physical limitations. They can be transferred across the globe in a matter of seconds. Unless their storage medium fails, they do not deteriorate with time. And they can be duplicated millions of times, at almost no extra cost.
Digital assets sound pretty great, don’t they? Yet paradoxically, all their superb qualities lead to an excess of supply and drive down cost. The public has come to expect music and apps for free. Even if they have a price tag attached, digital goods are far easier to steal than cupcakes. Over 99% of apps fail to generate any sales or revenue. (Gartner)
If you are an aspiring artist or inventor, you need a better revenue model.
Ethereum smart crowdfunding provides this. It lets you raise your goal up front — after the product exists but before it is released or assigned a specific license. Think of it like a Kickstarter designed specifically for information goods. But it’s not an ICO and it involves no sale of stock or securities.
Investors typically only see IP as a hedge against the failure of the investment; pro forma projections typically don’t even include this type of revenue. If your startup has both innovative technology and a viable business model not dependent on licensing, you could leapfrog a round.
Here’s how it works.
You see a crowdfunding video for a software project. You donate. If the Ethereum campaign meets its goal, the code is licensed as open source.
It really is that simple.
Why is this supercool?
- Code is law. Project authors choose their license (LGPL, MIT, BSD) before launching the campaign, when they initialize the smart contract. If the smart contract goal is reached, the license is published. There is no getting a better offer at the eleventh hour. The commons reaps the benefit.
- Like a Kickstarter, only better. Far lower fees. Contributors pay only if the campaign reaches its goal, then receive the funded project immediately.
- Founders get the money up front. In as little as 30 days. If you have ever tried to hire people, buy equipment, or rent office space, you know how important this is. Want to compete with the VC- and seed-funded startups you read about in glossy magazines? This is the best ticket in town.
It’s a ticket for founders, with a dream and a goal and a gleam in their eye. It’s a ticket for established FOSS projects, struggling to push out that next release, patch vulnerabilities before they are exploited, and maintain the loyalty of their demanding user base.
But that’s not all…
Ethereum smart crowdfunding can also make possible:
- Release of a music album to fund a charity project.
- Initial release of a music single, book chapter, episode or episodes toward release and licensing of the full artistic work.
- Production of a game and associated creative franchise.
The beautiful thing is that you can test out the software / play the game / listen to the music / read the book before close of crowdfunding. An Ethereum smart crowdfunding campaign requires that the artistic and technical work be substantively done when the contract is created; all that remains is licensing.
Licensing truly is a killer app for Dapps (decentralized applications). There is a disruptive opportunity here. Both the work and the license for the work can be completely contained within the blockchain system. Input the correct amount of ETH, and the work is licensed. No other moving parts. That’s all it takes.
To put this another way, several years ago I was enamored with a Kickstarter for a jacket with lots of pockets. It came in four colors. There was a pocket for your passport. And a pocket for your phone. There were magical hidden pockets, only to be revealed when the jacket came in the mail. Who could resist? I ponied up my money but sadly, the jacket never came. The campaign reached its goal, but I am still waiting on that delivery.
This is exactly what can’t happen with a smart contract. Because all the necessary ingredients are there at the time the contract is initialized. You can judge whether you want to support the campaign based on the quality of your experience with the software or media you are interacting with. Code is law.
The “Business Case” for Smart Crowdfunding
Smart Crowdfunding is Good for Women
While only 2% of venture capital funds went to female-founded companies in 2017, the outlook for crowdfunding is much more promising. A full 47% of successful campaigns on crowdfunding site Indiegogo are run by women, and on Kickstarter, female-led campaigns outperform those of men by 9 percent. Forbes.com
The power of a founder’s social network provides a boost for crowdfunding, whereas its impact is minimal for traditional investor fundraising. Smart crowdfunding is optimized for entertainment, media, and technology — all areas where women face special barriers to overcome.
Smart Crowdfunding is Good for Free Software
FOSS is unique as a movement because it subsidizes for-profit and not-for-profit endeavors. It is an ideology fundamentally agnostic to the aims of capitalism, yet is one that the Web 3.0 tech boom has relied upon.
But as one of my all-time favorite science fiction writers, Robert Heinlein, was fond of saying, TANSTAAFL = There Ain’t No Such Thing As A Free Lunch.
Volunteers can only do so much. A system built upon free labor tends to privilege “glamour tasks” — new functionality, buzzwords, and challenging problems to be solved — over the tried and true of bug fixes, usability testing, documentation, and end user support. It also tends to exclude women, people of color, and people without a college education who may be working multiple jobs and a third shift as caregivers, and simply be unable to volunteer for FOSS projects in their “free time.”
Startups who seek to hold true to open source principles soon find their beliefs to be a liability. Predatory VC demands licensing rights to all IP, even for implementations unconnected with the business model. The ICO, or Initial Coin Offering, once held out as a FOSS alternative to a corrupt system, now requires $100,000 or more in legal fees alone in order to be a viable entrant.
The open source community is quirky, unique, and vibrant. I do not advocate an entirely professionalized system. But I do think that we cannot be polite, white-gloved Victorians who take our tea and pretend that the question of money does not exist. Smart crowdfunding offers an opportunity to open the floodgates and truly democratize our system of funding — to many whose talent is ignored by the status quo.
“We can’t let open source become the government cheese of software.” These words came up in a conversation with another programmer several years ago. I think he understood what I meant, but just in case I’ll outline it again.
If open source / FOSS becomes the generic / Brand X of mid-millennium technology, then all our hard work is for nothing. If we are seen as the “solution of last resort,” appropriate only for nonprofits and the indigent, then we have lost our ability to effect change on behalf of all people. We need to not just be as good as proprietary software. We need to be better.
My company is working in collaboration with Zenchain of Victoria Island, British Columbia to create a reusable, templatizeable smart crowdfunding contract. We are currently evaluating the launch of our own Ethereum smart FOSS crowdfunding campaign early next year to fund the next stage of our content discovery platform and app. Once the Solidity smart contract code is deployed and tested, it will be freely available for any founder or organization to use.
Having completed the Proof of Concept phase, we now seek partners, allies, testers, advocates, and influencers willing to challenge our assumptions and help us reach the best outcome possible. If you have questions or ideas, please don’t hesitate to join the conversation.
Tess Gadwa is founder of Yesexactly.com and Lotus.fm, a music discovery and performance tipping app. She is also responsible for creating Zappen, the first fully functional, open source cross-platform mobile visual search solution, licensed under the LGPL 3.0. Recent projects include Beerious? and ROSECODE: The Interactive Cyberpunk Thriller. She has lectured in Asia, North America, and Europe about the practical and ethical implications of free software, usability, and the connection between creativity and code. Follow her blog at www.artmeetscode.org or on Twitter at twitter.com@thematizer.
