Funding Application for Start-ups with Blockchain Approach

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Funding Application for Start-ups with Blockchain Approach

1,2Computer Engineering Department, Smt. Kashibai Navale College of Engineering, Pune, India

Abstract There are numerous applications available nowadays that allow start ups to raise funding for the development of their product. The concept of crowdfunding is that the founder of a start up comes up with a brand new product that has to be produced. The creation of the product necessitates the expenditure of funds for a variety of resources such as vendors, workers, and so on. The founder of the start up, or the person who came up with the idea, registers with the fund raising application and creates a new campaign. Investors can contribute to the various campaigns that are registered on the application. In exchange, the contributors will be rewarded at a later date based on the success of the start up in which they have invested. The first problem with the previously mentioned crowdsourcing strategy is that the campaign creator/idea person retains complete ownership of the funds raised. He has complete control over how he spends the funds. In actuality, start ups have an extremely low success rate. When a start up fails, the backers who provided money lose their money and receive nothing in return. The second risk is that the campaign's founder may be a con artist who will take all of the money and flee. These are the most common and serious issues that arise on the fundraising platform. A smart contract can be constructed using a blockchain based approach for a fundraising application that controls where the idea person can spend the money. Donors to the campaign no longer contribute money directly to the person who came up with the idea. They send money to a smart contract on the Ethereum blockchain. This contract contains code that specifies which resources are eligible to receive funds from the campaign. The use of blockchain technology in fundraising makes it more reliable, transparent, trustworthy, and decentralised.

stampeddocumentsinwhichnopartycantamperwiththe dataorthetimestampswithoutbeingdetected.

In its most basic form, blockchain is a growing list of documents, known as blocks, that are connected together usingencryption.Blockchainisadatabasethatkeepstrack ofalltransactionsthathaveeveroccurred.Transactionsare data units that include the transaction details as well as a timestamp.Bothcanberepresentedasnumbersorstrings onacomputer.Ablockchaincanbethoughtofasatablewith threecolumns:thefirstcolumnholdsthetransaction'sdate, the second column stores the transaction's data, and the thirdcolumnstoresahashofthecurrenttransactionplusits detailsandthepriortransaction'shash.Thehashingprocess isakeypartofassuringblockchainimmutability.Themeta information from the preceding block's hash output is always incorporated into the hashing data of the current block. This connection in the hashing system makes the chain"tough,unbreakable" it'sdifficulttocontrolorerase information once it's been approved and added to the blockchain,becauseifthatwereattempted,thesubsequent blocks inthechainwouldrejecttheattemptedchange (as theirhasheswouldn'tbevalid).Asaresult,ifinformationis changed, the blockchain will crash, and the cause will be obvious. This property isn't found in traditional data sets, wheredatacanbeeasilytamperedwithorremoved.

B. Smart Contract

1. INTRODUCTION

A. Blockchain

Satoshi Nakamoto initially described blockchain technologyinhisarticle"Bitcoin:APeer to PeerElectronic Cash System," which established the mathematical underpinningforthebitcoincryptocurrency[8].Notonlyis blockchaintechnologyattheheartofallcryptocurrencies, but it has also found widespread use in the traditional financial sector. It also allowed new uses, such as smart contracts,toemerge.Nakamoto'ssolutiontothedifficultyof creating trust in a distributed system was the blockchain. The difficulty of developing a distributed storage of time

Smartcontractsarelinesofcoderecordedonablockchain that run automatically when certain terms and circumstancesaremet.Theyare,attheirmostbasiclevel, programmesthatrunastheyweredesignedtorunbythe individualswhocreatedthem[7].Theblockchain,together withsmartcontracts,appearstobeastrongcontenderfor developing a more dependable, transparent, and trusted decentralisedfundraisingplatform.

C. Crowdfunding

Inanutshell,thecrowdfundingmethodisasfollows:

1. On the fund raising platform, the start up owner establishesanewproject/campaign.

2.Backers,alsoknownasinvestors,candonatemoneyto avarietyofcampaignsonthesite.

3.Inreturn,donorswillberewardedatalaterdatebased onthesuccessrateofthestart upinwhichtheyinvested.

Key Words: Blockchain, Ethereum, Smart Contact, Backers, Crowd funding, Start up

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4. The money goes to the campaign creator only if the minimumfundingtargetisattained.Whenthisrequirement is met, the fundraiser programme sends the funds to the campaigncreator.

5. The campaign creator creates the product and distributesprizestodonors[4].

Fig -1:CrowdfundingProcess

Thebasicarchitectureofablockchain basedcrowdfunding platformisdepictedinFigure3.Theapplicationhasthree sortsofusers:admin,startupcreator,andcontributor.The registeredcampaignmightbeapprovedorrejectedbythe administrator.Ontheapp,thestartupcreatorstartsanew campaign and assigns milestones to it. Money can be donatedtoanyoftheavailablecampaignsbycontributors. Smartcontractsareusedinblockchain basedarchitectureto decidewhethertoapproveordenyspendingrequests.When thefounderofastartuphastopayforaresourceorvendor, he submits a spending request. This spending request is approvedbycontributors.Onlymoneyistransferredtothe vendor/resourceifmorethanhalfofthedonorsapprovethe expenditurerequest.Compiledsmartcontractisdeployed ontheethereumnetwork.Usersinteractwiththedeployed contractviaethereumwalletsuchasmetamask[1].

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1. LITERATURE SURVEY

The paper [1] 'Towards Venturing Crowdfunding using SmartContractsinBlockchain'addressesthecreationand testing of a prototype blockchain based fund raising application as a smart contract for the Ethereum network using Ethereum wallets metamask and the Solidity language. According to this method, a product owner establishesanewprojectinthefirststepbyprovidingthe detailsoftheideaproductsofferedbythestartupcreator.He establishes a minimum donation amount as well as a minimumfundraisingtarget.Allopencampaignsarevisible to contributors, who can donate accordingly. To spend money on any resource, the product owner creates a spendingrequest,detailingtheresourceandtheamount.For eachofthespendingrequests,thenextstagevotingsystem records the votes of donors who have registered for the campaign.Theproductownercanonlyproceedtopayfor theresourceifmorethanhalfofthecontributorsagreeto theexpenditurerequest.

The paper [2] ‘Applying Ethereum Smart Contracts to Blockchain BasedCrowdfundingSystem toIncrease Trust andInformationSymmetry’attemptstosolvetheproblemof informationasymmetryincrowdfundingplatforms,inwhich differentstakeholdersreceivedifferentinformation.Toearn investors' trust, the system design incorporates more

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transparent transactions. As a development platform, the Ethereum blockchain is employed. Traditional and blockchain based approaches to crowdfunding platform deployment are contrasted on the basis of factors such as transaction transparency, CRUD operations, transaction speed, and information symmetry. It claims that in a blockchain based approach, transaction transparency is higher because each transaction is recorded in the blockchainnetwork,andonceablockisinserted,noonecan change it, whereas in a traditional approach, there is no guaranteethatoncedataisinsertedinthedatabase,noone canchangeit.Thetraditionaltechniqueenablesallcreate, read, update, and delete operations, but the blockchain based solution just supports creation and read actions, lowering the trust factor. Because the data in the block is immutable, information symmetry is stronger in the blockchain based approach, whereas in the traditional approach,datamaybechangedmoreeasily,resultinginless information symmetry. Although the blockchain based technique is advantageous in the above mentioned characteristics, the traditional system has a faster transactiontime.

Thepaper[3]‘BitFund:Ablockchain basedcrowdfunding platform for future smart and connected nation’ explains how to set up a secure, ethereum smart contract based crowdfundingsystemthatemploysabiddingapproachand aniterativeauctionalgorithmthatallowsdeveloperstovary theirbidamountsoveriterationstoimprovetheirchancesof winning. This method eliminates the need for manual negotiationsbetweeninvestorsanddevelopersforanyofthe project'scharacteristics.

Four types of crowdfunding are explored in the study 'Blockchain Based Crowdfunding' [4]: donation based, reward based,crowdinvesting,andcrowdlending.Table2 summarizesthemanycategories.

Table 1: Relatedwork

Aim Methodology

To implement and test a sample blockchain based funding application as a smart contract for the Ethereum network using the Ethereum walletsandtheSolidity language.[1]

Uses blockchain based peer to peer technology.

1. As a development platform and blockchain network, the Ethereum ecosystemisfavoured.

2.Solidity,aprogramminglanguagethat combinesC++andJavaScript,isusedto createsmartcontracts.ProjectCreation, SpendingRequestCreation,andVoting Systemarethethreekeycomponentsof applicationdesign.

of the system by enabling transparency in the transactions.

Compare blockchain based approach with the traditional approach for crowdfunding.[2]

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transaction speed, and information symmetry.

1.Transparencyoftransactionsishigher inablockchain basedapproachbecause each transaction is recorded in the blockchainnetwork,andonceablockis inserted,noonecanchangeit,whereas in a traditional approach, there is no guarantee thatonce data isinserted in thedatabase,noonecanchangeit.

2. A blockchain based system only allows for create and read operations, butatraditionalapproachallowsforall create, read, update, and delete operations,loweringtrust.

3.Informationsymmetryishigherina blockchain based system because data intheblockisimmutable,butdatacan bechangedmoreeasilyinatraditional approach,resulting in lessinformation symmetry.

4.Whiletheblockchain basedstrategyis advantageous in the above mentioned characteristics, the old approach has a fastertransactionspeed.

To build a unique and secure crowdfunding platform based on blockchain and ethereum smart contract. Make use of iterative auction algorithm. Eliminate theneedforanymutual negotiation between investors and developers for the projectparameters.[3]

The following are the high level steps thatareinvolved:

1.A new project is being added to the decentralisedcrowdfundingplatformby aninvestor.

2.Thetimestamp,projectspecifications, andestimatedcost,time,anddeveloper reputationareallcontainedinablock.

3.The block is sent to all nodes in the developer's network, and they begin bidding for the project based on time, cost,supportduration,andvotes.

4.The auctioning algorithms are operated by the smart contract, which looks for the best developer for the project.

5.The block has been accepted and validated.

6.The block is added to the blockchain and connected to the blocks that came beforeit.

To give brief overview of blockchain technology.[7]

To build ethereum smart contract based crowdfundingplatform which improves information symmetry

Traditional and blockchain based approaches to crowdfunding platform deploymentarecontrastedonthebasis of factors such as transaction transparency, CRUD operations,

Importantsteptakento establishtrust in distributed systems is that blockchainprovidesadistributedtrust mechanism: multiple parties keep a recordoftransactions,andeveryparty canverifythattheorderandtimestamps of the transactions haven’t been tamperedwith.

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Table -2: Typesofcrowdfunding

Type Description

Donation Based Investorsdon’tgetanybenefit.They simply donatetofeelgoodabouthelpingtheproject orbecausetheybelieveinthecause.Thistype of crowdfunding platform acts as intermediaryforcharityandNGOs.

Reward Based Investors receive free sample product for supportingtheidea.Themainmotivebehind this type of crowdfunding is to feel good about having the name in the list of contributors.

Crowdinvesting

Crowdlending

Investors get equity shares as return of investment.

This type of crowdfunding is also called as “Peer To Peerlending”,“Loan Basedlending”. Inthistype,borroweri.e.theproductowner takes loan from the investors at fix interest rate.

3. MOTIVATION

Thekeyobjectivesofthisresearchareto:

a. Gain a better understanding of the crowdfunding lifecycle.

b.Issuesthatfrequentlyariseinfinancingapplications.

c. Concentrating on implementation aspects in order to develop a blockchain based funding application that overcomestheconstraintsofoldmethods.

TheFundraiserapplicationservesasagreatplatformfor start up founders to pitch their idea to a group of contributors and get funding to construct their product. However,theprimaryflawinthisstrategyisthatitgivesthe campaigncreator/start upcreator"completecontrolofthe money."Thedonorsarenotinvolvedinthedecision making processforwhichresourcetheideapersoncanspendmoney on. As a result, the start up's failure or success is entirely dependent on the decision making of the idea person. In practise,thesuccessrateofastart upisextremelylow,and failure results in significant financial loss for donors who receivenothinginreturn.

Ourmaingoalistoconcentrateonimplementationandto create a blockchain based funding system that eliminates single persondecision making,ownershipofgatheredfunds, andinvolvesinvestorsindecidingwhetherornottoapprove eachresourcespendingrequest.TheEthereumenvironment isrecommendedasthedevelopmentplatforminthisstudy. Thesmartcontractcontrolsthemoneythattheideaperson canspend.

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4. IMPLEMENTATION

Implementationofblockchainbasedcrowdfundingplatform involvesfollowingsteps

1. Smart Contract Design and Implementation

Itisacodewritteninsolidityprogramminglanguage. Twosmartcontractsareimplemented

a. Campaign Factory It is responsible for deploying new instancesofcampaignonethereumtestnetworkandstoring theresultingaddress,providinglistofaddressesofallthe deployedcampaigns.Table 3liststhecontract'svariables, whereasTable4liststhecontract'sfunctionalities.

b. Campaign It has responsibility to manage all the functionalitiesrelatedtosinglecampaigninstance.Table5,6 lists the contract's variables, whereas Table 7 lists the contract'sfunctionalities.

Table 3: CampaignFactoryContract Variables

Variable Name Data Type Description

deployedCampaigns address[] The address of all deployedcampaigns.

Table 4: CampaignFactoryContract Functions

Functions Description

createCampaign Deploys a new instance of a campaign and stores the resultingaddress.

getDeployedCampaigns Returns a list of all deployed campaigns.

Table 5: CampaignContract Variables

Variable Name Data Type Description

manager address Theaddressoftheperson whoisinchargeofthis campaign.

minimumContr ibution

uint Minimumcontribution required toconsidera contributorasapprover.

approvers mapping Listofeachinvestor’s ethereumwallet addresseswhohas contributedtothe campaign.

requests Request[ ] Listofrequeststhatthe managerhascreated.

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Table 6: CampaignContract RequestStructure

description string Purposeofrequest amount uint Ethertotransfer recipient address Whogetsthemoney complete bool Whethertherequestis done

approvals mapping Trackwhohasvoted

approvalCount uint Tracknumberofapprovals

Table -7: CampaignContract Functions

Functions Description

Campaign constructor Constructorfunctionthatsets theminimumcontributionand themanagerofthecampaign.

Contribute Calledwhensomeonewantsto donatemoneytothecampaign andbecomean‘approver’.

createRequest Calledbymanagertocreatea newspendingrequest.

approveRequest Calledbyeachcontributorto approveaspendingrequest.

finalizeRequest Afterarequesthasgotten enoughapprovals,themanager cancallthistogetmoneysent tothevendor.

2. Smart Contract Compilation

Smart contract is compiled using solidity compiler to generate the bytecode. Bytecode is a hexadecimal representation of a built contract that only the Ethereum VirtualMachinecanunderstand(EVM).

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3. Deployment

Bytecode generated for each of the smart contract CampaignFactoryandCampaignisdeployedtotheethereum test network rinkeby test network. In this process deploymentscriptmakesuseoftruffle/hdwallet provider HDWallet enabledWeb3provider

4. Interaction with deployed contracts via user interface

User interface built using Semantic react ui, next.js and ethereumwallet Metamaskwhichisabrowserextension allowsendusertointeractwiththecontractsdeployedon therinkebytestnetwork.

5. CONCLUSION

Traditionalcrowdfundingplatformslackin reliabilityand trustworthiness.Thisworkpresents,fundingapplicationfor start upswithblockchainapproachwhichaddressesthese issues. The use of blockchain technology in fundraising makesitmorereliable,transparent,trustworthy,secureand decentralised.

A. Reliable, Transparent, Trustworthy

Theuseofablockchain basedsolutionenablesthecreation of a smart contract that monitors and controls every transactionmadebytheproductowner.Tospendmoneyon anyresource,theproductownermustfirstfileaspending request,detailingtheresourceandtheamount.Thevoting mechanismrecordsdonorvotesforeachspendingrequest. Theproductownercanonlyproceedtopayfortheresource ifmorethanhalfofthecontributorsagreetotheexpenditure request.Asaresultofthismethod,investorsareinvolvedin all transactions, making the crowdfunding platform more transparent,trustworthyandreliable.Noonecanchangeor delete a block once it has been added to the blockchain, makingtheapplicationmoresecure.

B. Secure, Decentralised

A blockchain is a decentralised database that is shared amongcomputernetworknodes.It'sdifficulttocontrolor eraseinformationonceit'sbeenapprovedandaddedtothe blockchain,becauseifthatwereattempted,thesubsequent blocksinthechainwouldrejecttheattempted change (as theirhasheswouldn'tbevalid).Asaresult,ifinformationis changed, the blockchain will crash, and the cause will be obvious. This property isn't found in traditional data sets, wheredatacanbeeasilytamperedwithorremoved.Noone canchangeordeleteablockonceithasbeenaddedtothe blockchain,whichmakestheapplicationmoresecure.

4:Smartcontractcompilationprocess

Blockchaintechnologyholdsa lotofpromise, butit may notrealizeitsfullpotentialinitscurrentstate.Therehasto be a coordinated effort in core blockchain technology

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researchtoimproveitsfeaturesandsupportforcomplicated appsthatcanrunonthenetwork.

6. FUTURE SCOPE

The developed prototype of a blockchain based crowdfundingapplicationisdeployedontheethereumtest network rinkebynetworkinthiswork,whichdoesnotuse realcryptocurrency.Theapplicationcanbedeployedtothe production environment in the future. Genuine crypto currency can be invested in innovative start ups by real investors.

REFERENCES

[1] Yadav,Nikhil;V,Sarasvathi,“VenturingCrowdfunding using Smart Contracts in Blockchain” , Third International Conference on Smart Systems and InventiveTechnology(ICSSIT),IEEE,2020.

[2] AbdulHalimSyedAbdulRahman,“ApplyingEthereum Smart Contracts to Blockchain Based Crowdfunding SystemtoIncreaseTrustandInformationSymmetry”, 7thInternationalConferenceonComputerTechnology Applications(ICCTA2021),ACM,2021.

[3] VikasHassija,VinayChamola,SheraliZeadally,“BitFund: Ablockchain basedcrowdfundingplatformforfuture smart and connected nation.”, Sustainable Cities and Society,Volume 60, ELSEVIER,September2020.

[4] RosaRighi,R.da,Alberti,A.M.,&Singh,M.,“Blockchain Based Crowdfunding”,Blockchain Technology for Industry4.0.BlockchainTechnologies,Springer,2020.

[5] Ine´s Alegre, Melina Moleskis, “Beyond Financial MotivationsinCrowdfunding:ASystematicLiterature Review of Donations and Rewards”, International SocietyforThird SectorResearch,Springer,2019.

[6] Francesco Paolo Appioa, Daniele Leoneb, Federico Plataniac,FrancescoSchiavoneb,“Whyarerewardsnot delivered on time in rewards based crowdfunding campaigns? An empirical exploration”, Technological Forecasting&SocialChange,ELSEVIER,2020.

[7] AlaaHamidMohammed,AlaaAmjedAbdulateef,Ihsan Amjad Abdulateef, “Hyperledger, Ethereum and Blockchain Technology: A Short Overview”, 3rd InternationalCongressonHuman ComputerInteraction, Optimization and Robotic Applications (HORA), IEEE, 2021.

[8] S. Nakamoto, “Bitcoin: a peer to peer electronic cash system”,[Online].Available:https://bitcoin.org/bitcoin.p df.

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[9] Viren Patil, Vasvi Gupta, Rohini Sarode, “Blockchain BasedCrowdfundingApplication”, FifthInternational ConferenceonI SMAC(IoTinSocial,Mobile,Analytics andCloud)(I SMAC)IEEE,2021.

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