There is a bad rap for blockchain these days, mainly due to cryptocurrency scandals and almost exclusive perception by general public that equals blockchain to cryptocurrency.
The idea is that blockchain is just a technology behind cryptocurrency the same way database technology powers every bank in the world.
There are many industries ideally suited for either disruption or efficiency increase by blockchain technology.
One of the ideal cases for improving efficiency and security by utilising blockchain technology is crowdfunding.
Blockchain vs. Traditional Renewable Energy Investments
The model works by bringing verified small green energy projects ... in contact with small investors
So, let’s take an example and compare traditional investment financing for green energy projects vs blockchain powered crowdfunding.
Let’s say you want to build 1MW solar energy power plant. That would be a $1M investment approximately. While this is a big amount of money for private funding, it’s way too small for traditional investment.
It’s a safe investment with guaranteed returns, beating savings account interest rates, but it’s far from returns (and risks) of investing in say bio technology or software.
Setting up public company to run a 1MW plant is totally inefficient as all the profits from the operation would be lost by accounting, auditing and legal paperwork costs. If you have $100K in up-front legal costs and a similar annual accounting and auditing costs this form of financing automatically transforms a project that can bring safe 8-10% annual ROI into project that makes a 15% annual loss.
Another option would be a limited liability company, but in that case the number of potential investors is very limited and usually each investor puts in excess of $100K. There are still legal and accounting costs that are fixed whether one is putting in $100 or $100,000 so this model works only for those willing to put $100K or above.
This puts green energy projects out of reach for small investors - people that are willing to invest $1,000 to $10,000, or invest continuously in fixed monthly amounts. There is tremendous potential in disrupting energy business by merging those two. Small investors with small green energy projects. Stock markets and banks are just too inefficient and too expensive for that.
This is one example where blockchain technology ideally blends into a crowdfunding model by bringing efficiency (by lowering management costs and democratising investment platform to small investors and small investment projects) and security in virtue of distributed ledger and accounting, preventing a potential single bad actor to bring down the whole project.
Ensuring high quality of listed projects
The model works by bringing verified small green energy projects (in our case a 1MW solar plant) in contact with small investors. There is still a need for authority that validates the projects, making sure they're legitimate. This authority needs to verify that there are valid contracts for solar panels and electricity purchase agreements. This is unlike general crowdfunding projects that are often not verified - the reason why many of them fail (e.g. fancy new never seen robots, games). Green energy projects, however, are easily quantifiable. 1MW of solar panels is always worth about $1M.
Such verified projects can then be accepted into a blockchain powered crowdfunding platform.
The process afterwards is similar to purchasing regular stocks from public companies.
Only in this case investors put their money (e.g. $10,000) and get in return A10,000 which represents exactly $10,000 investment or 10kW in solar power.
The investor has the exact rights to that amount of ownership (in money terms) or in installed power.
As there is no central book keeping authority, thanks to blockchain, every investment is verified by every node on blockchain making sure there is no accounting fraud.
Afterwords, the whole process is the same like with regular investments, investors keep their ownership and also participate in profits from selling green electricity (similar to dividend).
This way blockchain lowers the cost and actually makes investment in small scale green energy projects viable and profitable business.
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