How to use crypto and blockchain to fund a startup

17 August, 2019

The relative newness of blockchain and cryptocurrency can make it difficult for people who do not follow the technologies to understand how they function beyond the basic concept of digital money. But dig deeper and you discover that there is a whole lot more to it than that. The blockchain foundation that gave rise to Bitcoin more than a decade ago can do a lot more than just manage digital assets.

Today, a growing number of entrepreneurs are hitching their wagons to cryptocurrency and blockchain for the sole purpose of launching some sort of startup that is not directly dependent on either one. They are using the technologies to get people on board with their ideas. It seems to be working.

If you want to use crypto and blockchain to fund your start-up, you could follow the example of a U.S. healthcare-related company known as Patientory. The company got up and running with an initial coin offering (ICO) that raised $7.2 million just over two years ago. More recently, they closed a Series A funding round that raised an additional $5.2 million.

A blockchain company

Patientory is marketed as a blockchain company for the healthcare industry. What does that mean? It means they offer a series of products based on the blockchain concept. They could have just as easily used other technologies, but they chose blockchain for the many benefits it offers. Their business focuses on enterprise data management and storage.

Services are provided mainly to hospitals and clinics in need of secure and encrypted storage for their data. Cryptocurrency comes into play by making it the tool by which data is stored and accessed. Patientory's token is known as PTOY.

The company sold the tokens via an ICO in May 2017. Money raised from the ICO went toward establishing the company as a nonprofit, getting marketing underway, and developing their mobile app. Patientory no longer relies on the tokens as a funding source. Rather, the tokens are now used as the 'currency' necessary to access their data storage systems.

Buying storage space

Hospitals and healthcare clinics looking to store data can do so using tokens they already possess. In the absence of tokens, they can purchase them directly from the company. To date, it doesn't appear that anyone is trading PTOY on public exchanges, so the only way to get tokens is to acquire them from Patientory.

Tokens give customers access to storage facilities. However, their data is not actually stored via blockchain. The blockchain ledger in this case acts as a storage directory of sorts. Customer data is encrypted and shared - partitioned into smaller, easier to manage databases - and then stored in separate environments so that no client is at risk of mixing data with another. However, data cannot be accessed without going through the blockchain directory.

Patientory's blockchain contains the necessary information to find and access the desired data. Data is kept secure by limiting access through private keys. Customers agree to share keys only with those who need access to the data. Without a key, you are not getting past the blockchain.

The system can also be used to benefit patients. For example, patient data might be scattered across multiple databases representing numerous hospitals and healthcare clinics he or she has visited. That patient's data also cannot be accessed without a key. Giving the patient a key allows him or her to control who actually has access to personal data.

Other blockchain applications

Patientory is by no means holding its own financially at this point. However, they are working in that direction. Some of the Series A funding they just closed will go toward developing new blockchain applications to serve other parts of the market. It will be interesting to see what those applications end up being.

We assume that they will be blockchain apps as well. After all, Patientory does market itself as a blockchain company. It is reasonable to expect their developers will come up with similar ways to use blockchain without mimicking the cryptocurrency model. But at the end of the day, they can thank cryptocurrency and their ICO for getting the company off the ground.

Demonstration of single-purpose tokens

Patientory offers a roadmap of how to use cryptocurrency and blockchain to fund a startup. Combine what they have done with their PTOY token and you can make the case for more single-purpose tokens in the future. For example, consider what it might be like to have a single-purpose token for online gambling.

The online gambling industry has been one of cryptocurrency's most ardent commercial supporters for years. It is almost as though cryptocurrency and online gambling were made for each other. It is no secret that a number of forward thinkers in the gambling industry have been working to conceptualize the idea of creating a gambling token that would be used exclusively for gambling functions.

Blockchain could be employed for this sort of venture on many different fronts. First, casino operators could use blockchain applications to control access to their games. In order to get through that blockchain, you would need tokens - just as is the case with Patientory.

Next, blockchain could be deployed to facilitate deposits, withdrawals, and actual game payouts. It is perfect for this sort of thing. A robust blockchain ledger could easily keep track of ongoing financial transactions within the gambling environment.

Finally, casino operators could use a third blockchain to manage their own finances. Access could be based on a permission system so that only those with a genuine need for the casino's financial data has access to it, thus creating a secure environment that keeps curious minds and eyes out.

Funding it with cryptocurrency

It would take quite a financial investment to develop such a blockchain system for the casino industry. But like Patientory, the money to fund the project could come from an ICO. Offering a single-purpose token through an ICO would accomplish the same thing for the gambling industry that it accomplished for Patientory.

An ICO would raise the cash needed to get the project off the ground. Any tokens purchased by gamblers could then be used to fund some of their gambling activities once the system is up and running. This would instantly give the tokens value to online gamblers already familiar with the concept of gambling with Bitcoin, Litecoin, etc.

The tokens would not necessarily have to possess any sort of utility or value outside of the gambling ecosystem. They would create a more efficient system if they were eventually tapped to replace all other forms of currency - both fiat and crypto - for making deposits and withdrawals. This could be accomplished by requiring gamblers to purchase tokens before they can play.

The sky is the Limit

Regardless of your feelings about cryptocurrency as a monetary system or investment, it should be clear from the Patientory example that both cryptocurrency and blockchain can be deployed in a lot of different ways. The technologies are not limited to financial transactions. They can be used for virtually any application for which ledger-based records and smart contracts are appropriate.

Patientory has proven the potential of using an ICO to raise money to get a new start-up off the ground. They have proven that an ICO can be combined with the fundamental principles of blockchain to create a product useful to customers outside the financial sector. And if they can do it, so can anyone else.

The sky is the limit when you let your imagination run. Patientory is using cryptocurrency and blockchain to provide encrypted data storage to the healthcare sector. Another company could create a similar model for offering payroll services. Still another company could offer blockchain-based supply chain management. And this is all just within the healthcare sector.

Automation and security

The beauty of blockchain is that most of its functionality can be automated with the use of smart contracts. Add to that the ability to encrypt data and tightly control who has access to it, and you have a technology capable of meeting a long list of needs.

Blockchain essentially gives you automation and security in a single package that can be tightly maintained via network nodes. It offers the flexibility to create either centralized or decentralized applications. It offers irrevocable transactions that make for much better record-keeping and tighter system control.

Some have said that the future will be built on blockchain. That doesn't sound like such a far-fetched idea when you learn about organizations like Patientory. Some very smart people are doing excellent work with blockchain technology, work that stands a real chance of revolutionizing entire industries. And it is all because an enterprising computer programmer came up with the idea for an alternative monetary system.

Now you know how to use cryptocurrency and blockchain to get a start-up off the ground. What are you working on? Is it something that might benefit from blockchain and crypto? If so, there are plenty of examples out there for you to follow.