Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, today often performed via internet-mediated registries, but the concept can also be executed through mail-order subscriptions, benefit events, and other methods. Crowdfunding is a form of alternative finance, which has emerged outside of the traditional financial system.

The crowdfunding model is based on three types of actors: the project initiator who proposes the idea and/or project to be funded; individuals or groups who support the idea; and a moderating organization (the “platform”) that brings the parties together to launch the idea.


Crowdsourcing, a modern business term coined in 2005, is defined by Merriam-Webster as the process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employees or suppliers; a portmanteau of “crowd” and “outsourcing,” its more specific definitions are yet heavily debated. This mode of sourcing is often used to divide tedious work between participants, and has a history of success prior to the digital age—”offline,” see the linked and examples appearing below. By definition, crowdsourcing combines the efforts of numerous self-identified volunteers or part-time workers, where each contributor, acting on their own initiative, adds a small contribution that combines with those of others to achieve a greater result; hence, it is distinguished from outsourcing in that the work comes from an undefined public, rather than being commissioned from a specific, named group. Regarding the most significant advantages of using crowdsourcing the literature generally discussed costs, speed, quality, flexibility, scalability, and diversity.

Crowdsourcing can apply to a wide range of activities. Crowdsourcing can involve division of labor for tedious tasks split to use crowd-based outsourcing, but it can also apply to specific requests, such as crowdfunding, a broad-based competition, and a general search for answers, solutions, or a missing person. Crowdtesting is another example of the utilization of the crowd to provide software testing services. Crowdtesting is becoming a major player in the software world with recent studies stating that 55% of companies have adopted crowdsourced services in 2014 and more plan to utilize crowdtesters in 2015 and moving forward.

Wisdom of the Crowd

The wisdom of the crowd is the collective opinion of a group of individuals rather than that of a single expert. A large group’s aggregated answers to questions involving quantity estimation, general world knowledge, and spatial reasoning has generally been found to be as good as, and often better than, the answer given by any of the individuals within the group. An explanation for this phenomenon is that there is idiosyncratic noise associated with each individual judgment, and taking the average over a large number of responses will go some way toward canceling the effect of this noise.