How Can Bitcoin Be Used for Crowdfunding?

Reason to use Bitcoin #44: Bitcoin takes crowdfunding one step further by making it a truly global concept.

Over the past decade, Crowdfunding has grown from being a small niche community to now being one of the first places to go to for businesses, causes and projects to raise startup capital. For those of you who don’t know or understand what crowdfunding is, it is simply the idea of collecting small amounts of money from large amounts of people to launch a business, product or idea. This method is pretty much the exact opposite of legacy industry bank loans which is primarily borrowing large sums of money (at interest) from a small group of people.

From Kickstarter to IndieGoGo to GoFundMe to Patreon to new methods that allow people to invest in real estate properties and equity crowdfunding where you are actually buying into part ownership of the actual company, crowdfunding is quickly becoming the de facto choice for all sorts of raising capital.

Crowdfunding Platforms

It is important to note that I am not at all against these services. I think they are great services that are helping lots of people achieve their business dreams without having to rely on bank loans and I fully support more people raising capital with these services. With this post, I am trying to highlight the added long-term utility of ALSO accepting Bitcoin alongside existing crowdfunding infrastructure to help bring more of these tools to the global market.

So, let’s take a minute to look at the biggest crowdfunding services online and their pros and cons.

Kickstarter

This is by far the biggest and most prominent crowdfunding service on the internet. They allow a number of projects to raise funds but only if they receive 100% of the funds they need to achieve their goal. If you are trying to raise $10,000 and you only raise $9,950, then your campaign is a failure and you get $0. Yeah, you get nothing. Nothing. Those who want to support you don’t get charged and nothing happens with your campaign. You just wasted all of your time and effort to learn how to fail to fund a Kickstarter campaign. Now it’s back to the drawing board for you and your marketing team. You can even raise $55,000 for making Potato Salad.

IndieGoGo

Very similar to Kickstarter but with some slight differences. Instead of an “all or nothing” approach, IGG has the option to do the same thing but also allows you the option to keep funds if you don’t reach all of your goals. This is called Flex Funding and it’s likely what draws a large number of users to the service. The fees structure is slightly different for each type of these campaigns.

GoFundMe

Anything goes on GoFundMe as long as it’s legal. This is where people go to ask for money for anything and everything. I want to go to summer camp, please fund me. I want to buy a puppy, please fund me. My boy scout troop wants to go on a road trip, please fund me. I paid over $300 for an Uber ride on Halloween, please fund me. This is where mostly small amounts of money are raised but for all sorts of family, friends and community type projects with less focus on business interests. GFM takes a few percent and then sends you the funds that you raised when your campaign is complete.

Patreon

This is not for people who put together a campaign but instead it is more for raising funds for long term content creators like musicians, youtube channels, bloggers, writers, etc. The idea behind Patreon is that you pledge to support these content creators with a small (or large) weekly or monthly pledge because you believe in what they do and you want to help them to do it more often. You essentially pay people small amounts of money to creators who you feel make quality content.

There are a number of other services that offer similar financial services but those are the biggest ones and they are shaking up the way people raise capital for all sorts of things today.

Financial Exclusion

Now, what is the problem with all of these services if I only have good things to say about them?

Well, they all come with lots of strings attached like fees, policies, geographic barriers, banking regulations and even legal challenges that might restrict who can pledge or raise money.

So, how can Bitcoin be of any help here? Let’s take a look and see how the world’s most widely used alternative payment network can add even more value to this crowdfunding space.

One of the biggest problems with all of the above crowdfunding services is that they are limited by laws, regulations, policies, bank access, geographic barriers and more.

Well, what if there was a way to send and receive money from anywhere in the world to anywhere in the world without any sort of middlemen, banks or regulators getting in the way? What if the nobody even needed to have a bank account in order to send or receive contributions?

Bitcoin is a Perfect Match for Crowdfunding

Well, let’s take a look at how Bitcoin is different than these other services and it brings crowdfunding to the global market.

1. It’s free to accept and fees are minimal

This is probably one of the most obvious benefits of using Bitcoin for any sort of funding. Kickstarter takes 5% and since they have helped raise over $1 Billion as of March 2014, that’s over $50 Million in fees that they have pulled in. What if more people in more places could take part in crowdfunding ideas in their own locales?

2. Bitcoin doesn’t have “company policies”.

All too many kickstarter and IGG campaigns have been suspended or shut down strictly because they don’t meet certain requirements. This happened to me a few years ago when a buddy and I tried to crowdfund a co-working space in our local town. Kickstarter told me that my project didn’t meet their campaign guidelines and so they shut me down. I wasn’t worried about it but what if you could crowdfund more things with fewer barriers to entry or policies getting in the way?

3. Bitcoin doesn’t acknowledge “citizens or legal residents”.

I spend a bit of time asking and answering questions on Quora about Bitcoin, Cryptocurrencies and Crowdfunding. One of the common themes that I notice lots of people from foreign countries seem to be looking for ways around the legal restrictions put onto campaign hosts. People seem to be looking for ways to crowdfund their projects in other parts of the world where they don’t have access to those tools yet. Currently EU citizens can pledge money to Kickstarter and receive products but only a handful of countries around the world can actually raise funds using these crowdfunding sites. Once again, billions of people are held back by antiquated laws and policies. What if everyone could raise capital with equal access?

4. Bitcoin doesn’t care how old or young you are.

Currently you have to be at least 18 years of age to raise funds with most crowdfunding platforms. Bitcoin is all inclusive so literally anyone at any age can use it to raise money. You can receive them with just about any smart phone. What if children in foreign countries could receive donations to pay for their school? or food? or disaster relief?

5. Bitcoin doesn’t care if you have a name, address, bank account or a government issued ID.

This one is kind of a big deal since it puts a lot of limitations on hundreds of millions of people. You need to meet certain banking requirements in order to send or receive payments on crowdfunding sites but not everyone has access to such financial infrastructure so this creates some serious barriers to entry for some of the people who need these services the most.

6. You can raise money for anything YOU want to with Bitcoin.

Nothing is prohibited. Currently, Kickstarter does not allow you to raise money for charity, food/drink products or political campaigns. What if you could easily raise funds for those types of things or maybe you just want to raise funds for your news leak website 😉

7. There is no time limit for bitcoin donations.

If you want to accept donations for the rest of your life, you can easily do this with Bitcoin. You can even receive donations long after you are dead and have donations pass onto your posterity. Lets see Kickstarter do something like that.

8. Funds cannot be frozen or seized.

Legacy financial industries have the ability to instantly and indefinitely freeze your money and in some rare instances they can even seize your money. Bitcoin is not susceptible to such worrisome circumstances. If you have the bitcoins, then YOU have them and not the bank or crowdfunding site.

9. Bitcoin provides more privacy and protection from identity theft.

One of the problems with banks and the legacy finance system is that is requires a lot of your personal information to store or transfer value. In September of 2015, Patreon had personal information from 2.5 million users compromised in a data hack. That kind of personal data is not attached to bitcoin so it is impossible for such data breaches to even happen.

10. Bitcoin further enables digital tipping.

We have all probably given or received a tip in cash form. Maybe you have given someone on the street some spare change or provided a meal for someone in need. Perhaps you’ve wanted to give a tip to a musician on youtube just as easily as as you give a tip to a musician on the subway platform. What if you could give small amounts of money to people for pretty much anything? Bitcoin enables this like no other financial service.

I know all of this is a lot to take in and understand with just a single blog post but because Bitcoin is not a company but rather a global peer-to-peer network running an open-source software, it is opening up a whole new world of permissionless global commerce that has never been seen before. Imagine a world where anyone could raise support for any cause without any fees or censorship.

Conclusion

I am not saying that you need to abandon these services and switch to bitcoin but what I am suggesting is that if you are looking to raise money using any sort of crowdfunding service, I strongly suggest that you also accept Bitcoin donations because it costs about $0 to accept it, people from around the world can send /receive it and you will never have any if you don’t allow it happen.

If you related to this post, then show your support for Bitcoin as a means of crowdfunding, then take action and get your very own Reason to use Bitcoin #44 t shirt at our online store and help us to keep these blog posts coming.

How do you think bitcoin can enable a new wave of crowdfunding? Let us know with a comment below or a tweet at @BitcoinReasons

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