By Amanda Cole, CrowdFundBeat contributing Guest Editor,
With startup culture on the rise and mainstream crowdfunding sites like Kickstarter still becoming more popular by the day, the idea of funding a business through the contributions of hopeful users online is still developing. While there are sound methods and proven practices in place for online crowdfunding, a lot of new companies continue to look for innovative ways to tweak these practices to provide new incentives for funders and increase growth efficiency. And one such way that some newer startups are looking to accomplish these feats is through the use of Bitcoin and its underlying technology.
Many of these company concepts are supported by CoinFunder, which calls itself “the best way to crowdfund with Bitcoin” and includes a number of intriguing projects. They include things like Coincraft, a Bitcoin-supported Minecraft server aiming to help gamers earn money through the popular game, and Bitcoin AdGazer, a company looking to use Bitcoin funding to establish better advertising, in turn, for Bitcoin. This gives you an idea of the range of projects hoping to take advantage of the relatively new concept of Bitcoin crowdfunding in addition to the fact that most projects like this are actually company models working toward the advancement or expansion of crypto-currency usage.
But what exactly is the point of using digital currency in crowdfunding, aside from the appeal of something new?
While there are many budding projects like those mentioned above that specifically aim to raise funds in the form of Bitcoin, the broader appeal is in the use of Bitcoin’s technology and mining and monitoring practices in the creation of unique funding opportunities. These may be foreign ideas to those less familiar with crypto-currency, but an outline of how Bitcoin works explains that mining is essentially the creation of new Bitcoin through complex digital and mathematical means. Monitoring, on the other hand, refers to the public verification and visibility of all transactions. It’s primarily these ideas and practices that can be used to effectively decentralize crowdfunding.
TechCrunch delved into the specifics of decentralized crowdfunding in a very helpful article written in fall 2014. The idea is presented that while ordinary crowdfunding sites force companies to rely on intermediaries (meaning the sites themselves) and incentivize contributors primarily with small gifts or marginal payouts, a platform based on Bitcoin technology can cut out the intermediary and provide more tangible benefits to contributors. The basic concept is for companies using this new brand of crowdfunding to excel by “creating their own digital currencies and selling ‘cryptographic shares’ to early backers.”
This means that just as new Bitcoins can be created via mining efforts and purchases are monitored in a public forum, a new company looking to raise funds can create its own digital currency and allow investors to track and monitor value. Ultimately, it can enjoy the appreciation of the digital currency. It’s still a very new idea, and as the aforementioned TechCrunch article notes, most of the companies practicing actually exist within the greater industry of Bitcoin and digital currency in general. Furthermore, there remain unresolved legal questions about the idea of creating currency to dole out as equity. But for now, it’s a very intriguing branch of crowdfunding with the potential to grow into something highly influential in startup culture.