How bitcoin is influencing the crowdfunding scene for start-ups

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With a 350% price increase this year, the bitcoin cryptocurrency has been big news in a number of different areas. But politics, legislation and investment aside, one area in which bitcoin has been making waves is in the crowdfunding of start-up companies.

The revolution in the way we use money that bitcoin represents has made its way into the crowdfunding scene lately. But what does that actually mean and how will it affect the efforts of start-up companies to bring in the initial investment that they crave?

What Are Bitcoins?

Bitcoin is a cryptocurrency and digital payment method that was invented in 2009 and is now used around the planet. Unlike traditional types of currency, it is a peer-to-peer system that involves people transacting among themselves without intermediaries such as banks getting involved.

According to a study by the University of Cambridge, there are estimated to be about 3 million cryptocurrency users in the world as of May 2017, with the majority of them opting for bitcoin. There are around 15 million bitcoins in circulation at the moment. Interestingly, unlike traditional notes and coins, there is a set limit on how many bitcoins will ever be produced, with the total amount that will ever exist being 21 million.

How Are They Used?

Part of its increasing worldwide popularity comes down to the way in which this currency can be used in a number of different ways. For a start, many companies accept bitcoins as payment for services and products. They are also being used increasingly for investment purposes and for buying other currencies. In addition, you can also find bitcoin games to play and earn bitcoins as a reward for mining blocks.

What Role Does Bitcoin Play in Crowdfunding?

In the last couple of years, we have seen a big increase in the number of crowdfunding projects that have used bitcoins. Possibly the simplest way to explain this is that the use of bitcoins allows projects to get off the ground quickly and without any intermediaries or centralised authorities getting involved.

Anyone from anywhere in the world can fund a project just by sending the funds directly to the other person’s bitcoin wallet, meaning that no fees are paid out to anyone. There are cryptocurrency only crowdfunding sites such as Weifund and Ethereum in which donors can simply send money directly from their virtual wallet to the startup project.

In addition, cryptocurrency blockchain startups raised about $200 million in 2016 for their own Initial Coin Offerings for new currencies. Some of these did this through working with traditional crowdfunding sites such as IndieGogo.

Since crowdfunding platforms raised some $33.4 billion in 2015 and show no sign of stopping their growth, it seems safe to say that there are plenty of people out there who want to invest in this type of venture. What isn’t clear yet is how many of them want to do it using bitcoins.

What Does the Future Hold?

There is still a lot to work to be done before bitcoin crowdfunding sites become genuine rivals to sites that use fiat currencies. For a start, there are legal issues to overcome as regards whether start-up companies can offer equity in their businesses in exchange for this currency.

Then there is the fact that there are already popular crowdfunding sites such as Kickstarter and IndieGogo with a huge range of projects to choose from. Until bitcoin-based crowdfunding sites get the same sort of number and quality of projects in their portfolios then it is going to be difficult for them to attract investors away from the other, more familiar options.

However, with both crowdfunding and Bitcoin usage becoming more common over time, it would be no great surprise to discover more effective ways of combining these ideas appear in the near future.