Crowdfunding has become a tremendous funding resource for entrepreneurs, creatives, and activists alike to raise money for projects they wish to bring to life through a global audience. Crowdfunding platforms like Kickstarter and GoFundMe have traditionally filled this space, where those with ideas pool small contributions from backers to see their ideas come to life. 

However, a new player has entered the world of grassroots fundraising: Bitcoin. Being decentralized and borderless, Bitcoin is changing the rules for the way startups and grassroots initiatives are raising funds, and providing them with the advantages over traditional methods of fundraising.

In this article, we’ll look into how Bitcoin is reinventing the crowdfunding scene, and why more startups and grassroots movements are choosing to raise funds using Bitcoin.

Why Bitcoin Appeals for Crowdfunding?

One important feature that other crowdfunding platforms do not have is that Bitcoin transactions are irreversible and fully decentralized. Being a decentralized digital currency, Bitcoin does not require any central bank or intermediary. It enables folks and organizations to lift cash immediately from backers without the charges and limits that usually include standard crowdfunding platforms. Here are a few key reasons why Bitcoin is gaining popularity in the world of crowdfunding:

1. Global Accessibility

Bitcoin crowdfunding offers one of its biggest advantages: global reach. Unlike other investment types, bitcoin uses a decentralized network, and therefore it does not matter where in the world you are, or which local banking system you use, anyone can contribute to a crowdfunding campaign. Traditional crowdfunding platforms are often gated in terms of countries in which they can offer exposure due to regulatory hurdles or financial limitations, restricting the potential makers and backers. Bitcoin eliminates these barriers, allowing projects to connect with a truly global audience of would be supporters.

For example, a startup in a developing country may not be able to access the international crowdfunding platform because of banking restrictions or high transaction fees. With Bitcoin, that startup can receive contributions from anyone with access to the internet, thus expanding participation and, with it, inclusivity.

2. Lower Fees and Faster Transaction Times

The processing fees charged on traditional crowdfunding platforms range from 3 to 8 percent of the raised total amount. And banks or payment processors also take a slice of the cash from backers using credit cards or other payment methods. Especially for smaller projects that live off tight budgets, these fees can quickly add up.

On the other hand, with Bitcoin transactions usually having lower fees than what’s involved in regular financial services, it’s particularly useful for transferring large amounts of money across borders. Besides costs, Bitcoin transactions are faster and can settle in as little as minutes, while it may take days for a bank transfer to be processed.

Along with faster transactions, lower fees make Bitcoin a desirable solution for those wanting to push the maximum amount of money they can come up with into their projects.

3. Financial Independence

Bitcoin is one of the most revolutionary things in the world in terms of it being so decentralized that you are able to have financial independence in a way you’ve never had anywhere else. Bitcoin allows crowdfunding campaigns to operate outside the traditional financial system and free of the rules that currently govern governments, banks, and crowdfunding platforms.

It is especially important for this censorship resistance for grassroots movement or projects that can be opposed by political or financial institutions. For example, activists, journalists and nonprofit organizations based in authoritarian countries can fund raise using Bitcoin without having their accounts frozen or blocked.

A good example of this was the 2019 to 2020 Hong Kong protests when activists resorted to using Bitcoin to finance their activities after most of their traditional fundraising channels were shut down. Or, they could continue their efforts without the interference of authorities or financial institutions, thanks to Bitcoin.

Leveraging Bitcoin for Crowdfunding by Startups

Not only is Bitcoin changing grassroots movements, but it is also changing the way young startups seek funds. Bitcoin and other cryptocurrencies are becoming a go-to way for entrepreneurs to raise capital for their ventures in innovative ways.

1. Token Sales (also known as ICOs)

The most prominent examples of how Bitcoin is being used by startups in crowdfunding is Initial Coin Offerings (ICOs) and token sales. Startups can raise capital on ICOs, by issuing digital tokens in return for Bitcoin or other cryptocurrencies. These can stand for anything, for example, access to a platform, voting rights and even equity in the startup.

In 2017 and 2018, ICOs earned a lot of popularity and startups were able to raise billions of dollars without traditional venture capital channels. The ICO boom may have cooled down since due to regulatory scrutiny, but it showed the potential for Bitcoin to revolutionize startup fundraising by allowing companies to reach global investors.

2. Crowdfunding Platforms that have Decentralized Characteristics

Along with ICOs, a number of decentralized crowdfunding platforms have come into existence, through which startups can collect funds using Bitcoin. These platforms use blockchain technology to disintermediate peer-to-peer fundraising. StartEngine and Giveth are decentralized platforms where startups can raise capital in Bitcoin, like a more transparent and more efficient way to raise capital.

Decentralized crowdfunding allows backers to donate Bitcoins directly into the startup’s wallet, so the money goes directly to the project and there’s no third-party approval or oversight needed. This gets friction out of the fundraising process and provides both startups and backers greater flexibility and control.

Challenges and Considerations

There are many advantages to using Bitcoin for crowdfunding, but not all are without their challenges. The risk for project creators and backers comes from the volatility of Bitcoin’s price. Because the price of Bitcoin can change significantly within a short period of time, funds raised in a crowdfunding campaign could drop in value as the price of Bitcoin falls.

To reduce this risk, some projects will convert your Bitcoins to stablecoins (currencies pegged to a stable asset such as the US Dollar), or even into traditional fiat currency shortly after receiving your contributions. By taking this approach, you can ensure that funds raised do not lose their value due to market volatility.

Additionally, there are things to take into account in terms of regulation. Though Bitcoin is borderless, countries have different rules surrounding cryptocurrency use and fundraising. If startups or grassroots movements wish to raise funds with Bitcoin then they need to stay informed about the legal implications to avoid potential issues.

Final Notes

Bitcoin is changing the way crowdfunding happens for startups and grassroots movements, giving them a different path to fundraising. Its worldwide access, lower fees and decentralized nature make it a cool option for people seeking financial independence and control over their fundraising efforts.

With Bitcoin spreading into the hearts of the masses, its role in the world of crowdfunding is likely to grow, offering more entrepreneurs and activists the opportunity to raise the necessary funds to transform their ideas into reality. Bitcoin is the future of grassroots fundraising for many, where financial power belongs to the people instead of institutions.