Several weeks ago Crowdfund Insider received an email from a new bitcoin crowdfunding site; BitPieces. Bitcoin, and other digital currencies, have quickly migrated into state-less measures of wealth that may transfer monetary value and benefit from the fact transactions are more like cash than credit. Coupling crowdfunding with bitcoin is a natural step. Bitpieces founder Tyler Houlihan wants to create a unique crowdfunding platform that uses Bitcoin as the preferred currency and allow for secondary trading for offers that sell pieces of their brand that share in profits. The “rewards” are described as similar to “dividends”. We forwarded some questions to capture some insight into Tyler’s crowdfunding strategy.
Tyler Houlihan: I’m an electrical engineer/software developer, graduated from Purdue university. My main side interest is music (piano, guitar, cello), and its one of the reasons I had desire to build the site.
I thought about how amazing it would be to own a piece of a favorite local band, watch them develop, and be an active part of their growth. Someone could be a #1 fan, both in spirit, and in actual contribution.
Seeing as how so much media nowadays goes for free, I thought that we needed an alternative way to contribute to the content-creators we love. Also, I have a love for all things web, and international movements unrestricted by borders and controls.
The problem of going to banks to get funding, or VC’s, is an excruciating process for creative people who just want to continue making the things. They could do it for free, but since we still gotta eat and pay rent, we end up spending monumental amounts of time at places doing things we’d really deep-down prefer not to do. Seeing talented people my age wither and barely break even working at customer-service jobs, when they could be working on and developing wonderful projects, is hard to watch, and we need a way out.
Crowdfund Insider: When did you get into Bitcoin and why?
Tyler Houlihan: I got into Bitcoin a few years back, because I love the collaborative nature of it all. People working together, without borders, mining and agreeing on value, transactions, and the code powering it all, is tremendously encouraging for our future. I love its power and usefulness as a payment processing network; that someone from uganda can pay someone in germany in seconds, is pretty incredible when you think about it. For me, its something that fosters communication, and brings us closer together.
Crowdfund Insider: Bitpieces is a hybrid rewards / investment platform. Please explain your vision on this process.
Tyler Houlihan: I probably can’t explain it better than I do in the FAQ, but the inspiration comes entirely from the stock-exchange world, but avoiding that terminology because us bitcoiners hate regulation. Pieces are basically equivalent to stocks, and rewards are similar to dividends, except that rewards in Bitpieces are automatic and continuous, while dividends in stock markets are paid out on specific dates. After working with these dividend payment dates(called ex-div-dates) for long enough, you can see how really unecessary they are, and how much easier, more secure, and smoother things would work if dividends accrued continuously as a rate like interest instead.
And so in Bitpieces, the rewards build in their funders accounts, and can be withdrawn at any time.
Crowdfund Insider: How do creators go about selling pieces of their brand and how is the brand value determined?
Tyler Houlihan: Issuing pieces is extremely simple. You make a creator account, and on your front page there is a giant ‘raise funds’ button, where you type in the number of pieces you want to sell, the price per piece, and the reward/piece/year, with some helpful rules about how much your reward should be displayed. What you just did, was an IPO.
Still, its fundamentally different from Kickstarter, in that there is really no specific funding goal. After all the pieces are sold, buyers and sellers can still issue bids and asks on your pieces in an open market, and rewards still accrue for the piece-holders. Then later on, if more funds are necessary, a creator can issue more pieces(obviously with dilution). This whole process is equivalent to going to venture capitalists going through funding rounds, but on a crowd-funding scale.
The brand value is really determined by how many people are willing to buy your pieces, and how much they like the content you create. That’s a hard thing to quantify, but if an artist I like issues pieces, and I really like their art, I’d likely want to help them in their pursuit. Finally, if they sell all their initial pieces, the bidding war can take place on what they’re really worth.
Crowdfund Insider: You are incorporating a “secondary market” for selling pieces. How will this operate?
Tyler Houlihan: It currently does operate. If you own pieces of any brand, you’ll find that on your user page, you’ll see a big ‘ask button. Here, you can offer to sell the piece to any bidders, and your ask price will be displayed on the creator’s page. If you’d like to test this functionality in a monopoly money environment, head over to the test site.
Crowdfund Insider: Do you have any concern regarding regulators?
Tyler Houlihan: Of course. Right now, the project isn’t big enough to hire a legal team, but I’ve had many people tell me that this, in the eyes of the SEC, is highly illegal, since these pieces could be construed as regulatable. We’ll cross that bridge when we come to it, and I certainly recognize that this concern should be taken on, but in my eyes, since the bitcoin network is used, the SEC has no more jurisdiction over Bitpieces than Norway, Guatemala, or South Korea. Us bitcoiners hate regulation, and I’ll do everything in my power to ensure that Bitpieces both stays legal and complies with all the rules, but is also as unregulated as possible.
Tyler Houlihan: The biggest security concern, in my view, is funder security. How do funders of brands know that the brand is legitimate, and that they won’t mistreat their funders? Fraud is an extremely difficult problem to tackle (look at how far enron got) , but Bitpieces has 5 pillars of security.
As far as internal security, the project is highly secure, jasypt encryption is used everywhere, and coinbase is used as the payment processor.
Crowdfund Insider: You want to be a global platform. Who are your main competitors globally?
Crowdfund Insider: Bitpieces is self-crowdfunding. How much would like to raise?
Crowdfund Insider: Bitpieces is part of a plan to quit your job and become a musician. How is the band going?