Could bitcoin be a suitable vehicle for crowdfunding? Over the past couple of years, crowdsourced funding projects have bloomed, but most of them still require contributions in fiat currencies. Now, however, some sites are emerging designed to help people attract bitcoin-based funding from a broad community of donors.

Crowdfunding platforms such as Kickstarter and IndieGogo have become a popular means of funding for a range of projects, from manufacturing through to content production. According to market analyst Massolution, crowdfunding platforms raised $2.7 billion in 2012, 81% up on the year before. It predicts just under double that amount will be raised this year.

But regulators are still writing the rules for crowdfunding. At present, companies are not allowed to give away equity to investors as part of a crowdfunding project. Instead, projects must be funded via preorders for a product or service, or simply through patronage, which limits the concept’s potential.

The US passed the Jumpstart Our Business Startups (JOBS) Act last year, but left the SEC to sort out the details in a process which is still ongoing. Up in Canada, little has been done to understand or articulate any regulations for crowdfunding.

But bitcoin isn't a currency, as such. Only businesses that exchange it for fiat currency are regulated as money transmitters. There are some businesses operating what amount to equity-based crowdfunding in the bitcoin domain. Generally, they call themselves bitcoin stock exchanges.

BTC Trading Corp.

is one such entity. It enables people to offer equity in their online ventures, but covers itself by pasting the site with disclaimers. "Nothing is verified. Everything is virtual," says one. It says that assets on the site are not to be considered real, and that everything is for educational and entertainment purposes only. Another, BitFunder, also enables people to sell shares, in exchange for a fee ranging between 0.5% and 1%. It lists the assets available on its site, including well-known online ventures such as ASICminer, which is building its own ASIC mining equipment to generate bitcoins.

The ASICminer shares, however, are 'pass-through' shares, which are essentially shares purchased from someone who already bought real shares in the company. This happened because ASICminer stopped selling real shares after the first equity-based crowdfunding platform it used, called the Global Bitcoin Stock Exchange, closed down. This shows how shaky the concept of equity crowdfunding/bitcoin IPOs can be.

There are now some sites emerging that focus on patronage or preorder models, rather than equity. But, given the proliferation of fiat-based crowdfunding sites, why bother? The first reason is lower fees, says a representative from CoinFunder, one bitcoin-based crowdfunding site.

However, CoinFunder has yet to make a dent in the crowdfunding space. "Thus far, we have not had one successful crowdfunding project," said its spokesperson, by email. Indeed, its front-page project was a crowdfunding project to help convince a US mail order subscription firm to accept bitcoins.

"We don't have any current plans to support bitcoin for crowdfunding campaigns," said Lou Doctor, CEO of Crowd Supply, a crowdfunding site that includes its own fulfillment service for projects involving physical goods. "We've discussed it a couple of times but didn't feel like the time was right and that it was likely to add confusion to an area that has a considerable learning curve already."

Still, some are experiencing more success. Bitcoinstarter, launched April 1, saw its first project fully funded this week, with 10 other projects partially funded to date. 60 bitcoins have been pledged so far, said founder Matt Allen.

Allen is hoping that the Bitcoin community will look after its own. "I think the Bitcoin community rallies behind bitcoin-related projects much more easily, which of course helps new websites gain momentum fairly quickly," he says. "One aspect that works to our advantage is everyone has a project they're working on with bitcoins."

That said, the biggest hurdle – beyond finding people interested in pledging bitcoins – is the quality of projects, he complains. Kickstarter has a critical mass of quality projects funded in fiat currency, but it is harder to find decent projects in the rarefied Bitcoin world.

"With some of the projects we've received, project creators tend to leave it behind for us to help market it for them," he says.

Some projects are well-managed, but controversial. One such crowdfunding initiative is DEFCAD, which is designing a search engine for 3D printable models. DEFCAD, which tried to host CAD models of 3D printable weapon parts, had its files removed by the US Department of Defense. The search engine will make it possible to find models on the Internet, minimizing the risk of takedowns, the project's organizers say.

“We try to be agnostic to projects as long it doesn’t put us in legal harm,” says Allen.  “All projects are given a fair look.”

He had to make a choice when Defcad approached him, he adds. “We decided there is no reason why we wouldn’t want to support such a cause.”

While most of the projects on bitcoin 'stock exchange' sites seem to be variations on mining initiatives, projects on patronage or preorder sites a more varied. Bitcoinstarter includes projects to distribute free IT equipment too poverty-stricken areas, and a bitcoin anonymizing service. Then, there are the wildly ambitious. Someone wants to buy a private island in Canada and make a "resort for bitcoin". Nobody had pledged towards the 1222 BTC goal so far, at the time of writing. Go figure.

In fact, the proportion of projects on the Bitcoinstarter site that has not yet received funding is depressingly large. This will partly be down to the number of visitors to the website, which in turn will be a function of the project owners' own marketing. If there is one piece of conventional wisdom in the still-nascent crowdfunding space it's this: if you are going to crowdfund a project, you must put in the work to build a community around it first. That is something that the likes of Allen can’t easily do for project owners.

Nevertheless, he can at least give people the tools. Bitcoinstarter is working on a new feature: an API using Reddit’s bitcoin tip bot for crowdfunding. This will enable Reddit users to fund each other's projects in bitcoins.

Crowdfunding in bitcoin has a long way to go, and for a long time to come, fiat currency crowdfunding sites will dominate the space. Selling equity for bitcoin is entirely doable, but fraught with potential fraud issues. People wanting to source money from the community have a long and rocky road to travel.