Where Do Blockchain Businesses Get Their Revenue?
If you are wondering why Blockchain has become so popular in the business sector, especially in the last decade, why most companies are heading towards Blockchain, and how Blockchain-based companies are making profits, you have hit the right place.
Here, I’m explaining the top five ways by which Blockchain companies make money. Stay tuned!
A list of ways in which blockchain companies make money
1. Developing Software for a Specific Purpose
Big firms build Blockchain software for their clients for a particular purpose. For instance, building Blockchain software for cross-border payments. Giving a solution for supply chain and trade among businesses.
The software assists different businesses with settlement transparently and effectively. Companies such as IBM and Deloitte are the major software developers in Blockchain technology.
They make money by selling these Blockchain solutions to other businesses.
2. Providing Software as Service
Secondly, blockchain corporations make money by offering software services to other businesses. They facilitate different business solutions by helping them to create APIs, cloud storage, data management software, and so on.
3. Earning from Transactional Fees
Presently, many businesses are developing Blockchain infrastructure for big corporations and institutional investors. This is a great way for Blockchain companies to earn money through transaction fees.
Institutions or businesses which use Blockchain infrastructure need to pay a subscription fee and transaction fee to the developers. They pay for doing business transactions and service delivery.
4. Contract Agreements
Blockchain firms also earn money by signing contract agreements with other companies. They make contracts with other companies to offer Blockchain infrastructure by designing and developing Blockchain applications by Blockchain app developers. They also host the service for a specific period by signing a contract.
5. Speculation in Cryptocurrencies
As Speculation remains the most dominant utilization case for crypto money, mostly all the Blockchain network have their native token, which is often taken by the project team and developers. These groups work hard towards elevating the market value of the token, after which they sell it for profit
What is a Blockchain Business Model?
Well, to understand how Blockchain business models work and how companies using Blockchain technology make money, we must be aware of what a Blockchain business model is.
Any business model describes a strategy or plan of a company to sell a product or service and earn profit in return from there. Every company will frame its methods of handling business.
However, there is a centralized model, composed of the owners or the shareholders, the customers, the employees, and the organization.
A Blockchain business model has all the three main attributes of Blockchain technology, it is decentralized, based on peer-to-peer transactions, within a trusted and reliable network.
Types of Blockchain Business models
1. P2P Blockchain Business Model
As I stated earlier, Blockchain technology has always been peer-to-peer permitting end-users to interact with each other. The profit may be earned here via tokens, BaaS i.e., Blockchain as a Service, transaction fees, and others. File-coin and IPFS are illustrious examples that use this business model, by offering a platform for data storage and sharing.
2. Blockchain as a Service Business Model (BaaS)
Blockchain technology and the ecosystem can be pretty menacing for people in general. Nonetheless, this Blockchain-as-a-Service (BaaS) business model allows the clients to outsource all the backend structures and aim only on the frontend. BaaS agencies usually offer services such as user authentication, remote updating, push notifications, database management, cloud storage, and hosting.
It is, therefore, one of the most famous blockchain business models, with popular operators such as Microsoft (Azure), Amazon (AWS), and IBM In this case, the end-users, are not usually people, but other businesses and organizations. And they neither need to worry about how Blockchain works nor hardware infrastructure, thus giving them access to experiment, test, and conduct research.
3. Token Economy – Utility Token Business Model
The utility token business model moves functionality into business via the utilization of tokens, which provide the network activities. Nowadays, there is plenty of start-ups, companies, and e-commerce websites that use the utility token business model. This model has three important properties: role, feature, and purpose. Every role has its own set of characteristics and purpose:
- Right: with a particular token, the holder gets a specified amount of rights within the ecosystem.
- Value Exchange: the tokens make an internal economic system that can help the buyers and sellers trade value within the ecosystem.
- Toll: it acts as a toll gateway to utilize specific functionalities of a particular system.
- Function: the token enables the holder to enrich the customer experience inside a specific environment.
- Currency: it is a store of value that can be utilized to conduct transactions both inside and outside the given ecosystem.
- Earnings: permit an equitable distribution of profits and benefits among investors in a certain project.
4. Blockchain-Based Software Products
There are Blockchain security companies that create Blockchain solutions to be sold to bigger companies and organizations, along with support after implementation. That usually works out fine, because the big firms don’t want to go through the process of selecting and hiring talent.
It is much easier to purchase a ready-made Blockchain solution. Offering Blockchain technology to organizations can be extremely profitable. The best instance of this is the MediaChain Blockchain being sold to Spotify.
5. Development Platforms
As we know, Blockchain technology and ecosystem are still recent and for it to grow, more developers are required to enter the environment. Therefore, a lot of start-ups are building decentralized applications on Blockchain development platforms.
To understand the relationship between development and the value of the network, you can refer to Metcalfe’s Law. As per this Law, the effect of a network is proportional to the square of the number of customers connected to the system. In simple words, the more people engaged, the more valuable the network is.
However, when it comes to solely business models, what makes them capable to bring value into the crypto space? For this, there are three specific models:
- Network Fee: There is a network fee associated with the blockchain itself which is charged in a small amount by the user for different activities on the network. For instance, the Ethereum network charges gas fees for the utilization of the platform. NEO charges GAS tokens, Golem asks for golem tokens, etc.
- Auditing: This model works in two ways: either the developers hire an auditing firm to look over the smart contract for them or put up a bounty on their contract and numerous independent auditors and builders look up the code and search for flaws. That works out because Dapps deal with a lot of capital, so their code must work correctly because any little bug can lead to a large catastrophe.
- Other Blockchain Services: As a Blockchain business needs a lot of work, such as website, content, and frameworks, the start-ups can save capital and time by hiring freelancers of companies to deal with these services. It is a great Blockchain business model for talented professionals who want to test their skills in a business.
Just like any other business model, the blockchain ones can be a blend of ideas, and there is no hard rule on how every model ought to operate and function. At the end of the day, choosing the right one depends on the nature and objectives of the business.