From the inception of Satoshi Nakamoto’s Bitcoin protocol to the birth of the Amazon coin and the creation of Defi systems, the world has seen a massive surge in blockchain technology adoption. The global landscape is now dominated by private and public blockchains, dominating all verticals of traditional industries, including Banking & Finance, Supply Chain Management, Social Media Industries, etc.
This guide will dive in deep to give you a detailed description of blockchain business models available in 2022.
Let’s get started!
Blockchain refers to cryptographically secured, decentralized ledger technologies (distributed ledger technology) for electronic transactions. A digital record of the stores and balances is kept in accounting systems or databases across multiple computers with no central authority (“decentralized”). Transactions on a blockchain infrastructure are grouped in blocks: encrypted data strings chain together to form larger chains like nodes on a graph.
There is also an entire financial services ecosystem dedicated to providing merchants, consumers & enterprises access to blockchain technology, including Blockchain Builders, Events and Exhibitions, Technical Support services like VPS & Server management.
The blockchain system is based on three essential pillars;
- Decentralization– The first essential component of a blockchain is its decentralized nature, which reduces money laundering and system failures, unlike closed, centralized services that operate on a single platform with servers owned by only one entity. In Blockchain, no central authority owns or controls data or software stored in their distributed network of computers (known as nodes). Each node can process transactions without relying on another party to complete the transaction.
- Immutability– As the Blockchain is decentralized and protected by cryptographic codes, no transactions can be deleted or modified without damaging every other copy. A new blockchain strategy will see all previous entries preserved in their integrity.
- Transparency– Another critical component of Blockchain technology is the transparency between all participants on a network. The Blockchain’s public ledger offers real-time, complete records and protection for sensitive data.
Let’s Start From the Rock Bottom: Blockchains are Ecosystems
Let’s give you a deeper understanding of blockchain ecosystems. In other words, blockchains are ecosystems divided into layers below;
Layer zero-Hardware &Networking
This layer includes miners and validators. It also includes peer-to-peer networking protocols that allow layer participants to communicate and agree on what state the network looks like. That’s where you’ll realize that there is no genuine central govt, anywhere on a blockchain network.
The consensus layer is where after all these participants communicate, their peer-to-peer algorithms conclude towards the truth of the blockchain computer they are working towards maintaining, e.g., how much cryptocurrency in one participant in the network has?
On top of that, this layer also allows participants to come up with and agree on protocols in their network to run their mining together, like Proof of Work (simple-by-design) or Proof of Stake.
Layer One Point Five-Compute
Developers can now develop a computer to help with the consensus layer that is not computationally heavy for the network. Yet to be defined in ways that dynamically adjust the computational requirements on a blockchain network like Bitcoin, Ethereum, Binance, etc. Developers call these machines “full-node computers.”
Layer Two- Smart Contracts
Smart contracts are computer programs that are specialized computers that can sign and verify activities or actions when they want to. In this layer, the contract stores each participant’s data to validate. But sometimes, there are private chains where only an intelligent contracts party can access your ID card or key cards.
On top of that, smart contracts are designed to be executed and enforced when the conditions set out by their creator happen. And this is achieved using a state machine where each party can follow an execution path with specific data, which will lead them to perform named actions after the program has run through its states. What does this mean?
Imagine if you could write insurance policies or trust funds into your smart contract that would take payment automatically for something like “if I go jogging in a hot climate for 30 minutes, I will pay $5” and make sure you are running in the correct temperature or conditions.
Layer Three – Client & User Interface
In this layer, all the world of protocols and people. The client interface exchanges the blockchain platform with industry tools and interfaces. The user interface consists of machine learning, cryptography algorithms, programming languages, etc.
Furthermore, this layer also provides various mechanisms for some of the core functions like a consensus, verification, and enforcement.
In a sense, there are three significant components in blockchain platform design: verifiable storage system from the base layer to third-party chain applications; architecture with user interfaces that neatly combine all parts into one developed environment; and finally, a state-machine based programming language that activates all the innovative contract conditions.
And this is why we can say they are three macro levels of blockchain architecture in different layers:
- Baselayer – ‘data storage’,
- Layer 1 & 2 – ‘smart contracts’,
- Layer 3 – ‘client interface to industry tools/interfaces’.
Notice how each one serves as an input (base layer) or output (layer two), stored in the base. Data structures of intelligent contracts and client interfaces form layer 1 (or two) platforms, with security as its object. Layer 3 is also an input to the architecture design on which inform-at-rest and verify things out at rest are enabled.
What is a Blockchain Business Model?
A blockchain business model creates a value-based ecosystem around blockchain technology, combining various technical models and business modules across the three layers.
Blockchain platforms enable cryptographic data storage in p2p distributed systems where all blocks are linked together by encryption code on attributes that follow certain principles. The material stored can then be used as an audit trail for financial records and chain transactions since it provides reliable preservation with proof of origin like a time axis indicating its creation and value.
Data storage on a blockchain is by in-built multilayered data security that can vary from the trigger event such as ‘save to chain’ and subsequent management via consensus protocols, which determines whether blocks can be added (valid) or rejected. At this stage, blockchains may provide one level of interaction between users. Still, it does not allow for any additional layer beyond its inherent principles defined in the source code.
A blockchain business model enhances a user’s ability to interact with the data via a comprehensive digital marketplace, enabling them to purchase goods, services, and media from another party.
Blockchain Business Model: A Multi-Sided Platform?
A multi-sided platform is created by blockchain technology, providing a complete service for users and giving them access to other services. Multi-sided platforms enable data storage on a distributed network with decentralized processes across the three layers. Each component has its end-user, while each can have its application and additional product features that work together to create one overall business solution.
So, how does a multi-sided platform work?
Factors that Affect How a Multi-Sided Platform Works?
Firstly, we will start with layer one. And this layer is referred to as the Flywheel. The founding and core team of the business are uniquely focused on delivering an integrated multi-sided platform to all users.
And this layer includes founders, a team of developers, and an outside team of investors who provide financial support.
The founding team and the outside support can build the protocol and bootstrap some initial token value. And once the token value exists, that creates a powerful incentive for miners and validators who provide competent resources and hardware and software skills to get the enterprise up and running.
Important: Layer one of the business helps kickstart many processes like product launches, marketing campaigns, startup planning, and getting users into a market’s network through strategic partnerships with existing platforms. With this initial push to increase the number of tokens used in data exchange across different applications for products, it is expected that any updates are released, or new apps come out during its early stage.
Layer One, One Point Five, Two: Value Added Paradox
The value-added paradox refers to the acquisition cost of an asset as not a good investment indicator. And this explains why ventures fail or stay in the market and still do well even while their investors are making windfall profits from rising crypto-currency prices.
As money keeps pouring into cryptocurrencies, people start to forget about hardware as computer hardware has become easier to acquire, much cheaper than before, so that companies can fly under the radar if they merely want some token value for software products instead of investing in expensive hardware. Being a good picker in layers one and two is still very important. However, the early adopters can find more value within it than others who care about projects like investing millions where they saw technical innovations.
So when we talk about the value-added paradox, we refer to how defensible a model is. The defensibility of a model can be broken down into how effectively and efficiently one could use their tokens, with perceived utility value amongst them.
Extremely strong defensibility of layers one is usually connected to the token economics in which through buying ones other users are rewarding those who participate and help spread the project’s activities by creating more demand without making this investment pressure they need to carry out mandatory actions or onerous obligations like having voting rights or whatnot. Crypto is open-source; every token holder can check back on the code and see how voting works within a project or how decisions are made.
Hence there is no need for complex regulations that make all people work together when the success of projects will still primarily come down to those who understand what – and generally want to do it – with their ideas. And this means higher defensibility but also much more risk as you never quite know if this idea would be safe from inside. It is also unlikely that the ability to continue capitalizing on the project quickly if it gets abandoned for all kinds of reasons will be rewarded.
And this relates primarily to certain types of projects such as ICOs and takeovers. However, very strong defensibility would make even those more complicated try their luck in times where there’s still new blood. Rather than setting up another established model because it offered similar income potential without proper due diligence.
Network effects are essentially the process through which a product or service will increase in value as more customers and users are added.
Same Side Network Effects
The network effects of different possible products can inherit from other networks. Terms like Centralization or Decentralization express that Centralized economies and decentralized ones respectively rely upon a decentralized society. These societies enable them to work together well due to mutual advantage and complementarity. And this supports same-side network effects where this benefit is shared amongst everyone who uses it, making all users more blessed than those in connections structured on money creation for a few.
Cross-Side Network Effects
Cross-side network effects are not mutually shared but instead have a particular feature that forces one side to use the other. For example, more people listen to the radio if another station is playing. These network effects capture economically rational individuals from both sides and reinforce economic barriers that would prevent market players from using them because they cannot support cross-site networks for whatever reason.
Economies of Scale
Economies of scale benefit the validators by creating defensibility where every component gets integrated into the ecosystem. The token gets integrated into wallets and exchanges, useful apps get integrated into the network, useful features get integrated into protocol specs, and ‘decentralized’ organizations benefit from appropriate decision making.
What About Smart Contracts
Smart contracts are multi-sided platforms that themselves are built on layer one platforms. In other words, they are extended platforms that have a deeper generative network within themselves, automatically creating more robust applications right out of the get-go due to having access to layer one capabilities and interactions as well as bootstrapping off their constructed layers 2 through 4 features with free-market incentives for participants in both directions. These relationships trigger vibrant innovation because intermediaries can be eliminated by proper design through micro-markets incentivizing competitors correctly.
How Smart Contracts Influence Blockchain Models
Smart contracts influence blockchain models by allowing application layer owners to freely sell applications through a robust marketplace and promoting horizontal growth via competition without conflict. Also, this ultimately provides all users with more options for parts, services, or even complete project solutions that are decentralized because they cannot be controlled by unethical insiders or giant enterprises acting as gatekeepers.
The projects involved can include just about anything thanks to these industries’ blockchain protocols: banking software; owned asset management platforms.
Classification of Blockchain Business Models
P2P Blockchain Business Models
P2P models are a hybrid between B2C and B2B models.
This model originated from the UIAA, UK’s renewable energy trade association. The open-source nature of permissionless blockchains creates a ‘best practices’ community for building upon the top of them based on consensus mechanisms that can make this viable without coordination through special interest groups or government regulation to disrupt competition or control prices as service markets would do under normal circumstances in other industries.
This business model places businesses in competition with each other that use blockchain protocols to negotiate contracts between owners of decentralized applications and their customers using automated smart-contract enforcement to manage payment processing for goods, services, or ownership transfers through virtual currency (such as Bitcoin). Ownership can also be used instead of payments if a person has repurchased an item they once sold but hasn’t been able to exploit due to the lifestyle change industry markup taking away from the value.
Of course, to ensure compliance with legal contracts and standards, there must have been some social consensus about those before the blockchain protocol was established so that users had an idea of what rules are necessary for running applications or businesses on top of them effectively – or it may still be in flux as we speak. In practice, though, a business goes online like any other marketplace today (Proxibid auctions) that uses reputation checks on a centralized database or smart-contract platform like Uther (Zurix). Transactions are processed for custom software applications.
The base concept of permissionless blockchains does make a blockchain solution that process transactions automatic as well as becoming an open directory for everything on the Internet to access instantly instead of relying upon domain names, IP addresses, and other services provided by private firms today, allowing anyone to register their websites instantly through computers connected via the Internet without registration or permission, as well get paid in cryptocurrency for services and products.
Filecoin and IPFS are examples of businesses using the P2P blockchain model by providing a platform for storing files to be distributed and accessed right away over the network but with security as a priority. Also, this is where traditional smart contracts are used for automated agreements between peers. Every transaction entails an agreed-upon result. There could not be any lying or manipulation of data when interacting remotely via purchased applications on sidechains, networks like Ethereum, Zcash’ Non-Interactive Zero-Knowledge Proofs (ZK Snarks), allowing users to mask their IP address for privacy.
In the case of Zcash, transactions (transactions don’t have to be encrypted since there is no way of ascertaining who sent whom 2) are private. Users pay cryptocurrency for “Bitcoin-like” transparency that anyone can verify. Still, no one except them will ever see any transaction records or your balance, so they would not even know how much money you own unless they take some time and study up.
NOTE: Colored coins require tokens to be listed to send value within the system – how they are constituted is not clearly defined by Bitcoin developers yet but making one that utilizes the Bitcoin protocol is possible (such as Omni).
Blockchain as a Service Business Model (BaaS)
The Blockchain as a service business model permits clients to outsource their transaction processing to a software service provider offering one or more of these elements:
i) Application development and maintenance,
ii) Blockchain node hosting or management,
iii) Real-time data feed access.
BaaS companies provide a hosting environment for third-party owners to register their blockchains, allowing them access to the Blockchain data.
Each Blockchain can be independently managed and may feature a different consensus protocol or system (as long as it adheres) with its nodes responsible for validating blocks from other individual chains in cases where they are found incomplete or contradictory information. Services like this will allow developers who hold private keys on several exchanges some central point to send their blockchains, simplifying the process of moving between sites.
They may also be available for purchase, so you no longer have to hold a significant portion of your cryptocurrency on one exchange (or even all exchanges) since BaaS companies will take care of moving deposits into or out. Depending on whether funds need immediately transferred, they require less than 3-hour effort at transaction processing speeds that are virtually instantaneous.
One of the most popular businesses using this blockchain business model is Amazon Web Services, Microsoft Azure, and Google Cloud Platform.
Token Economy- Utility Token Business Model
The utility token blockchain business model drives business operations and turns into a token-based economy. It provides an additional level of value to the service provider, making their services more valuable for clients by promoting trading through Blockchain with utility tokens that allow customers revenue sharing or bonuses from transaction-based payments made between each other. And this eases monetization through the introduction of applications allowing smart contracts opportunities in commerce where transactions are initiated using custom software-driven programs running on decentralized versions of browsers.
Furthermore, it is known as a “revenue sharing token model,” The funds gained from transaction-based payments made between client and provider will be distributed through a smart contract system. Some of these applications are already available, but trust has often been an issue in such systems due to security breaches or hacker attacks that led to less than secure environments.
And this model has three main properties;
- and purpose.
Each Role has unique features and purposes:
- Right:the holder benefits from the token because he has invested to a certain extent and is entitled to be recognized.
- Value Exchange:create a dynamic economy where the transaction creates value.
- Currency:tokenization of value in and outside the given ecosystem.
- Toll:the toll recovers its life to the value when the transaction is completed.
- Right:token holders get compensation in return for their utility because it has performed a certain function.
- Functionality:Enrich the user experience in a particular environment.
- Earnings:equity sharing of profits and benefits among project investors.
Blockchain-Based Software Products
And this model, some of these products have related use cases and dependencies, an important role in the evolution of those products. They are:
- intellectual property (IP),
- voluntary admission to a platform,
- physical goods,
- services or profit-sharing or
- any other benefits which eluded systems before blockchain technology was introduced.
Furthermore, blockchain companies create solutions to be solved by bigger companies and also support implementation. These companies have focused on building business models or products about the use cases described above. Readymade blockchain solution companies would be the ones to offer products and services targeting those use cases that cryptocurrency provides.
From these applications, Proof of Work (PoW) is a system where token holders are rewarded for validating transactions on their blockchains by performing calculations designed to ensure the uniqueness of blocks in a chain or Blockchain forever. PoS is another type alongside PoW that depends less on energy consumption: any other way that ensures security without using CPU power profits or spending energy is by using Blockchain.
Typical choices are used: the extensive diversity of blockchain projects that appears in this system provides a multitude of advantages and opportunities; new startups will be born based on these systems’ innovations with immediate impact on financial markets, national economies as well as access to banking services, products, and government finance.
Based on this reality, some consider it impossible to talk about consensus without consuming all resources simultaneously, which they believe would lead to a crisis. However, different parties agree that the original dream of an easy-to-use network for users was never realized because adjustments are needed depending on currencies and jurisdictions, and not everyone is able or willing to develop these platforms.
Initial coin offerings (ICOs) can help drive payment channels that provide more flexibility regarding how businesses handle payments. Such mechanisms allow them to issue tokens as remuneration without requiring investors to buy their products.
Remuneration systems with payment channels are becoming mainstream, especially because they do not currently present any substantial risk to equity holders and make payments much faster and cheaper than traditional methods.
Cryptocurrencies have created a new market in remunerative schemes which can be used across various forms of business: hospitality industry, retail management, crowdfunding, or even loyalty points redemption transactions.
Mediachain blockchain being sold to Spotify is a good example of this model.
Startups are creating Dapps(Decentralized applications) on development platforms such as Ethereum. However, the only way to add a feature is to have an initial huge amount of money piggybacking on top of it, making them very expensive and difficult to use by small businesses that do not have access or savings for such investments. That’s why companies like Monolith (formerly MedCredits) are trying to find other platforms where developers can build applications without worrying about tokens’ prices crashing or rising quickly in value because they would be used to launch successful concepts.
However, this model is divided into three specific models:
- Network Fee. There is a network fee with Blockchain itself. Ethereum, Neo, Golem networks have a network fee to these transactions (with open-source tools) or charge close-related transactional fees not to flatten users’ value.
- Auditing. This model is like a blockchain where audit nodes are run by trusted participants. Such architecture would be self-sustainable due to adoption in business flows and assist users with tracking events, creating tags, or implementing interstitial systems. And this model works in two ways. An auditing company hired by developers looks over the smart contracts, or they put up a bounty on their contract and developers can choose which ones they want to audit.
- Artificial Intelligence: Artificial intelligence (AI) is often associated with fraud or hacking possibilities, but if used in smart contracts like double-spending prevention or encryption, they can revolutionize current marketplaces which are not adapted well.
- Other services: As startup businesses require work such as a website, frameworks, and content, they may save money and time by hiring freelancers and outsourcing content creation. The network fee of similar networks will be much lower than that for a centralized website building and could instantly deliver the news to users around the world as it’s already on such platforms’ backend databases.
Blockchain Business Model Development Tips
- What type of startups do you have?
Do your research and determine what kinds of applications or blockchains should be purchased. Since the concept is still not mainstream, start with simple, smart contract engagements in early stages like ICOs governance. Look at all possible DAPPs on the Ethereum platform before doing a test run there later on once it goes mainstream, then move to Neo blockchain and have an understanding about neo’s anonymous affairs compared to ether.
- What goes into your smart contracts?
Make sure you put security first. Avoid storing sensitive information like IP addresses, user accounts, personal details, and passwords in any digital contract storage device. Do not keep these on physical hardware as much. It will be easier to hack the system if someone gets access to it. Keep everything encrypted using powerful algorithms such as AES 256 bit encryption.
- Think in Native Blockchain Technology Terms. Think based on project prototypes and get familiar with blockchain technology terms, from cryptography to Byzantine Fault Tolerance (BFT). When developing a new network, let your brain think like future users. What could be the most significant breakthroughs in their daily lives?
- Realistic Bounties: For high-value tasks, create generous bounties that are similar to what companies offer employees when they perform well against a certain task requirement.
- Social Proof: There are times when a bug can be fixed by simply observing the behaviour of other projects that have been tested and seen to work. In an instance of bug detection for a smart contract or DAPP, consider the social proof you can get from your team.
6. Train other members: Every network has core team members and they are crucial to the first stage of blockchain projects. Dedicate a certain portion of your time in doing workshops on blockchain technology or DAPPs(decentralized apps) for new members who will join later as you progress along with the project.
The blockchain business models combine two words: Blockchain and Business Ideas. Anyone can now introduce blockchain technology in their business, but to succeed, they have to find a way to improve existing practices with its use cases. Cryptocurrencies have always been emphasized as an alternative currency you don’t need inside banks or monetary institutions since communities run them.
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