According to a Business Insider report, in 2017, blockchain startups have raised $3.5 billion through Initial Coin Offerings (ICOs). The investors are flocking to these ICOs for various reasons. Some are treating it as high-risk investment opportunities. Others believe in the business models of some of these companies. There are even people who are investing because they think they are contributing to a better tomorrow.
Whatever the reason for the investments, the investors expect their startups to succeed. And, in order to succeed, these businesses have to make money. So it makes sense for investors to look into the monetary prospects of blockchain businesses. Besides startups, big names like Amazon, IBM, Microsoft, and more are investing in blockchain applications. They are also trying to monetize this new technology.
Blockchain businesses are playing around with a lot of creative and innovative ideas. But here are a few ways they are making money:
The blockchain industry is relatively new and the risks are high. But a lot of companies are curious. They want to figure out if blockchain is right for them. It has created an opportunity for blockchain businesses to create BaaS services for these companies. BaaS is based on the same principles as Software-as-a-Service (SaaS). It saves companies time and money. They don’t have to invest their resources to build the blockchain technology. It gives them access to established blockchain implementation without paying the price of research and development. Blockchain businesses can charge the companies for using the BaaS APIs and infrastructures.
Well-known companies are involved in the BaaS space. Microsoft offers blockchain on its Azure cloud platform. Azure Blockchain Service provides both Ethereum and Hyperledger based blockchains. IBM is using Hyperledger to provide its IBM Blockchain Technology service. Amazon Web Services (AWS) has partnered with Digital Currency Group (DCG) to offer BaaS for enterprise-level customers. R3’s Corda is a blockchain-based digital ledger service for the financial industry. In the future, we are probably going to see more blockchain businesses providing industry-specific BaaS.
For security or regulatory reasons, companies might not be able to use external infrastructure for blockchain applications. But at the same time, they might not have the necessary expertise or resources to build their own systems. In such cases, blockchain businesses provide the necessary advice and guidance to these companies. Blockchain consultants can play various roles. They can advise on building a system, provide a skilled workforce to support development efforts, or train current employees in blockchain technology. They can help companies find the right business strategy that can leverage blockchain. Consultants can also help companies learn to collaborate with partners and customers in the new distributed environments.
According to 2017 Gartner report, the top blockchain consulting services are Accenture, Applied Blockchain, brainbot technologies, Capgemini, Chainsmiths, Cognizant, Deloitte, EY, Fujitsu, IBM, Infosys, KPMG, Ledger Labs, NTT Data, PwC, Synechron, Tata Consultancy Services, VirtusaPolaris, and Wipro. Even though these are all large IT service providers, there are also a lot of smaller shops that provide blockchain consultancy services.
Subscriptions and Fees
Blockchain businesses can build and maintain applications then charge fees. The application can use a pay-per-use or a subscription model.
Distributed cloud storage provider Storj can serve as an example. In Storj, users who participate in sharing unused hard disk space are called farmers. When customers store their files on the Storj network, the files are shredded, encrypted and stored on the farmer’s hard disk. Because each farm computer only gets a small and encrypted portion of the original files, there is no way for the farmers to decrypt the files. Storj collects fees from the customers and pays the farmers for the disk space use. The company takes a cut from the fees during the transaction process.
Increasing the Value of the Coins
Each blockchain business comes with its own coin. When a blockchain business is offering an ICO, it is basically asking for investment in its idea. As the idea is implemented and more people adopt the blockchain, the value of the coin or token increases.
Blockchain businesses that have their own tokens use them in their ecosystem and try to make it more valuable for the users. For example, Steemit is a blockchain-based social network that pays both original content creators and people who actively interact or promote the content. In the Steemit ecosystem, its own digital currency is used to reward the content creators and the influencers. This process creates a vibrant ecosystem where better content and more user participation increases the value of the Steemit currency for everyone. As a result, the Steemit network owners also benefit from the increase of the currency values.
Blockchain Mining Centers and Hardware
Every blockchain requires lots of computational power and miners provide that power. They get rewarded with cryptocurrencies or digital tokens for their efforts.
Initially, miners were individuals who used their personal computers. But as the number of transactions grew and more power was necessary, some miners started to build homegrown data centers to increase their ability to mine coins.
Today blockchain mining has gone to the big leagues. For example, Bcause, LLC has built a 65 million bitcoin mining facility in Virginia Beach, Virginia. It is the largest data center dedicated to bitcoin mining in North America.
Another lucrative business is providing hardware for blockchain mining. Nvidia graphics card are used for bitcoin mining. The demand for the graphics cards has positively influenced Nvidia's stock prices. Also, companies like BITMAIN, Canaan, Ebang, BitFury, and GekkoScience offer hardware that is dedicated to cryptocurrency mining.
The blockchain business is in the early stages of experimenting with financial models. The technology is young. Just like internet companies had to try various models to figure out monetization for e-commerce, blockchain companies are going through their own trial and error period. There will be successes and failures. Newcomers will have to learn from the mistakes of their predecessors. However, there is no doubt, blockchain is an exciting space for innovative business entrepreneurs to try their skills.
If your small business needs help with blockchain monetization, please feel free to contact us today. Our experts are ready to help.