Crypto currency and blockchain companies have become trending topics the past couple of years making big strides for businesses. Due to its rapidly growing popularity and capabilities it has to change business, many blockchain companies have appeared to fill this gap in the market. Understanding the premise of what they do before you enlist their services will be beneficial as they do offer very helpful services but can be a bit hard to pick up if you are completely new to the topic.
Below we are going to discuss what the technology actually is and how these businesses can make money off of it.
What is the technology?
Think of this technology as a digital ledger that cannot be corrupted. It contains all of the economic transactions for a certain product or service and can be programmed to record pretty much everything rather than just purely financial transactions.
These ledgers are hosted online where anyone can view the record. It is also protected via cryptography so that no entries can be altered or deleted. It was created by Satoshi Nakamoto in 2008 as a ledger for the cryptocurrency known as bitcoin. Since then it has grown to this incredible ledger that solves the problem of double spending where you don’t need a central server to transfer funds.
How does it work?
A good analogy to see how this technology works is to envision a spreadsheet that is duplicated countless amounts of times across a network of computers. This network is designed to update the spreadsheet regularly and can be viewed on all of the computers.
The data and information held on these networks is shared and continuously updated. There are countless benefits for having it this way as since there is no one single location for storage, the records are truly public and can be verified easily. Additionally as the data is hosted by millions of computers at the same time, the data can’t be hacked or corrupted and can be view by anyone with access to the internet.
So how do blockchain companies earn money?
Blockchain companies generally earn money through investors or by selling the technology that they are creating. Some common methods of revenue include the following:
This is the most popular method that blockchain companies use to get revenue. They charge a fee for other companies to use their infrastructure and have access to their own ledger.
Professional and tailored services
Another common method is helping other businesses with a problem that they have and coming up with a solution through the use of this technology. The solutions that they come up with require a fee and include other businesses such as IBM, Deloitte and Gem.
When you hear about cryptocurrency you have probably heard about the tokens that come with them. Many blockchain companies issue tokens or the businesses themselves hold a large amount of them. The goal for blockchain companies is to increase the value of these tokens to the point where they can sell them to speculators.
Another popular way for these businesses to make money is to build and maintain a network between their partners. They then charge them a transaction fee for their activities within the network. You can think of it as an international transaction fee that is a lot lower and is going to the hosting company rather than the banks.
Service level agreements
Some businesses offer service level agreement where they build a platform and host their infrastructure. The other businesses are then charged the service level agreement for the maintenance and uptime. Common businesses that follow this type of model is Microsoft and Blow.