Businesses aim at making a profit. This goal is achievable by having a strategy or model that enables them to drive value and make money in the process. For this reason, many business models popped up, particularly in the digitization era. The internet allows the company to collect data of the users, centralize, and monetize it.
The act disadvantages users who do not benefit from their data. On the other hand, it creates internet giants that use data as a tool for revenue generation. Luckily, innovations are changing this aspect. One of these technologies is blockchain technology that is enhancing the decentralization of data. The technology is inspiring the development of new business models – the blockchain-based business model.
This article covers what the blockchain business model is, how it works as well as its pros and cons. Hence, keep reading to understand these models.
What is a Blockchain-Based Business Model?
A blockchain business model is a decentralized approach that enhances peer-to-peer transactions and the establishment of trusted networks. Unlike the traditional models, this business model spreads value across the network. The past models favored businesses that owned the system and processes. They did not spread the benefit across the supply chain.
With the invention of blockchain technology, this is now possible. Businesses using this model can store and share data through their network as well as spread the value to the users. But how does this model work?
How Does Blockchain-Based Business Model work?
To understand how blockchain-based business models work, it is essential to explain what blockchain entails. Blockchain technology is a form of decentralized, immutable transaction series of records/ledger. By decentralization, it means that data is stored in different computers rather than a single one. However, many entities would not prefer such an aspect due to security concerns.
Blockchain offers a solution to that by enhancing data security by cryptographic algorithms. This technology has three features decentralization, transparency, and immutable. Decentralization means that data stored in the blockchain not a property of a centralized party. Rather everyone in the network can access it. Immutable means that no one can tamper with the data stored in the blockchain system. Transparency stands for the ease of tracking and accounting for all transactions in the system.
In this regard, the blockchain-based business models employ this concept. They focus on enhancing data decentralization and value sharing in the network. The models work through the use of tokens.
Each person that plays a role in building consensus earns a token that has some monetary value. So, the company and users benefit from the data generated. This aspect is different from the digital and traditional business models where only entities owning the data benefit from it.
Examples of Blockchain-Based Business Models
With the benefits of blockchain, several business models have come up. These models use technology to drive the supply chain of a business. Some of the current blockchain-based models include:
Utility token model
This model use tokens to drive its business functions. Any party taking part in the network earns some tokens usage and value depends on the role it can take up. Also, the roles of the token depend on its properties. More properties translate to more utility and token value. Good examples of companies using this model are Stellar and Ripple.
Blockchain as a Service (BaaS)
This model works like PaaS or SaaS. Companies or businesses can outsource the backend of the blockchain system and concentrate on the front end. BaaS providers use blockchain technology to provide services to their clients. These services include cloud storage, user authentication, hosting, remote updating, and push notification. Examples of BaaS providers are Microsoft Azure and Google Firebase.
Development platforms
As blockchain continues evolving, there is a need for continuous development. This business model promotes the creation of decentralized apps by providing blockchain-based development platforms. Ethereum is an example of a blockchain development platform applying this concept.
Securities
Like other assets, one can own and trade tokens earned from the blockchain system. Security tokens are different from utility tokens. The holders of security tokens make some profit from the actions of other people in their network. Also, it has legal ownership as other securities. You can use these tokens as loan collateral or store them in different wallets.
Pros and Cons of the Blockchain-Based Business Models
The blockchain-based business models are not perfect. They typically come with their share of pros and cons. Here they are:
Pros
Decentralization
The blockchain models enhance decentralization and enable peer-to-peer transactions. This aspect eliminates the middlemen. With intermediaries out, your business becomes highly profitable. You do not need to cut your earnings as you move down the supply chain. Also, decentralization enhances fast transactions by reducing the supply chain.
Provide quality data for business decisions
The decentralized ledgers enable you to access data stored in the blockchain network. However, you might be worried about the quality of this information.
With the aspect of filtering and building consensus in blockchain, only verified data goes into the network. The inability to tamper with it means that your business will benefit from high-quality data that will power your decision-making.
Enhanced transparency
As noted, data stored in blockchain systems is hard to alter due to the cryptographic aspect. No one can tamper or delete any data string. This element makes it possible to track and account for any transactions or attempt to change data in your system. Hence, it improves transparency and hinders corrupt activities in your business.
Cons
Mistrust on decentralization
Though decentralization comes with a share of benefits, many businesses do not trust it. Entrepreneurs want to keep their data as private property to have a competitive advantage. However, decentralization exposes this information to players in the blockchain next work. Again, it is hard to control a user that is misbehaving or suspicious. So, adopting this model can enhance your business risks.
Conclusion
In a word, blockchain-based business models are introducing a new face in the commerce world. The models are enhancing sharing of value and benefits across the supply chain. Unlike the traditional models, users can now benefit from the data they help to generate. However, the mistrust issues are delaying the adoption of blockchain models. Despite this shortfall, the models can have some benefits for your business. So, you need to give them a trial.
