Value Capture Potential With Businesses in The Ecosystem of Permissionless Blockchains
Blockchain has almost no value capture potential for businesses. Not today, at least. Indeed, the technology of permissionless blockchains affords disruptive opportunities. However, this leads to the misconception that novel business models that are built on top of permissionless blockchains can create sustainable revenue streams. This is not the case and quite the contrary can be observed.

The Barriers for Capturing Value in The Ecosystem of Permissionless Blockchains
Value capture requires value creation and in the field of permissionless blockchains this involves a viable blockchain-based business model.
Creating value refers to the creation of use value of a product or service that may or may not yield added exchange value. In practice, value creation for customers can be enhanced through network effects, brand strengths, and efficient operations. Since blockchain’s main purpose is to connect people peer-to-peer and provide more efficient services through cutting intermediaries, it becomes exponentially more valuable with more users. The attributes of network effect, brand strength, and efficient operations are likely to affect each other, since all three are indicators for high quality and good service of a business. In order to improve value creation and quality, most blockchain-based businesses are partly working on the development of more efficient operations as an approach to overcome the technology’s constraints; for instance in scalability. In traditional economy, companies acquire economies of scale through an increasing number of customers / users but this is not true to businesses in the ecosystem of permissionless blockchains. Too many users weigh down the network and transaction times which leads to highly uneconomical transaction fees — called diseconomies of scale. As a result, a serious contradiction to the development of a mainstream blockchain becomes apparent, as scaling is a fundamental requirement for the development of a dominant design. It is clear that the technology’s constraints are in imbalance with value creation and potential solutions are needed. This presents the first barrier for successful value capture.

Capturing value refers to the firm’s acquirement of exchange value. In other words, value is captured, once a firm has received the purchase price for their product or service from the customer. This includes the monetisation of users and efficient pricing, but this is exactly what blockchain aims to wipe out through cutting intermediaries; particularly DApps that are supposed to function entirely autonomous. In this context, a quick excurse into collaborative entrepreneurship is deployed as necessary. Collaborative entrepreneurship is a similar concept to open innovation and finds application for many blockchain-based business models. Accessible and transparent whitepapers and open-source developments support the exchange of information and sharing of knowledge which result in jointly generated ideas. In fact, people are free to copy the code and improve upon it. The business model itself could become an intellectual property but nevertheless, blockchain entrepreneurs make the deliberate decision to not use copyright law and renounce to protect value creation and capture mechanisms. Core supporters of blockchain back collaborative entrepreneurship and go even further by rejecting and criticising value capture in general, as the traditional generation of profit often includes a variable of centralisation. This presents the second barrier for successful value capture.
How Is Value Captured in The Ecosystem of Permissionless Blockchains?
Most public blockchains try to create value but not capture value and even though the whole system of blockchain is not designed to capture value, two methods of generating revenue can be identified.

Value capture through monetising users is problematic as described above. In fact monetising users to generate profit is generally out of the question as open-source development allows pricing competition to aim towards zero. However, it cannot be neglected that the costs of blockchain-based business have to be covered in some way. For this purpose, blockchain-based businesses might not create profit through monetising users but the few existing revenue streams are supposed to cover the costs. Such revenue streams mainly include low processing fees and transaction fees.

What is left is value capture through investments which can be achieved through three different ways. The first method can be described as a return of investment. It seems reasonable for the founders of a blockchain-based business to attribute a certain amount of crypto-tokens to themselves — for instance, during the creation of the blockchain’s genesis block. If users eventually find value in the blockchain they will buy the tokens. As a result, demand will increase the token’s value which can be captured consequently. The increase in value of this digital currency will be required to cover subsequent increases in costs. The second method of capturing value through investments refers to funding. ICOs (Initial Coin Offerings) became a common tool for financing blockchain-based businesses by individuals from all over the world. Furthermore, current regulations do not afford a commercial solution to invest in blockchain. Once the regulations suffice for large investment funds to participate, it is expected to see an immense financial upsurge in the blockchain ecosystem. On the downside the market of ICOs for blockchain-based businesses is highly saturated at this point in time and as a result, chances to capture value through ICO funding decrease. Either way, it is inevitable that permissionless blockchains create higher value than up to date, in order to make value capture through investments sustainable. If reasonable value creation fails to appear, permissionless blockchains only represent an object of speculation, where investors invest with the prospect of an increase in value only because more investors invest. The final means to capture value through investments is by receiving donations. This requires essential partnerships and a strong and large community.
Conclusion
Regardless to the barriers blockchain affords in order to create value, an implementation of blockchain can still be advantageous as related business offerings of the business model and blockchain-independent revenue streams can be improved. However, if blockchain presents the core value proposition of the business, the technology’s infancy, open-source development, and decentralisation lead to restricted value creation and value capture potential.
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Let me know what you think about value capture with blockchain and don’t hesitate to correct any mistakes I’ve made, or start a (healthy) discussion in the comments.
Also, don’t miss my other articles about the design of blockchain-based business models and blockchain’s opportunities, constraints and potential solutions.
Happy blockchaining!
