The Design of Business Models in The Ecosystem of Permissionless Blockchains

Sven Böttger
Sep 2, 2018 · 4 min read

In the past decade, blockchain technology has developed rapidly and reached a level where it has the potential to radically overhaul existing business models. Consequently, the disruptive technology affords new types of business models that have to be defined according to what has emerged until now.

Blockchain’s Core Features

Starting with blockchain’s core features it can be broadly distinguished between three powerful technologies:

  1. Distributed ledger architecture
  2. Consensus algorithms
  3. Immutable storage

A distributed ledger is a database architecture shared between multiple actors who communicate peer-to peer. The consensus algorithm is part of a blockchain’s protocol and facilitates the verification of transactions through trustless actors in the network. Over time various consensus rules evolved to achieve the most efficient and secure shared consensus about the state of the database. The process that incentivizes parties to maintain the consensus and add blocks to the ledger is called mining. The last feature, immutable storage, is subject to the mechanism of storing data in blocks and connecting them through a chain. Each node in the network maintains the chain and must relate to previous blocks in order to provide an immutable history. These features build the basis for every business model in the ecosystem of permissionless blockchains and facilitate the formation of blockchain-based business models as well as blockchain-related business models.

Blockchain-based Business models

Blockchain-based business models utilise the technology and its key features as an integral part of their business model. Their value proposition is distinguished through two major determinants; layer and type. Every blockchain-based business model is a combination of layer and type. For instance, blockchain’s first business model has appeared through Nakamoto’s Bitcoin protocol ten years ago and represents a combination of network and protocol solution (layer) and currency (type). The layers are clear segregations of development types, divided into four application cases, and regarded as part of an interrelated stack. The higher stacks are enabled or supported through the subjacent layers.

Layers of blockchain-based business models

The types are classified in seven application cases and can be regarded as the sector in which the business model operates.

Typology of blockchain-based business models

Blockchain-related Business models

The layer-and-type combination covers most of the business models in the blockchain ecosystem. The blockchain-related business models close the remaining gap and are distinguished into supporting or supplementing service provider and development facilitators. Blockchain related-business models support blockchain-based business models and are different in the way of how their business model integrates blockchain. The technology is not used to build own blockchain-based business models but to provide services that include the financing and development of such. Distinguished into two sub-categories, supporting or supplementing service providers are venture studios, incubators, investors, or simply consultancy firms that operate in this area. They help blockchain start-ups by providing venture capital, management training, office space, and so on. Furthermore, they are specialised in originating and launching open blockchain-based decentralised systems that can operate without the support of trusted parties. Development facilitators specialise only on the (code) development of blockchain-based solutions.

Conclusion

The review about business models in the ecosystem of permissionless blockchains resulted in an understanding that allows the development of a framework that provides a holistic overview of blockchain’s features, business models, and application cases. The framework is supposed to cover all possible business models in the ecosystem of permissionless blockchains.

Business models in the ecosystem of permissionless blockchains — framework

Let me know what you think about business models in the ecosystem of permissionless blockchains 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 value capture with blockchain-based business models and blockchain’s opportunities, constraints and potential solutions.

Happy blockchaining!

Sven Böttger

Written by

Blockchain Researcher at the University of Edinburgh Business School

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