How do cryptocurrency companies make money?
Let’s talk about how you are as a coin developer can earn money with your project. I want to shed some light on how coin’s developers are making money from their open source cryptocurrencies.
Pre-mine
“Pre-mine” it is initial coin distribution to the wallets controlled by developers or founders before releasing code to the public. Notable that near 60% of Top 100 Coinmarketcap are pre-mined coins.
Pros:
- A predictable amount of coins right from the start in a hands of the developers.
Cons:
- The community will blame you all the time that you are selling pre-mined coins. It’s good idea to explain in depth your pre-mine amount, and timeframes when and how you are going to spend it.
- You can’t easily sell your coins to fund exchange listings or product development
- What are you going to do when your pre-mined coins are over?
Dev fee
Developer fee it’s financial model when each mined block on a network has a certain percentage of coins going into so-called “treasury fund.” Zcash pioneered that funding model, and so far it’s the most successful coin with dev fee.
Pros:
- Very predictable, constant coins flow depending only on your block time and reward.
Cons:
- It may take a time to fill your treasure fund after mainnet launch
- You still can’t easily sell your coins to fund exchange listings or product development
Community donations
They may come in various ways, from simple transactions to dev’s wallets to “official” mining pools with pool fee going to support coin development. Most likely you wouldn’t find coins with such funding model anywhere in Coinmarketcap Top 100 list. A recent example of the coin that working solely on community donations it is BitcoinZ:
Pros:
- Totally independent funding. If the community big enough and happy with your development progress they probably will donate
Cons:
- Obviously you didn’t rising much of money from donations. Even cheapest exchanges listings and development expenses may be a problem.
ICO
It was presumably the most straightforward way to fund new cryptocurrency at the peak of ICO hype back in 2017. Sounds pretty simple — you are running ICO, and as soon as you reach your hardcap, you own real money for development and exchange listings. A whole bunch of new cryptocurrencies born with ICO funding including ETH, IOTA, NEO, QTUM.
Pros:
- The main advantage is that you get ready to go money. Not invaluable new coins(like in pre-mine and dev fee models), that you have to sell somehow without ruining your own coin’s price. After successful ICO you can list your new coin on good exchanges, spent money on product development and marketing.
- Another important thing that after ICO you’ll get big and active community.
Cons:
- The ICO Hype is over. Fierce competition between crypto projects for the rest of money still laying on a table in 2018, skyrocketed ICO marketing budgets. I’ve heard remarkable numbers with 1:3 and 1:5 return rate on each marketing dollar spent. Virtually you’ll need pretty big funding to raise funds on ICO, and thus it’s not guaranteed that you’ll get enough funds to close your softcap.
Masternodes Pre-sale
This was a pretty new thing in 2018. Masternode based coins running pre-sale of masternodes to fund initial expenses. Basically, it’s improved pre-mine model, when you can sell a fixed amount of coins for first masternodes collaterals.
Pros:
- You can raise enough ready to go money to cover your initial expenses.
Cons:
- As you can imagine the crypto world is changing extraordinarily fast. If you take a look on masternodes stats sites you probably will realize, that near 90% of new masternode coins it’s pure pump and dump projects without any real value. Investors are very picky after getting roasted on ICO scam exits and low-quality mastrenode coins. Many of them considering masternode presale as a bad investment.
Venture capital
Good old Silicon Valley way — raise few rounds of VC money, while developing and improving your product. I guess you have to have a notable great team with some big names on a board and working product or at least MVP ready. A good example of cryptocurrency company going with that model it is Ripple:
Bootstrapping
With relatively low entry cost, you probably can even bootstrap your project on your own money. It’s always good to get some traction before trying to raise VC or ICO funds.
Wrapping up
I would say that at least you’ll need about $100–150K, to cover the initial costs of launching your mainnet and listing coin on exchanges.
