Contact us anytime to know more — Abhishek P., Founder & CFO CISIN
Understanding Blockchain
Without a single point of authority, several blockchain operating systems, databases, and other computing devices maintain digital records of balances and stores ("decentralized").
In a blockchain architecture, transactions are grouped into blocks. Larger chains of interconnected encrypted data strings resemble the nodes in a graph.
The entire financial services sector aims to give consumers, businesses, and retailers access to blockchain technology.
This includes technical support services like VPS & Server maintenance, events and exhibitions, and blockchain builders.
The three pillars of the blockchain system are:
-
Decentralization - A blockchain's first and most crucial element is its decentralized character.
Contrary to secure, central services centered on a single platform with a single server eliminate money laundering, system breakdowns, and other issues.
Blockchain's distributed network computers are controlled by a distributed network of nodes rather than a centralized authority (known collectively as nodes).
Any node can process transactions without the assistance of a third party.
-
Immutability - Transactions on the Blockchain cannot be erased or modified without harming other copies of the data since it is decentralized, encrypted, and secured by cryptographic code.
With the new blockchain approach, all previous entries will be kept intact.
-
Transparency - Another critical component of Blockchain technology, transparency among all network members is essential.
Blockchain's public ledger provides real-time, complete records and protection for sensitive information.
Let's Start at the Bottom: Blockchains are Ecosystems
Let's dive deeper into the blockchain ecosystems. Blockchains can be described as ecosystems that are divided into layers.
Layer zero-Hardware & Networking
Validators and miners are also part of this tier. Peer-to-peer networking protocols are also included at this layer, enabling communication and consensus among layer participants regarding the network state.
You will notice at this point that a blockchain network lacks a centralized authority.
Layer One-Consensus
The consensus layer is where the peer-to-peer algorithms of the participants reach an understanding of the truth of the blockchain computer that they are striving to maintain, for example, how much cryptocurrency one participant has after all participants have communicated.
Participants can develop and settle on protocols for their mining network under this layer, such as Proof of Work (which is straightforward by design) or Proof of Stake.
Layer One Point Five-Compute
Now, programmers can design a computer that aids in consensus layer computations while being light on processing.
For blockchain networks like Bitcoin, Ethereum, and Binance, methods for dynamically adjusting the processing requirements must still be developed. Developers refer to these systems as "full-node computing."
Layer 2 - Smart Contracts
Computer programs known as smart contracts can sign and validate actions or activities whenever they please.
Each participant's data is stored in this tier for verification. However, private chains occasionally permit only parties with clever contracts to access your key cards or ID card.
Smart contracts can be carried out and enforced as long as their inventor has specified the requirements.
Using a state machine, which enables each party to take a particular execution path and receive data, is accomplished. They can carry out designated actions when the program has finished its state. What does this all imply?
Imagine adding trust funds or insurance policies to your smart contract to automatically send you $5 after 30 minutes of jogging in the heat.
Layer Three - Client and User Interface
All of the world's people and protocols are present in this layer. The platform is connected to blockchain development tools and interfaces via the client interface.
Programming languages, machine learning, and cryptographic methods are all included in the user interface.
This layer offers numerous mechanisms to carry out fundamental tasks like verification, consensus, and enforcement.
An architecture that unifies all of the design elements into one environment, a verifiable storage system that can be used from the base layer to third-party chain applications, and finally, a state machine-based programming language that activates all of the novel contract conditions make up the three main components of a blockchain platform.
This is why they can be called three levels of the macro of blockchain architecture at different layers.
- Baselayer - Data storage
- Layer 1 and 2 - "smart contracts."
- Layer 3 - "client interface to industry tools/interfaces."
Each one is kept in the base and functions as an input (base layer) or an output (layer 2).
Data structures for intelligent contracts and client interfaces are stored on layer 1 or 2 platforms. The goal is security. Layer 3 serves as a design input for the architecture and allows for inform-at-rest or on-the-job verification.
What is a Blockchain Business Model, and How does it Work?
Blockchain technology is surrounded by a value-based ecosystem created by blockchain business models.
They incorporate various business and technical elements from the three tiers.
Blockchain technologies enable peer-to-peer distributed networks to store cryptographic data.
All blocks are connected with encryption code and qualities that adhere to specific guidelines. The material can be utilized to audit bank records and chain transactions because it is stored. It offers trustworthy preservation and origin proof, such as a time axis that shows its production and worth.
Multiple layers of data protection shield data storage on a blockchain. A trigger event like "save to chains" may be used to start this process, and consensus protocols may then be used to manage it.
It is decided through consensus protocols whether blocks can (legally) be added or removed. Blockchains can provide one-level interaction between users at this stage. It does not permit additional layers beyond the core principles of the source code.
Blockchain business models allow users to interact with data through a digital marketplace to buy goods, services, and media from other parties.
Blockchain Business Model: A Multi-Sided Platform
Blockchain technology creates a multifaceted platform that offers consumers a full range of services and access to other services.
With decentralized operations across all three tiers, multi-sided platforms enable data storage via a distributed network. A single business solution can be made by combining the features of different products and assigning each component to a particular end user.
How does a platform with multiple sides work?
Factors that Influence How a Multi-Sided Platform Functions
Layer Zero (Flywheel)
We'll start with layer one first. The Flywheel is the name of this stratum. The core and founding team are committed to giving all users a multifaceted, integrated platform.
The founders, a team of developers, and an external team made up of investors who contribute funding are also included in this layer.
The founding group and outside assistance can assist with protocol development and bootstrapping specific initial token values.
Once the token's value has been determined, validators and miners will be incentivized to supply the necessary hardware, software, and resources to start the business.
Layer 1 of your company is essential for several procedures, including product launches, marketing initiatives, and startup planning.
Layer One, One-Point Five, Two: The Value-Added Paradox
The phrase "value-added conundrum" describes the idea that an asset's acquisition cost is not a reliable indicator of its value as an investment.
Because of this, businesses can succeed or remain in a market while still making a profit, even when their investors benefit from the rising value of cryptocurrencies.
People forget about hardware as more money is being invested in cryptocurrencies.
It has become much easier and cheaper to get computer hardware. This allows companies to fly under the radar if their only goal is to make a small profit on software products rather than investing in costly hardware.
It is essential to be a good picker at layers 1 and 2. It is possible to find more excellent value in it for early adopters than those who only care about investing in technical innovations or projects that cost millions.
When we speak of the value-added dilemma, we mean how a model can be defended. You can break down the defensibility model into how efficiently and effectively one could use their tokens with perceived utility value among them.
Defensibility
More demand is generated, and the project's activities are expanded without the need for investment pressure, thanks to the token economy, in which users exchange tokens for one another and are rewarded for their participation.
Cryptography is open-source. Every token holder has access to the source code to observe how decisions are made and how voting operates within a project.
When initiatives can succeed, there is no need for complicated restrictions since those who know what they want and how to get it will prevail.
As a result, the notion is riskier since you are unsure of its internal safety and is harder to defend. Additionally, if the project is abandoned for whatever reason, it is doubtful that you will receive compensation for your efforts.
This applies primarily to specific projects, such as ICOs or takeovers. Even more complex tasks could still be successful if they have strong defenses.
Instead of setting up another model that offers similar income potential, do your due diligence.
Network Effects
Network effects refer to the process by which a product/service's value will rise as more users and customers are added.
Similar Side Network Effects
Another product may share network effects with one product. Decentralized and centralized economies depend on a decentralized society, as described by the words decentralization and centralization.
They can coexist peacefully in these communities because of their complementary natures and mutual benefits. This promotes same-side networks that are advantageous to all users. Everyone benefits more from it than those in relationships predicated on generating wealth for a select few.
Cross-Side Network Effects
Cross-side network effects do not function in a mutually advantageous way. Instead, they have a unique characteristic that increases the likelihood that one side will employ the other.
For instance, individuals will listen to the radio more frequently if another station is playing. Economically sane people are drawn to these network effects on both sides. They also strengthen the financial hurdles preventing market participants from employing them.
Economies of Scale
By establishing defensibility and making sure that every component is incorporated into the ecosystem, validators profit from economies of scale.
Both exchanges and wallets support the token. The network has been combined with valuable apps. Protocol specifications provide helpful components. Decentralized organizations also gain from sound judgment.
What about Smart Contracts?
Multi-sided platforms called intelligent contracts are constructed on layer one platforms.
They are multi-sided platforms that can produce more applications by utilizing layer one capabilities. As a result, innovation flourishes since intermediaries have quickly eliminated thanks to good design and competitive micro markets.
How Intelligent Contracts Influence Blockchain Models
Intelligent contracts can influence blockchain models since they let owners of application layers freely offer their products in a competitive market.
Due to the absence of conflict, this encourages horizontal growth and enables application layer owners to monetize their applications. All users now have more choices for parts, services, or finished project solutions. They are also decentralized, which makes it impossible for them to be governed by shady insiders or powerful companies acting as gatekeepers.
With these blockchain technologies, initiatives can involve practically any sector: own platforms for asset management; financial applications.
Classification of Blockchain Business Models
P2P Blockchain Business Models
P2P models combine B2C with B2B models.
The UIAA in the UK is the renewable energy trade association. They inspired this model.
Open-source permissionless blockchains allow for a community of best practices. This allows for the creation of a community of people who can build upon them.
By using blockchain protocols to negotiate contracts between owners of decentralized apps and their users, this economic model pits companies against one another.
To control the payment processing for goods, services, or ownership transfers using virtual currency, smart contracts are automatically enforced (such as Bitcoin). Ownership may be used in place of payments if a person has acquired an item they previously sold but cannot utilize because of industry markups.
Before the blockchain protocol was developed, there had to be some social consensus to guarantee adherence to legal requirements and contracts.
Thanks to this, users would have been able to determine which rules were required to run applications or businesses on top of them.
Read More:- 32 Blockchain Applications and Real-World Use Cases 2023
It's possible that this consensus has yet to exist. Proxibid auctions are an example of an online marketplace where a company can operate as long as it conducts reputation checks using a centralized database like Uther (Zurich).
Applications for customized software can process transactions.
Instead of relying on domain names, IP addresses, or other services currently offered by private companies, permissionless blockchains are the fundamental idea that enables blockchain solutions to automatically process transactions and turn into an open directory for everything on the Internet to instantly access.
Anyone can register their website through computers connected to the Internet without registering or obtaining authorization. They can also receive payment in cryptocurrencies for goods and services.
A framework for storing files that can be spread over the network and instantly retrieved is provided by Filecoin and IPFS.
Security, though, is a top concern. Traditional intelligent contracts can also be utilized to automate peer agreements. Every transaction is subject to a predetermined result.
There could be no data manipulation while communicating remotely using paid sidechain applications, networks like Ethereum, Zcash's Non-Interactive Zero Knowledge Proofs (ZK Snarks), or other side chains like Zcash. To maintain their privacy, users can hide their IP addresses.
Zcash transactions are private since they cannot be traced back to their sender, hence they are not encrypted.
Users pay cryptocurrencies for "Bitcoin-like transparency." They will never have access to your balance or transaction history, though.
Blockchain as a Service Business Model
Blockchain as a Service Business Model allows clients to outsource transaction processing to a provider of blockchain app development services offering one or more elements.
- Application development, maintenance
- Management or hosting of Blockchain nodes
- Real-time data access.
Companies that provide Blockchain as a Service (BaaS) provide a host environment that enables third-party owners to register their Blockchains and grants them access to the Blockchain data.
Each Blockchain may have a separate consensus protocol and may be administered independently.
Its nodes are in charge of validating the blocks of other chains if they contain inaccurate or insufficient data. Thanks to this service, developers that have private keys on numerous exchanges will now have a single location to send their blockchains.
Moving between places is made more accessible by it.
They might be available for purchase as well. As a result, you are not required to hold a sizable amount of cryptocurrency on a single exchange or even on all sales.
Instead, BaaS companies can handle deposits into and out. They can be processed in less than three hours, depending on the need to transfer funds immediately.
Amazon Web Services, Microsoft Azure, and Google Cloud Platform are some of the most well-known businesses that use this type of blockchain business model.
Token Economy-Utility Token Business Model
The utility token blockchain business concept drives business activities, transforming it into a token economy.
Service providers gain value from this, increasing the appeal of their offerings to customers. It encourages trading on the Blockchain using utility tokens that let users share revenue and receive bonuses from payments made through transactions.
The introduction of applications that support smart contracts makes revenue generation simpler. Intelligent contracts are transactions carried out through decentralized browsers using specialized software-driven applications.
The phrase "revenue-sharing token model" is another name for it. The funds earned from transaction-based payments between clients and providers will be distributed via an intelligent contract system.
Although some of these applications exist, trust has been a problem in the past due to hacker attacks or security breaches that have led to less secure environments.
This model also has three significant properties.
- Role
- Feature
- And purpose
Each Role is unique in its features and purpose.
- Right: The token holder gains from it because he has invested a certain amount and is entitled to recognition.
- Value exchange: creates a dynamic economy in which each transaction creates value.
- Currency: tokenization of value in and outside the given ecosystem.
- Toll: The toll is reset to its value after the transaction is complete.
- Right: token owners get compensation for using their token because it performed a specific function.
- Functionality: Enhances the user experience in a particular environment.
- Earnings: equity share of profits and benefits between project investors.
Blockchain-Based Software Products
This model also shows that some products have similar use cases and dependencies.
This is an essential factor in the development of those products. These products are:
- Intellectual property (IP)
- Participation in a platform by voluntary admission
- Physical goods
- Services or profit-sharing
- Any other benefits that were not available before the introduction of blockchain technology.
Blockchain companies also create solutions that can be used by larger companies and support their implementation.
These companies are focused on creating business models and products that address the use mentioned above cases. Companies that offer readymade solutions to blockchain problems can provide products and services for those use cases.
A technique known as Proof of Work (PoW) rewards token holders for approving transactions on blockchains.
Calculations that guarantee the uniqueness of each block in a chain or Blockchain are used to achieve this. PoS, a different kind of PoW, is less reliant on energy use. Blockchain offers a means of ensuring security without consuming CPU resources or energy.
The most typical options are as follows: This system's wide variety of blockchain initiatives provides many advantages and chances.
Based on these developments, new businesses will be founded that will immediately affect the financial markets, the national economy, the availability of banking services and products, and government funding.
Due to this reality, it is only possible to agree to use all available resources at once, which could result in an emergency.
Different parties agree that the initial objective of a user-friendly network has yet to be achieved. This is because other currencies and legal systems necessitate changes, and only some can or want to build a blockchain app.
Businesses can leverage initial coin offers (ICOs), a technique to drive flexible payment channels, to better handle payments.
With the help of these systems, they can distribute tokens as payment without having to compel investors to buy their goods.
Payment channels with remuneration are becoming more mainstream because they don't present any significant risk to equity holders and can pay much faster and cheaper than traditional methods.
The new market for cryptocurrencies has opened up a variety of remunerative strategies that can be used in many business models, including the hospitality industry, crowdfunding, retail management, and loyalty points redemption transactions.
Development Platforms
Startups are developing Dapps (Decentralised Applications) on systems like Ethereum.
Spending a significant amount of money upfront is the only method to add a feature to an existing platform. Because of this, they are costly and challenging for small enterprises without the resources to use. Formerly known as MedCredits, Monolith is looking for substitute platforms that let programmers create applications without being concerned about token values crashing or rising quickly.
They would be used to introduce novel ideas.
This model can be divided into three distinct models.
-
Network Fee: Blockchain has a network fee.
These transactions are made by the Neo, Ethereum, and Golem networks.
They either charge a transaction fee or a flat fee for users.
-
Auditing: This model works like a blockchain, where trusted participants can manage audit nodes.
This architecture could be adopted in business flows to become self-sustainable and help users track events, create tags or implement interstitial systems.
This model is also possible in two different ways.
Developers hire an auditing company to look over intelligent contracts.
Or they place a bounty on the contract so developers can pick which ones they wish to audit.
- Artificial Intelligence: Artificial intelligence is often associated with hacking or fraud, but when used in smart contracts such as double-spending prevention and encryption, it can transform current markets that are not well adapted.
-
Other services: Startup businesses may need work like a website, content, and frameworks.
They can save time and money by outsourcing content creation and hiring freelancers.
Similar networks charge a lower fee than centralized website construction.
They can instantly send the news to people around the globe because it is already stored on their backend databases.
Want To Know More About Our Services? Talk To Our Consultants
Conclusion
The blockchain business models can be summed up in the phrases "blockchain" and "business ideas." Any business can adopt blockchain technology.
However, companies must discover ways to enhance their current procedures and use them in novel ways to make them work. Cryptocurrencies have been marketed as an alternative currency that you can operate independently of banks and other financial institutions because they are a community-run system.
Choosing the ideal blockchain company model can be easy. To handle your business ideas, use powerful software.
You can select the perfect product model, pricing, terms, and other specifications that meet your business idea with product management software.
