Blockchain Business Model: 8 Reasons Why It Makes You Save Money
Blockchain business models are revolutionizing traditional business and allowing entrepreneurs to develop totally new strategies, as well as saving money in various industries.
Only in 2022, the spending on distributed ledger technology (DLT) solutions for companies amounted to over $6 billion according to Statista: companies like IBM, Microsoft, Walmart and Goldman Sachs didn’t miss the opportunity to benefit from this disruptive technology of the digital space – and they seem quite successful.
Before diving into some of the main reasons why distributed and decentralized ledgers can also benefit your firm, let’s start by answering this question: what is a blockchain business model?
Table of contents
- What are blockchain business models? New solutions for new & traditional markets
- 8 reasons why blockchain business models save your company money
- Business models based on blockchain
- Blockchain and FinTech – Final thoughts
What are blockchain business models? New solutions for new & traditional markets
Mentioning the work of David J. Teece, “Business Models, Business Strategy and Innovation“, business models can be defined as the set of strategies used by a company to create, add value to, and deliver a product or service.
This, in general, is the function of a business plan, and it works in any sector.
But with the rise of DLT, a new concept of business was born. In simple terms, blockchain business models integrate blockchain technology into companies’ plans.
The reason why distributed ledgers are being discovered by top companies is that it brings benefits that can result in significant reductions of company-related costs.
Any entrepreneur knows that not all strategies work for any company, but the strength of blockchain is that it’s flexible enough to be used as the underlying technology to build any type of firm. Moreover, it works as a benefit not only to entrepreneurs, but also to customers – since it can allow anyone to benefit from products and services and even be customers and owners at the same time.
This is a characteristic that blockchain technology and fintech share: they’re inclusive.
It’s something we often say in our fintech newsletter, and the reason is straightforward: inclusivity is the answer to the challenges of our economies.
It doesn't matter whether you're launching a small startup or running a large corporation, inclusivity allows you to:
- Better address your customers’ needs;
- Be flexible;
- Benefit from different business opportunities;
- Be competitive;
- Be trustworthy.
These 5 Bs might be enough to solve your doubts about why to adopt blockchain-based business models, but it's far more important to analyze why DLT can help your company remain competitive in the years to come - especially if you adopt it now, when this technology is still mostly untapped and undergoing development.
If you compare businesses using blockchain technology to those that do not, saving money is one of the main advantages.
8 reasons why blockchain business models save your company money
Blockchain-based solutions require more technical knowledge, but they're worth it since they allow you to stay in full control of your company and cut costs.
As you will be able to see, the best ways firms can benefit from blockchain are represented by a number of solutions designed to save them time, money, and simplify most of the activities that are needed to run a business.
1. Customized economy
Single companies can even decide to create their own economy.
It’s not unusual that a company is based on a blockchain, with its own cryptocurrency – which is useful also to raise the initial funds needed to run a business.
After the launch of crypto, the team behind the project can decide to keep a part of the supply of cryptocurrencies, or to vest them. If they have a plan to make the value of the crypto increase, they can sell them over time to get additional funds without the need for external investments.
2. Relationship building with your customers
As mentioned, with blockchain technology every customer can be an active part of the business. Especially in those cases where the company decides to launch its crypto, or a DAO (more about this later!), each customer can become an active investor or part of the management mechanism. This is a valuable way to reach the goal to make them have your same interests as a business owner.
At the same time, blockchain is able to solve the so-called principal-agent problem. Actually, since DLT models can earn profit also by their own tokens, everyone involved in the system is interested to work towards a common goal.
3. Higher scalability
Scalability refers to the capability of a business to perform good – or even better – despite increased workload.
This time as well, blockchain flexibility is helpful. Especially when it comes to proof-of-stake ledgers, businesses can perform better in spite of workload because:
- They can support more transactions without slowing down their activities. Each transaction is recorded on the blockchain and it’s easily recoverable thanks to the addresses associated with transactions. Moreover, transaction times are faster;
- Data is automatically secured thanks to the decentralized and distributed nature of blockchains. This means that you don’t need to get more complex security or management systems when the amount of data increases;
- You can completely automate your business when you use protocols that support smart contracts. Ethereum is the most widely used network for smart contracts, and its transition to proof-of-stake further improves scalability and security.
4. No intermediaries
When firms use blockchain to implement their plans, they can easily perform each transaction on chain.
Blockchain-based solutions don’t need any intermediary or third party to carry out transactions or to manage data, since everything can occur on a peer-to-peer basis. This characteristic helps businesses to reduce fees and third parties-related costs.
5. Easier management
Smart contracts are called “smart” because they can work autonomously according to preset rules.
They’re the backbone of decentralized finance – and actually a great tool for companies.
One of the ways they can be used is by building DAOs. This acronym stands for Decentralized Autonomous Organization, and differently from its counterpart in traditional business models, they are:
- Decentralized, because there is no single manager, but everyone can be a part of the management system;
- Autonomous, because they’re governed by smart contracts;
- Organized, because they’re still structured as organizations able to make decisions and deliver products and services.
When it comes to blockchain-based business plans, companies can choose to set their DAOs instead of keeping a centralized control. This type of system is well integrated with autonomous economies and easier customer onboarding. In fact, DAOs release tokens that can be bought – usually with limitations – by people who trust the project to get voting rights and be an active part of the system.
6. Improved security
Blockchains are decentralized or at least distributed. This means that there are no centralized servers or databases — that is, there are no single points of failure.
This implies that businesses can rely on a secure, tamper-evident structure that allows them to prevent costly hacks or security systems.
7. Blockchain business models make your supply chain more efficient
DLT is used extensively by companies for supply chain management.
With blockchain, every single step from the production to the delivery of a product can be recorded and checked. Walmart is one one those companies that use blockchain for this reason. As reported by TechTarget, the use of blockchain technology helped Walmart to reduce from one week to a few seconds the time needed “to trace the source of sliced mangoes”.
There is no doubt that this sheds light on the importance of transparency – not only for customers, but also for business owners.
8. Partial or total tokenization
Firms in any sector can use tokenization to benefit from blockchain for both digital and physical products. Tokenization can be implemented on both public and private structures, and basically consists in turning something into an element that can be stored on a decentralized and/or distributed ledger.
Businesses can decide to tokenize their whole models or to use tokenization only for specific segments – like data storage, which would further increase the security of the whole business and reduce the costs of data management systems.
Business models based on blockchain
After analyzing the reasons why blockchain business models help businesses to save money – especially by making them more efficient and trustless – let’s see some of the most popular plans used by companies to benefit from these digital ledgers.
1. Blockchain-based financial service companies
Financial services providers are among the main entities that can benefit from blockchain technology.
It improves their business models because it gives them more options for payments, faster transactions, and less data management activities.
Moreover, blockchain-based solutions contribute to creating a more cohesive environment for both users and stakeholders — especially because these ledgers don’t have to rely on trust.
For these reasons, blockchain technology plays a major role in fintech. Fintech companies that use blockchain technology are able to democratize their business, easily integrate P2P transactions, work on a decentralized network and to solve one of the main issues faced by fintechs – frauds.
2. BaaS (Blockchain as a Service) business model
This kind of business model is very popular. It involves all those businesses that offer DLT-based systems to test their own blockchains, or to integrate this technology with their own businesses.
An example of BaaS is Amazon Managed Blockchain, which works thanks to Ethereum and Hyperledger Fabric, and allows companies of any size to implement blockchain-based solutions with a few clicks.
3. Utility token blockchain business model
One of the main purposes of this kind of model is self-financing.
Businesses that decide to use it issue their crypto tokens to attract investors, but usually a part is reserved to the team that started the project.
This doesn’t only allow companies to finance themselves in their initial phases, but also to collect more funds over time — if they gradually sell their tokens — and to make an additional profit if the price of the token rises.
Blockchain and FinTech – Final thoughts
Blockchain trends in the recent few years show that more and more companies are interested in using blockchain and cryptocurrencies.
DLT-based business models allow companies of any size and in any industry to create more inclusive and trutless systems, as well as cutting costs.
Big companies didn’t miss the chance to explore these new solutions, and as we all know, when big players adopt a new technology it means that it’s about to explode.
As of now, blockchain business models offer a competitive advantage. Of course, staying on top of any business technology news is hard, but if you subscribe to our newsletter, you’ll see that we do the hard work: you’ll get the latest blockchain-related news delivered right to your inbox.
How does blockchain business model can make your business save money? You can save money using blockchain business models in a number of ways, from reducing fees to eliminating intermediary costs.
How will blockchain benefit business? By using blockchain, businesses can save money, become more flexible, add value, raise funds more easily when needed, maintain competitiveness over time, improve management, and automate most of the operations related to management.
Why is it hard to hack blockchain? Because blockchain is a tamper-evident system. Blockchains work as append-only systems and each part involved in the network can get a copy of the whole blockchain – since it’s essentially a ledger. Hackers would have to modify the whole structure if they wanted to hack the blockchain, and this would be evident to the whole network.
How to add blockchain to your business? You can build a new blockchain to create your business, use existing blockchains to build on top of them, or use DLT for specific activities related to your business – for instance, you can use it for payments or to improve your supply chain management.