Analyzing Blockchain Business Models

It might be useful to analyze a Blockchain Business Model according to four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

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Value model

In the value model we want to answer a few core questions:

Core Philosophy: What’s the long-term hard problem the protocol is solving?

Core Values: What key values drive the protocol?

Value Propositions: What set of values each key stakeholder get from the protocol?

When analyzing Blockchain business models is critical to understand that these look more like ecosystems with a very complex logic than just companies, with simpler dynamics. However, those complex systems are really born out of simple local rules built into the Blockchain protocol.

Blockchain Model

In the Blockchain Model, we want to understand how the protocol connects the value model to everything else. So the rules of the Blockchain make it compelling for the entire ecosystem to form.

In this case, we need to take into account three key layers.

Protocols Rules

What rules govern the Blockchain?

Network Shape

What network shape do the protocol rules determine?

Based on the protocol’s underlying core rules, a network will form, and this can take various shapes and forms (from entirely decentralized to distributed or perhaps centralized). Thus, understanding how the protocol rules are making the network evolve is critical to understanding how the balance of power moves along the Blockchain ecosystem.

Applications Ecosystem/Layer

Which applications can be built on top of the protocol?

For a Blockchain to become a business platform, it might be critical for it to be modular, or at least it gives developers the ability to build applications on top of the Blockchain, thus making it possible to expand the use cases available and developers to monetize their presence on the Blockchain.

Distribution Model

Here we want to understand how the various pieces come together to make the underlying Blockchain ecosystem sustainable and keep growing it.

Developer’s Community

Is the developer community engaged in developing apps on top of the Blockchain? What does it take to keep it engaged?

Developers play a critical role to the development of the Blockchain’s applications and therefore it’s important to understand how the developers’ community is evolving around the protocol and what sort of applications get sprouted.

Investor Relations

Is the underlying cryptocurrency a valuable asset for investors?

What makes Blockchain protocols work in the first place are the strong economic incentives underlying them. Thus, we might want to argue there might be no Blockchain without Crypto and vice versa. Therefore, as the Blockchain ecosystem evolves, monitoring how investors are responding to it is also important. Keep in mind that a Blockchain is much much more than a simple entity; that is a “super-entity.” As such, it needs the support of multiple stakeholders to thrive.

Mining Incentives

What incentives exist for miners to keep contributing to the development and growth of the Blockchain network?

Miners also play a crucial role in the development of the Blockchain. It’s important to notice that some Blockchains like Bitcoin are primarily based on Proof of Work, making miners the key players to mine new coins. Other players/users can also become miners when it comes to other protocols like Ethereum (where there is also a Proof of Stake mechanism).

Deal Making

What agreements are in place integrating the protocols through institutional & non-institutional channels?

For a protocol to scale, it needs to be adopted by a wide number of individuals and institutions. Therefore, here the progress in making the protocol integrated within other institutional and non-institutional systems becomes very important.

Economic model

How is the Blockchain crypto-asset gaining value and how the key players part of the ecosystem are monetizing the applications built on top of it?

While Blockchain protocols can be built far beyond incentives than economic ones, it’s important to notice that what keeps the ecosystem sustainable over time are the powerful economic incentives aligning various players part of the ecosystem. Thus, it’s important to understand what drives these players to come together.

Key takeaways

A Blockchain Business Model looks more like a dynamic ecosystem around which an entire set of players are

Value Model

• Core Philosophy: What’s the long-term hard problem the protocol is solving?
• Core Values: What key values drive the protocol?
• Value Propositions: What set of values each key stakeholder get from the protocol?

Blockchain Model

• Protocols Rules: What rules govern the Blockchain?
• Network Shape: What network shape do the protocol rules determine?
• Applications Rules: Which applications can be built on top of the protocol?

Distribution Model

• Developer’s Community: Is the developer community engaged in developing apps on top of the Blockchain? What does it take to keep it engaged?
• Investor Relations: Is the underlying cryptocurrency a valuable asset for investors?
• Mining Incentives: What incentives exist for miners to keep contributing to the development and growth of the Blockchain network?

Economic Model

How is the Blockchain crypto-asset gaining value and how the key players part of the ecosystem are monetizing the applications built on top of it?

Previously published at https://fourweekmba.com/vbde-framework/