With the recent rise of cryptocurrency, blockchain startups have also started popping up left and right. These startups look to strike while the iron is hot and break into a market that will be worth around $20 billion in revenue by 2024.
Yet, few of these startups are directly involved in mining cryptocurrencies as their primary business model.
So you might be wondering, how exactly do blockchain startups make money?
In this article, we’ll show the different ways in which blockchain startups earn revenue. But first, let’s discuss a bit more about blockchain and why it’s a good investment option.
Reasons for Investing In Blockchain
The blockchain is a core technology at the heart of all cryptocurrencies. Simply put, the blockchain is a digital ledger that is decentralized, transparent, and immutable.
The following is a list of reasons why you should consider investing in blockchain:
- Huge economic potential. As blockchain is expected to improve the economy, several big companies have already started investing in this technology.
- Good integration with future technologies. As the Internet of Things (IoT) and Artificial Intelligence (AI) continue to grow, blockchain is also seeing a surge in popularity.
- Several use cases beyond cryptocurrency. One can expand the blockchain beyond just crypto use, making it a versatile technology to invest in.
- Relatively easy to use and low cost. To invest in blockchain, all you need is a verified online account on an exchange.
These are just a few of the many reasons why blockchain makes for an attractive future investment option.
Five Ways How Blockchain Startups Make Money
Now that you’re better aware of blockchain’s potential let’s see how blockchain startups are making money.
Here are five ways that blockchain startups are currently making money:
1. Transactional Fees
The first way that most blockchain startups are making money today is through transactional fees. Blockchain companies specifically work with big corporations and investors to create blockchain infrastructure and enterprise solutions.
Startups charge their enterprise clients a small fee for using their blockchain infrastructure. These can be both in the form of subscription fees and service fees.
By paying for each business transaction and service through the blockchain, the developers can sustain themselves while companies benefit from blockchain solutions for improved services.
Note that it needs to have the expertise required for developing blockchain solutions for a startup to earn through transactional fees. Without dedicated blockchain developers, don’t expect to make big bucks through transactional fees.
2. Software as a Service
Next up, we have Software as a Service (SaaS). SaaS is a software distribution model that makes applications available to end users online through a cloud provider hosting those applications.
Blockchain startups going this route earn revenue by offering their API and infrastructure services to users online. By doing so, they offer their users a rich range of solutions available online without the need to install software on their devices.
Examples of SaaS offered by blockchain startups include Tierion and BlockCypher. BlockCypher provides an infrastructure for blockchain applications to run on, and Tierion similarly offers chain points for blockchain developers.
Different groups such as businesses, developers, and even miners can benefit from blockchain SaaS. They can benefit from features such as APIs, cloud infrastructure, and data storage, just to name a few.
3. Developing Specific Use Case Solutions
Use Case-specific solutions are another way that blockchains startups are profiting from. Rather than offer general-purpose solutions, such as SaaS, some developers work with big clients to develop solutions only for specific use cases.
Two of the big industry names when it comes to use-case-specific solutions are IBM and Deloitte. In addition, both companies offer their blockchain solutions to other companies.
When different customers buy use-case-specific solutions from companies like IBM and Deloitte, the companies selling the solution earn money from the sales.
There are several use case-specific crypto solutions that can help solve real-world problems. These include food supply, trade, local and global supply chains, cross-border payments, just to name a few.
4. Service Level Agreements
Not many blockchain startups offer Service Level Agreements (SLAs), but they can help some startups generate revenue.
SLAs are formal contracts between service providers and customers. They not only lay out what services the customer can expect to receive from the contract but also the specific obligations of the provider for customer support.
By signing SLAs, blockchain startups can provide blockchain infrastructure and design blockchain applications for their clients. The terms of the service are all covered under the SLA contract, including the period and specific services provided.
Currently, very few blockchain companies engage in SLAs with their clients. Microsoft is one example.
5. Speculating in Cryptocurrencies
Finally, we have the most well-known use case that blockchain startups focus on: Speculating in cryptocurrencies.
Nearly every blockchain company today has something known as a crypto token to facilitate transactions within the network. The goal of speculating in cryptocurrencies is for parent companies to push for their token to increase in value, ultimately selling for profit.
Crypto tokens are digital assets that are built on pre-existing blockchains. Tokens are used for powering decentralized applications (dApps) and thus have uses in different services.
Ethereum is currently the most popular blockchain for creating crypto tokens on the web.
Some companies that are speculating on cryptocurrencies include Lisk and Factom.
Which One Is Right For My Startup?
Having seen the different methods for earning through blockchain, you may wonder which one is the right money-making method for my startup?
The answer is, it depends entirely on the specialties of your team. For example, if your team has experience in SaaS, it would be a natural choice for blockchain.
On the other hand, if your developers have little experience developing Use-Case specific solutions, don’t expect to make your big break there.
As the crypto market continues to grow, blockchain startups will only increase in number.
If you’re curious about starting your own blockchain business, keep in mind the five ways most blockchain startups are making money today.
Just remember to stick with the method that is best suited for the expertise of your team rather than go straight for the most lucrative option. Keep this in mind, and you’ll make it big in blockchain in no time!