Every business has a business model, which is the overall architecture of how the business orchestrates its day to day operations to create, deliver and capture value. For a business to become a success, the business model they are using must address certain elements, which include:
- Value proposition – refers to the services and products that the company/business produces.
- Value capture – describes how the business makes money by showing cost and revenue structures
- Value creation – describes how processes and activities are carried out, and how resources are used in the business
- Value delivery – refers to the process of identifying the target customers
Business models, however, differ depending on the industry, which can either be traditional based or internet-based. Traditional based businesses are primarily concerned with producing tangible products and improving their supply chains. On the other hand, internet-based businesses focus on operating digital services/products and do all they can to find value for the digital services/products
However, both traditional based and internet-based models thrive well when business transactions are fast and secure and fully transparent. And the only technology that can offer these features is the blockchain technology.
Blockchain is a decentralized digital ledger that supports fast, secure and fully transparent transactions. Though it has mainly been recognized through cryptocurrencies, which are the digital currencies used in transacting within the blockchain networks, it also has other real-life applications.
Blockchain technology applications span from Agriculture, healthcare, cloud storage, logistics, real estate, education, public transport, and food and beverages among many others. Different blockchain startups have come up with different blockchain-based solutions and business models for almost every sector around the globe.
As a result, blockchain technology has become appealing to economies around the world since it offers immutability, security and also eliminates the need for third-party intermediaries/middlemen. This is prompting governments across the globe to work against the clock to ensure that there are proper regulations set in place to govern the blockchain industry to allow it to flourish in this digital age.
Basic blockchain working principle
Blockchain networks are purely decentralized. Therefore, they work on a Person-to-person (P2P) governance model. As such, the effect of external pressures is greatly reduced.
Furthermore, blockchain networks use Distributed Ledger Technology (DLT) to facilitate and record transactions and thus ensuring that the transactions are secure.
Lastly, blockchain networks require the creation of a token for use as a mode of payment during transactions within the network. These tokens are then assigned real-life value by linking them to fiat currencies.
For instance, a company could create a blockchain network called ‘Busses’ and create a token called ‘BUSS’ that will be used for transactions within the blockchain system. One ‘BUSS’ token could be equal to $0.5 at the start (when it is first introduced to users). As the adoption of this token rises and the ‘Busses blockchain’ network continues becoming popular, the value of ‘BUSS’ could increase.
Blockchain governance framework
Blockchain technology is rapidly revamping the traditional regulation models to make them more cost-effective, relevant and accessible to businesses. Most importantly blockchain has fostered the creation of consensus algorithms which makes decision making in DTL more efficient.
Blockchain governance promotes the use of a decentralized governance framework across different business sectors. As a result, this makes it easy for businesses to access the Interconnected Trusted Network of Loyal Customers.
Nevertheless, the decentralized blockchain applications must look for ways in which they can complement the roles that the central authorities were playing in governing the different industry sectors.
Application of blockchain technology in businesses
Blockchain technology has greatly transformed the way businesses carry on with their day to day activities. There are four predominant domains/fields where blockchain has found lots of applications.
The first is the financial services sector, especially touching on bank transfers, accounting, and auditing. Traditionally, these sectors involved the use of so many intermediaries. However, several blockchain solutions that eliminate the need for intermediaries and thus reduced transaction costs have been invented. Furthermore, there are blockchain solutions that allow for cross-border transactions without having to account for currency exchange fees as would be the norm with using the traditional models that depend on the fiat currencies.
Supply chain sector
Second is the supply chain sector. This has thrived to become the most successful non-financial blockchain application across the globe. The architecture of blockchain networks allows users/members to identify and track the possession of a certain item throughout the supply chain. Since the data fed into the blockchain network is immutable, cases of fraud are eliminated. It also reduces redundancy where every stakeholder would be required to update their database. The integration of IoT and blockchain has also allowed industries to be able to track various aspects of products on transit to ensure that the standards are not compromised. For example, a company dealing with the distribution of meat can install thermometers into the refrigerators being used to ferry the meat and integrate the feedback from those thermometers into a blockchain network for real-time tracking of the temperatures to ensure that the meat remains well refrigerated.
Companies or businesses depend on trusted third parties such as Google, Amazon, Uber, Alibaba, among others to provide the platforms where transactions can be done. Blockchain networks eliminate the need of these third parties by introducing nodes throughout their systems that make it possible for individual members to transact directly without the need for an intermediary.
Through the use of smart contracts, blockchain users/members can manage the outcomes and also automate the process of concluding contracts. If a blockchain user enters into a smart contract, the funds can be held in an escrow account and released once the contract is marked as complete. This ensures that the customer feels safe and it also eliminates scams.
If the contract is not carried out according to the laid out specifications, the customer has all the rights of terminating the contract and he/she is guaranteed of getting his/her money back.
Impact of blockchain technology on business models
Business models have a lot to benefit from the blockchain technology. The most significant advantages of employing blockchain-based business models include:
- Reduced costs, which is attained by eliminating intermediaries.
- Increased transaction rates.
- Reduced redundancy and need for record-keeping since blockchain automatically stores immutable data.
- Enhanced traceability and verification of information.
- Blockchain also offers alternative approaches to how assets are authenticated.
- The transactions performed through a blockchain network are secure since they are protected by a layer of cryptographic encryption.
- Blockchain supports distributed autonomous organizations (DAOs), which makes it possible to eliminate the need for intermediaries since DAOs don’t rely on not central governments and they are operated by members through the use of smart contracts.
- Blockchain-based models make it possible to use cryptography and asset tokenization, which is the current trend. This further makes it easy to conduct fundraising. Contrary to using the traditional shares markets to raise capital, a business can easily raise funds through methods such as Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs) and Security Token Offerings (STOs).