A Quick Look at Revenue Models of Popular Cryptos
Crypto-currencies have been popping up all over the world ever since Bitcoin started making headlines. Most of them didn’t really make it past the early stages.
For those of us involved in one capacity or another in the world of crypto, most projects are pretty straightforward. A layperson looking in may have a harder time figuring things out, however, and one of the most common questions people ask is “how exactly is that crypto making money?”
So, let’s take a quick look at how some of the more popular crypto-currencies are creating revenue.
In the eyes of the wider audience, Bitcoin is the one true cryptocurrency while all the rest are still considered as nothing more than “Altcoins”. As the trailblazer for the adoption of both blockchain technology and today’s crypto-currency landscape, Bitcoin remains the most trusted coin out there and the benchmark for the health of the entire system.
However, the recent tweet by Donald Trump, as well as a host of statements by prominent figures in politics and business that preceded it, demonstrate a lack of understanding, a considerable amount of anxiety and fear, and perhaps a tiny speck of speculative behavior as well. So, it comes as no surprise that thousands of people go online and type “How does Bitcoin make money.”
The answer is – it doesn’t. Bitcoin isn’t a company that tries to profit off of the project as it is, in fact, an open-source project. As an investor, though, you can make money from either mining coins or trading them for a profit.
Now, there could have been some profit in it for the mythical Satoshi Nakamoto if he set aside a ton of BTC coins for himself. But, that’s about it. There are no revenue streams for the founders of the project to speak of.
Unlike Bitcoin, Ethereum is definitely there to make money. Now, the way Ethereum makes money is through the use of their trading platform that charges a fee for all transactions. And, that’s not it, they also charge fees for storage and they charge the use of ERC20 tokens, which are probably among the most popular tokens for new projects.
Moreover, back in 2016, they published a blog post stating that the Foundation behind Ethereum has “2,250,000 ETH, 500 BTC and $100,000 in fiat currencies”. So, any appreciation in the cost of Ethereum coins or Bitcoin for that matter can bring a lot of money to the company behind the project.
Ok, we know that Libra isn’t live yet. We also know that Libra doesn’t seem very promising to those who understand the value of blockchain and decentralization. Heck, Facebook is one of the least trusted companies in the world, given their apparently unwilling involvement in the US Presidential voting campaign still in recent memory.
That being said, Libra promises to be huge. Now, while Libra itself is not intended to make money in its early stages, we also know that Facebook is creating a new subsidiary called Calibra. This company will create products and services based around Libra that promise to generate significant revenue streams and profits for the social media giant.
Nevertheless, all of this can only come to fruition if Libra actually succeeds. At this moment, Congress doesn’t seem to be too happy with that idea.
When Ripple first launched their project, a significant portion of the community didn’t put too much trust in them. As time went on, however, Ripple became one of the biggest “Altcoins” around.
When it comes to revenue models, they really have their game figured out. Each revenue stream they created is simple and straightforward, and they created enough to keep them going strong for a long time.
It doesn’t stop there. Banks that want to set up Ripple and use it to speed up their transactions and save a lot of money have to pay the cost of deploying ripple, which is usually measured in millions of dollars as you can see in Ripple’s Cost Model Paper.
These fees will make a small dent in the budgets of banking institutions and prominent cryptocurrencies, but Ripple is still making tens of millions of dollars each year by way of these fees.
Most importantly, the company holds the majority of all the coins that they mint. So, as the price of Ripple’s coin (XRP) grows, so does the company’s wealth. In very simple terms, Ripple started out by printing a lot of money in the name and for the benefit of the company. Their job from that point on was to make sure that the value of their currency grew. If we take a closer look, they did a hell of a job.
Binance is one of the best cryptocurrency exchanges out there. Currency exchanges in general have long-established revenue models. They simply collect fees based on an array of activities that people perform on their platforms. Binance is unique, however, in terms of how they managed to connect Binance Coins with their revenue models.
As their standard fee, Binance simply charges 0.1% for trading. Depending on the coins you are exchanging, they have various withdrawal fees.
When they created their coin, they started offering people to pay those fees with Binance Coins at a 50% discount. Now, 0.05% doesn’t seem like a lot to your average Joe, but if you are a very busy trader or a company and you go over a billion dollars in trade each year, which happens more often than you might imagine, the discount can add up to half a million dollars in savings on transaction fees.
In addition to these, Binance has its own venture fund called Binance Labs, acting as a seed investor for blockchain and crypto startups, and a deal with an array of governments, such as Malta, Bermuda and Jersey, with loose regulations that allow them to trade with security tokens.
The recent security breach of the Binance platform that resulted in the theft of around 7,000 Bitcoin did cause a lot of damage to their reputation, something that may have affected their revenue streams in the aftermath. Binance pledged, however, to reimburse their customers through their secure asset fund and will certainly recover from this bump in the road.
So, here are a few ways some of the major cryptos are making money. Stay alert for new posts on our blog, as we will be delving deeper into more revenue models and practical applications of crypto-currencies in various industries.
Disclaimer: The information provided in this post is not legal, accounting, or financial advice. I am not a lawyer, accountant, or financial advisor. I am not registered as an investment adviser with any federal or state regulatory agency. The Information should not be construed as investment or trading advice and is not meant to be a solicitation or recommendation to buy, sell, or hold any cryptocurrencies.
Title photo by yilmazsavaskandag, Shutterstock.