vbde-framework

VBDE Framework: Dissecting Blockchain Business Models

A Blockchain Business Model according to the FourWeekMBA framework is made of 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.

VBDE Blockchain Business Model Template

VBDE Blockchain Business Model Template

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Keep reading, if you want to understand how to use the framework.

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 how the rules of the Blockchain makes 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?

Here the sort of rules underlying the Blockchain will be critical to it. Perhaps, on Blockchain protocols like Bitcoin, rules like proof of work (PoW) are extremely important:

proof-of-work
A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.

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 in 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?

Blockchain Business Models To Understand How Most Blockchain Protocols Work!

blockchain-business-models

Read Next: Tech Business Models Framework

Connected Business Concepts

free-to-play
A free-to-play is a model that became particularly popular in gaming. Free-to-play is also commonly referred to as free-to-start. For instance, companies like Epic Games have launched popular games like Fortnite’s Battle Royale, which had ingrained a free-to-play model. This is a model that become extremely popular in the digital age of gaming.
blockchain-economics
According to Joel Monegro, a former analyst at USV (a venture capital firm) the blockchain implies value creation in its protocols. Where the web has allowed the value to be captured at the applications layer (take Facebook, Twitter, Google, and many others). In a Blockchain Economy, this value might be captured by the protocols at the base of the blockchain (for instance Bitcoin and Ethereum). However, according to blockchain investor Paivinen due to ease of forking, incentives to compete and improved interoperability and interchangeability also in a blockchain-based economy, protocols might get thinner. Although the marginal value of scale might be lower compared to a web-based economy, where massive scale created an economic advantage. The success of the Blockchain will depend on its commercial viability!
proof-of-stake
A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
proof-of-work
A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.
vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of 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.
ethereum-blockchain
Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.
the-graph-token
The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.
bat-token
BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.
ripple-blockchain
In 2012, co-founders Christian Larsen and Jed McCaleb created Ripple, a technology acting as both a pre-mined cryptocurrency called XRP and a digital payment platform enabling monetary transactions. Where Ripple is the tech company, XRP is the decentralized ledger.
stellar-blockchain
In 2014, Jed McCaleb – which also played a key role in the development of Ripple – created a cryptocurrency to provide fast, reliable, and affordable money transactions. The same cryptocurrency has considerably grown seven years later. It is now one of the most stellar cryptocurrencies to provide a real-time platform that links banks, payment systems, and people. Meet, Stellar!
bittorrent-token
In early 2019, a joint project between TRON and BitTorrent Foundation called BitTorrent Token came to fruition. BitTorrent Token launched to tokenize in-demand file-sharing protocol and enhance content delivery and bandwidth accessibility with blockchain technology.
chainlink-token
Chainlink is considered the most established decentralized oracle network. As an ecosystem housing several decentralized oracle networks running simultaneously. As a decentralized oracle service built on Ethereum, Chainlink has the power to support the development of blockchain solutions for both traditional businesses and enterprises.
decentralized-exchange-platforms
Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.
polkadot-token
In essence, Polkadot is a cryptocurrency project created as an effort to transform and power a decentralized internet, Web 3.0, in the future. Polkadot is a decentralized platform, which makes it interoperable with other blockchains.
cardano-blockchain
Designed and created as an alternative to Ethereum, Cardano claims to be the first decentralized blockchain protocol to use a scientific approach and undergo a peer evaluation.
solana-blockchain
Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.

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