Inside the Cryptocurrency Business Model – How to make money by creating your own currency

Satoshi Nakamoto seemed to have found the way to solve the Internet 1.0 problem that gave us Pets.com and other now forgotten companies when he created bitcoin (intentionally or not):

Question:

“How do you lose money on each transaction and make it up on volume?”

Answer:

Rabid Speculation

Ignoring the cool math, you need four elements to build a cryptocurrency business:

  1. Generate a bunch of your Virtual Securities.
  2. Have a cool Tilt to sell your system.
  3. Give a bunch of them away to Influencers.
  4. Hope they go viral.
  5. “Make almost Free, Sell High”

This post is part of a series about the different Virtual Securities Business Models.

Satoshi Nakamoto came up / put together  several pieces into a brilliant Tilt:

  1. The blockchain – a public, distributed cryptographic transactional database to allow anyone to trade bitcoin (and fractions of bitcoin) anonymously (we’ll come back to this)
  2. Currency mining – the capability to make money from “nothing” (well, power and computer resources that may not actually belong to you – hackers and others have installed malware on victims computers to “mine” for bitcoin)

For bitcoin, there may have been less need to formally recruit Influencers as you could, if you got in early, mine your way into the system, but it looks like the “gift of bitcoin” helped get publicity for the system started:

 In 2010, the first known commercial transaction using bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John’s pizzas for $10,000.  – Wikipedia

Your influencers were, of course, naturally incentivized to spread the coin and the word…

(I’d be willing to bet – real money – that  Laszlo Hanyecz didn’t PAY $10,000 for his bitcoin that he used to buy the two pizzas)

After all, mining was designed to be increasingly difficult.  So the supply of bitcoin would grow more and more slowly… and that trading existing coin would be more and more valuable.

(There were around 2 million bitcoin in 2010, doubling to 4 million in less than a year, it took around 18 months until 2012 to reach 8 million, and 5 years until 2017 to reach 16 million).

If your currency catches on, you’ve made a mint (literally) from those early coin that you generated easily and efficiently and kept (it is good to set the rules).

Questions, Comments, Extensions?

Would you like more information about how cryptocurrencies make money? Do you have suggestions on how to improve this article? Other comments? Let me know.

[contact-form-7 id=”10″ title=”Contact form 1″]

Similar Posts