Not Ethereum Business Models

Here are 6 business models that have been proposed on /r/ethereum:

  1. Buy Ether
  2. Sell computing power
  3. Sell developer hours
  4. Sell smart contract consulting hours
  5. Balance sheet business
  6. Advertising

I have a problem with them. Let’s go through each one:

  1. Buying Ether is not a business model, it’s an investment strategy. It depends on the assumption that Ether will appreciate in value, which it will when people figure out how to build profitable businesses on top of it.

  2. Selling computing power in order to.. mine Ether. See 1).

  3. Who wants to buy developer hours? Probably somebody who has figured out how to build a business on top of Ethereum1.

  4. Who wants to buy smart contract consulting hours? See 3).

  5. I’m not sure I understand this one correctly, but I guess the idea is to earn interest. How does one earn interest? By lending to somebody who will later pay you back. That somebody better have a business model…

  6. Advertising, aka helping people who already have a business expand their business.

These are not business models, these are “somebody else has a business”-models.

They work under the assumption that somebody outside of the Ethereum ecosystem has figured out how to make money and now wants to move into the space for some reason (mostly FOMO I guess). Arguably that’s what the internet did.

In my mind there is only one Ethereum business model, which is to deploy a smart contract or a set of smart contracts that charges some kind of fee (or to put it the words of one of the great philosophers of our time: “Get them to sign on the line which is dotted”). The problem is of course that there’s nothing you can do to prevent somebody from copying your contracts and setting the fee slightly lower.

This limits you to a subset of contracts which have some form of network effect built-in. Augur is a good example, as it becomes more useful with each user, creating what is known as a “moat” among investors. Having a strong moat is what prevents people form copying and undercutting you and what is the backbone of all - not just Ethereum - business models.

  1. Also, there is a reason why Microsoft and not Red Hat brings in the big bucks. ↩︎