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August 6, 2019

Business Model Canvas – Bitcoin

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Quick Pitch – Bitcoin is an innovation, an architecture for digital money and commerce that doesn’t rely on any central authorities to run. It’s a stateless, trustless financial protocol whose security is guaranteed by miners and whose value is determined by market participants.

Real Vision – Bitcoin Macro Thesis

How does Bitcoin make money?

The principal benefactors from Bitcoin are the miners, who are responsible for securing the network and ensuring that an accurate and immutable ledger is produced for every ‘block’ of transactions.

+ Blockchain & Digital Currency

Through his whitepaper – Bitcoin: A Peer-to-Peer Electronic Cash System – Satoshi Nakamoto was able to solve the Byzantine General’s Problem, which can generally be summarized as ‘finding consensus in a distributed system.’ Whereas it has always been impossible to send a coordinated message between two armies (in Bitcoin’s case, nodes run by miners) through enemy territory (in Bitcoin’s case, the open web), Satoshi solved this problem through a combination of cryptography, economics, and mathematics.

Effectively, Bitcoin enables one individual to send Bitcoin to anyone – across the pseudonymous bitcoin blockchain – without:

  • requiring a centralized third party to validate the transaction
  • the sender being able to defraud the receiver and double-spend the Bitcoin
  • anyone being able to censor or rollback the transaction for any reason

This massive innovation is secured by the miners, who contribute their computing power (Proof of Work) in exchange for block rewards (Bitcoin). Block rewards are distributed from a fixed supply (21 million) to miners on a sliding scale in a lottery system, which progressively halves (ie. a halving) every few years. They also earn transaction fees for processing transactions, which is one of the reasons that Bitcoin’s open-source community continues to pursue ways to scale the protocol as more transactions come online.

Community-Centric or Commercial-Partner Strategy?

Bitcoin is a large and ever-growing open-source community with developers and entrepreneurs from around the world who are incentivized by the growth in the value of Bitcoin, both from a network and financial perspective.

Bitcoin has no employees or official distribution agreements, as there is no CEO or central group that can run Bitcoin. There is a team of core developers who work together to continue to develop the protocol, but they are only ‘paid’ by 3rd party organizations or through the growth of the value in their personal Bitcoin holdings.

In that way, Bitcoin is very unique. Its organizational structure is fluid and organic, as anyone can join or leave at any moment without any tension or friction. All marketing is through word-of-mouth and those who do purchase Bitcoin tend to become early adopters and refer others towards Bitcoin.

Compared to banks or other financial services firms, it is as community-centric an organization as there could possibly be.

Fundraising and Valuation

One Bitcoin currently trades for ~$11,000 USD. That gives Bitcoin a total market cap of ~$200bn USD, with a circulating supply of almost 18 million.

There was no fundraising for Bitcoin or pre-mine for founders. Since there is no possible way to create new supply in Bitcoin (supply is fixed at 21 million indefinitely), there is no way for Bitcoin to raise additional funds. Its valuation will always be the price-per-Bitcoin X circulating supply.

Bitcoin Business Model Canvas

A business model is defined as:

“the rationale of how an organization creates, delivers and captures value.”

Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.

Value Proposition:

Stateless, trustless innovation for money and financial services

  • send or receive money with no central, 3rd party required to validate transactions
  • impossible to double-spend
  • censorship-resistant, impossible to roll back transactions
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