How does Bitcoin make Money & Learning Bitcoin Business Model

How does Bitcoin make Money, How does Cryptocurrency Work & Learning Bitcoin Business Model

How Bitcoin makes Money
How Bitcoin makes Money

Happy New Year Folks.  Hope everyone’s New Year Bash was FFFFFFFFFFFFFing Awesome!  🙂   Many of you have emailed me to know more about Crypto, Blockchain and other stuff related to ICOs etc.  So I thought of putting up a post which explains all of this in lay man’s terms.  Read on to understand everything about Bitcoin Business Model and How does Bitcoin make Money.

About Bitcoin, CryptoCurrency, ICOs & Block Chain

All of this hullabaloo just for a ZERO FUNDAMENTAL value investment i.e. Bitcoin. Yes, I feel it that way about Bitcoin.  But Blockchain, oh god it’s hot kind of reaction.  I personally can think of 10 different ways in which blockchain can change the world for good.  But the first application (well the famous one) is a currency which is tradeable and full of speculation.  Since the supply is limited, people are buying in anticipation of increased demand (which in itself leads to furthermore limited supply) and thus the price goes up.

Let’s see what everything in relation to the crypto world means in this post.

What is BlockChain

What is BlockChain?  Just think of BlockChain (erstwhile Block Chain) as a single intranet line connecting the world.  Pls read on carefully as What is Blockchain is critical in understanding Bitcoin Business Model and Understanding How does Bitcoin Make Money.

What is BlockChain
What is BlockChain

What is BlockChain in detail

What is Blockchain? A blockchain, erstwhile block chain, is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash (which is a link to a previous block), a timestamp and transaction data. Blockchains are tamper proof so that any modification of the data stored in blocks stays there forever. It is like a distributed excel sheet that can record transactions between two parties efficiently and in a verifiable and permanent way by all the people having access to that excel sheet. This is called as the DISTRIBUTED LEDGER.

For use as a distributed ledger, a blockchain is typically managed by a group of access owners (peer-to-peer network) collectively adhering to the EXACT SAME METHOD (SOLVING PROBLEMS) for adding new blocks. Once the block is created, the data in any given block (including this one and the previous ones) cannot be altered without altering the current blocks.

What is BlockChain Example

For e.g. Assume there are 8 blocks in the chain 1-2-3-4-5-6-7-8, I add the 9th block, you the reader added the 10th block, Now if Person X (who did not contribute to the block chain in any way) wants to edit the information stored in block 8, he can do that by gaining majority of all forward blocks i.e. block 9 and 10 which means person X has to get Me and YOU in confidence and alter the data of block 8 which will eventually alter the chain pointing to 9 and thus 10. If You and I don’t agree with his request the data won’t get altered. Imagine the scale of this problem when he has to alter block 8 with 1000’s of blocks added ahead of the block 8 – Thus TAMPER PROOF.


What is Cryptocurrency

What is Cryptocurrency?  Just think of it is a digital medium to transact with another party.  Whatever is transacted using the cryptocurrency will be encrypted within a system called blockchain (as blocks) thus CRYPTO-CURRENCY (transact).  Pls read on carefully as What is cryptocurrency is critical in understanding Bitcoin Business Model and Understanding How does Bitcoin Make Money.

What is Cryptocurrency
What is Cryptocurrency

What is Cryptocurrency

What is Cryptocurrency?  A cryptocurrency is an ENCRYPTED digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature.

Typically currency (called FIAT CURRENCY) has ZERO underlying value but because the GOVERNMENT MINT has produced it for a particular denomination as the GOVT dictates it carries a particular VALUE. On Contrary, a cryptocurrency is organic in nature; it is not issued by any central authority, thus it is immune to any government interference or manipulation.

For getting any FIAT currency in real world you need to be a REAL person with Identity Proofs (In Govt best case scenario, otherwise Tax Havens can keep money also in the name of Celeb Dogs) but in Crypto world you can be a cartoon character holding this digital cash thus The anonymous nature of cryptocurrency transactions makes them well-suited for a host of nefarious activities, such as money laundering, arms purchase, tax evasion etc.

The first cryptocurrency to capture the public frenzy was Bitcoin, in limited quantity, and Satoshi kept certain Bitcoins for himself (similar to public markets where the promoter holds certain stock in about to list entity). Bitcoin’s success has spawned a number of competing cryptocurrencies, such as Litecoin, Namecoin, Dogecoin, Tron, PPCoin etc.

What is Cryptocurrency’s Advantages and Disadvantages


The genius of Bitcoin is the backbone called block chain it uses to store an online ledger of all the transactions that have ever been conducted using bitcoins, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software. Many experts see this block chain as having important uses in technologies, such as online voting and crowdfunding, and major financial institutions see potential in cryptocurrencies to lower transaction costs by making payment processing more efficient.



What is Bitcoin

What is Bitcoin?  Bitcoin is one of the several cryptocurrencies (earliest) available in the market to transact.  Pls read on carefully as What is Bitcoin is critical in understanding Bitcoin Business Model and Understanding How does Bitcoin Make Money.

What is Bitcoin
What is Bitcoin

What is Bitcoin

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people and businesses, running computers all around the world, using bitcoin mining software that solves mathematical problems.


However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized (distributed ledger systems). No single institution controls the bitcoin network.

What is Bitcoin Protocol

The bitcoin protocol – the rules that make bitcoin work – is that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).  Every time someone mines a bitcoin it becomes harder for the next batch of bitcoins to be mined.  Currently, 80% of the 21 million bitcoins are in circulation.

What is ICO

What is ICO?  I am sure you understand what an IPO is (Initial Public Offering).  IPO is the first time the shares of a company are available for the public to buy.  Similarly, an ICO stands for Initial Coin Offering.  An ICO is the first time the TOKENS or COINS of the NEWLY LAUNCHED CRYPTOCURRENCY are available for the public to buy and trade in.  Pls read on carefully as What is ICO is critical in understanding Bitcoin Business Model and Understanding How does Bitcoin Make Money.

What is ICO
What is ICO

What is ICO

ICO is the abbreviation of Initial Coin Offering. It means that someone offers investors some units of a new cryptocurrency or crypto-token in exchange against cryptocurrencies like Bitcoin or Ethereum. Since 2013 ICOs are often used to fund the development of new cryptocurrencies. The pre-created token can be easily sold and traded on all cryptocurrency exchanges (Robinhood just started one) if there is demand for them.

ICOs are an unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the new cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.

An ICO is also called an Initial Public Coin Offering (IPCO).

When a cryptocurrency startup firm wants to raise money through an Initial Coin Offering (ICO), enthusiasts and supporters of the firm’s initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction.


With the success of Ethereum ICO are more and more used to fund the development of a crypto project by releasing token which is somehow integrated into the project. With this turn, ICO has become a tool that could revolutionize not just currency but the whole financial system. ICO token could become the securities and shares of tomorrow.

The best use of an ICO should be blockchain based investment backed insurance companies.  Because an Insurance companies business model is the best model if executed via distributed ledger. Well this is something that I think will be the future of insurance companies and if you are interested in building this together, reach out to me.  Companies in credit scoring world can also use blockchain for an efficient credit card business model backed by robust collections and distributed risk.

What is ICO – Non Crypto

The first non-cryptocurrency distributed by an ICO (of non-crypto) was Ripple. In early 2013 Ripple Labs started to develop the Ripple called payment system and created around 100 billion XRP token. The company sold these token to fund the development of the Ripple platform. The founder of Ripple is now worth more than $50 Billion.  Ripple is mostly dependent on Bank Business as Most of the Business Model of Banks can be ripped apart using blockchain.

ICO's are the Newest PONZI Schemes on the Block. Nice way to Print Your Own Currency Notes and Sell them at a Premium... Click To Tweet

As Ethereum itself unleashed the power of smart contracts, it opened the door for a new generation of Initial Coin Offerings.  These mart contracts can be used in many ways including a blockchain based payment gateway business model that is powered by global currencies and can give a tough fight to PayPal Business Model.

How does CryptoCurrency Work

How does CryptoCurrency Work?  It is exactly similar to doing P2P Money Transfer.  Except that there is a public record of the transaction on the cloud forever and that the transaction is encrypted using cryptography and thus becomes a word in the stone i.e. irreversible or cannot be tampered with or altered.

How does CryptoCurrency Work
How does CryptoCurrency Work

How does CryptoCurrency Work

How does cryptocurrency work? Transactions happen between peers (let’s say bitcoin transfer) from “cryptocurrency wallets” by matching up public codes (your bitcoin id) which relate back to user-held private passwords (called cryptographic “keys”).

Transactions made between peers are recorded on a public ledger (decentralized blocks, public excel type database) of transactions called a “blockchain.”

All users of a given cryptocurrency have access to the ledger (public shared excel sheet) if they choose to download a “full node” wallet (as opposed to holding their coins in a third party wallet like Coinbase). The transaction amounts are public. Each transaction leads back to a digital “cryptocurrency wallet.” Whoever owns the password (or key) to the wallet, owns the amount of cryptocurrency denoted on the ledger.

When someone sends or receives cryptocurrency, when they send from one wallet to another wallet using a set of private and public passwords, that transaction is queued up to be added to the ledger. Many transactions are added to a ledger at once. These “blocks” of transactions are added sequentially. That is why the ledger and the technology behind it is called “block” “chain” it is a “chain” of “blocks” of transactions.  Everytime adding a block to the chain requires problem solving (computing power) and the process is called as mining.  One use of cryptocurrencies is in anonymous donations to illegal streaming or torrent sites like PirateBay.

How does Bitcoin make Money

How does Bitcoin make Money?  Well it doesn’t…  Its based on a program and the source code is free for all.  People provide solutions to complex problems (called hash) for writing transactions on the cloud and make money by getting bitcoins in return (called Mining).

How does Bitcoin Make Money
How does Bitcoin Make Money

How does Bitcoin make Money

How does Bitcoin Make Money is the question that most of the bitcoiners have in mind.  Well, the tech behind bitcoin is completely open source and anyone can think of how does bitcoin make money for them.

How does Bitcoin make Money

How does Bitcoin make money for developers, entrepreneurs etc.  The developer can come up with a mind-blowing idea of using blockchain or decentralized platform for something.  He can then form a company on paper and call it let’s say PONZI LLC and the total fund required for the company to develop the product or tech is $100 million.  Ponzi can raise money from VCs, Banks, IPO etc.  But all of these methods come with their own set of problems and requirements.

There comes Crypto to the rescue.  Founder of PONZI thinks of ICO as the best way to raise money.  He conjures up a coin/token called with a fancy name let’s say GECKO COIN (From Gordon Gecko of Wallet Street) with per token value of 1$ which means 100 million coins are up for grabs.  Now the team comes up with a brilliant idea because of bitcoins popularity they know that with a decent idea GECKO will soar heights and make money for them.  So they open up an ICO for 100 million coins and at the same time give themselves 100 million additional coins (since they are the developers they develop 200 million tokens for themselves).

When their idea does well, and their ICO is fully subscribed, they now integrate their tokens on exchanges of cryptocurrencies where people can sell and buy GECKO coins.  Now they have completed the fund raise and developed the product in full.  People who have GECKO coins are now thinking of cashing in the popularity of the PONZI product which they also tell others.  Thus others also jump the bandwagon of buying the GECKO coins, but since the demand of the coins is limited the price starts shooting up.

Now the whales (a term for people who hold majority coins or in large percentage) start creating fake demand for their coins (basically what Wolf of Wall Street did) and get the price sky high and move out and let the retail public fight it out for the coins.  And that’s how Bitcoin makes money.

Bitcoin Business Model

What is BitCoin Business Model and How does Bitcoin make Money?  Well, the underlying technology (called blockchain) can be used for many businesses.  For e.g. Issuing Unique Identification to Citizens of Country (SS No., Aadhar, Passports etc.) so that no illegal immigration can happen by tampering the photo ids, Cross-Border Remittance, Crowd Sourcing Content (like Torrent Business Model) etc.

Bitcoin Business Model
Bitcoin Business Model

Bitcoin Business Model

Bitcoin business Model similar to How Bitcoin makes money is NULL.  Basically, the currency does not have any bitcoin business model.  But the Bitcoin Business Model of Blockchain i.e. the underlying technology has immense applications.

  1. Bitcoin Business Model in E-Voting: the only reason that almost all countries do not rely on internet voting is that it can be forged and fake identities can vote in the election.  Here blockchain can be linked to the Identity proof of the person casting the vote at the same time remaining anonymous.
  2. Bitcoin Business Model in Contracts: An agreed terms and conditions can be auto executed at the term end or contract expiry.  For e.g. House purchase agreements can be put on the public decentralized registry to ensure proper re-sale agreements and stamp duties on house sale.
  3. Bitcoin Business Model in Taxation: Corporates can update decentralized registries with e-id of employees and their remuneration to avoid any sort of tax evasion by employees.
  4. Bitcoin Business Model in De-centralized Cloud Storage: Imagine the AWS storage capacity with Google computing power accessible without depending on these two companies for their services.
  5. Bitcoin Business Model in Timestamping: Many agreements around the world need stamping or notarizing by relevant authorities to ensure that these agreements are true to the word and the parties are agreeing to the terms set out.  This currently is a waste process of sending and receiving track change documents and then signing it in presence of a notary.  On blockchain, this can be done in a second with smart contracts and timestamping on cloud.

I hope this post cleared all your doubts on How does Bitcoin make Money, How does Cryptocurrency Work, Bitcoin Business Model etc.  All views personal.

Unicorn Economy


  1. I know this website presents quality dependent articles
    provides these stuff in quality?

  2. First of all thank you for the detailed information on the Blockchain and Bitcoin, appreciate the effort.
    In the scenario of E-voting how will we stop the same person from creating multiple EID’s? in case we are using any other identifier to connect with EID then isn’t that tampering the anonymousness?

    Thanks and regards!

    1. Well that completely depends on the platform that uses it. If you use one platform to create the EID and other to validate whether or not this has already voted and this keeps on jumping everytime. This way it remains anonymous and super-tamper proof. Email me for a detailed discussion on this, if need be.

  3. Thankyou for this wonderful writing of these important concepts! Have read a couple of articles now!! All amazingg!!
    One thing I want to ask. I understood how bitcoin industry is making money from general people by mining coins and then selling them to general people. But the question is how general people is gaining anything in return? OR is it just a fraud procedure used by these giants to gain money and then vanish like Jordan did in ‘The Wolf of Wallstreet’?
    Thankyou in Advance! 🙂

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