It may surprise you that no blockchains are profitable in the current climate. Primarily, blockchains make most of their money from transaction fees. The leading blockchain by transaction fees is the Ethereum blockchain, earning just shy of $13 million in daily transaction volume. Here’s the catch: the cost of running Ethereum is over $36 million for daily issuance. That’s a -64% loss, a figure that is clearly not sustainable. Furthermore, the average blockchain operates at around a 90% profit loss daily, with the exception of the Binance Smart Chain losing around -19% daily.
Why aren’t blockchains profitable?
It comes down to security costs primarily. Each blockchain has to prove they are secure, as it is the most necessary feature for the protection of data and information, and thus the core of blockchains. To maintain their security and protection, networks incentivize miners to process and authenticate transactions in exchange for a reward. These rewards are paid out by the network for all transactions. Adhering to the decentralized nature of blockchains, more transactions = more mining required, and this is costing the network’s significantly as they scale.
This is fine for now, as we’re in the very early stages of blockchain; the internet also took some time to become profitable. Still, I must reiterate that this is clearly not sustainable, and a way around this issue is a do-or-die scenario for all blockchains eventually.
What blockchains need to do to become profitable
To create profit, blockchains need to accumulate revenue from block space. That’s why security is crucial in the first place, since a secure blockchain raises the value of the blocks, driving value and users to the network.
The goal for each blockchain needs to be an increase in transaction revenue while reducing security costs. So how is this achievable? Through two ways;
A valuable network or ecosystem. If layer 1 networks like Cardano or Chainlink provide a variety of layer 2 dApps and protocols built on top of their blockchains, the block utilities increase, which also increases the blockchains value per block. This creates further demand and willingness to bid or pay more for block space.
They must find a way to reduce their security costs while either maintaining the same or a stronger level of security.
Ethereum may have found the answer to both of these. Their new 2.0 upgrade on the horizon will be using a Proof-of-Stake consensus, along with sharing data validation with layer 2s to create more efficient security while reducing the costs by 99%. This will bring Ethereum to the forefront of the blockchain space, making it incredibly profitable, in turn attracting more dApps and protocols to the network.
What remains to be seen is this: will other layer 1s be able to adapt similar ideals to their blockchains in order to scale?