Coin-Operated

In the digital world, “coin-operated” is an on-demand business and payment model that resembles coin-operated use cases in the physical world such as laundromats and game arcades. Throughout the latter half of the 20th century and well into 2000s, many laundromats and arcades worked on a pay-as-you-go basis where the customer would deposit coins into the machines for a single cycle of usage (i.e., one laundry cycle or a single session with the game). In some cases, the machines only accepted special tokens, which in turn required the customer to exchange their fiat currency for those tokens in advance. Many metropolitan subways systems such as the New York City Subway, customers inserted tokens into the subway’s turnstiles to gain access to a train’s platform.

The key to a pay-as-you-go coin-operated model is a fee is typically paid to gain one-time access to the service. The relevance to the blockchain industry is that public distributed ledgers invariably mimic this coin-operated model at the same moment that a distributed ledger services a transaction or smart contract workflow. Similar to real-world coin-operated models that required a special token instead of fiat coins, virtually all public distributed ledgers require on-the-spot payment using their native cryptocurrencies (in essence, their native tokens).

This pay-as-you-go model is substantially different from metered or subscription services such as those offered by cloud providers such as Amazon Web Services (AWS) and Salesforce. Metered services keep track of every bit of usage, but payment for that usage is made at the end of a billing cycle, typically every 30 days. Subscription services are typically offered and paid for in consumption bundles, seats or tiers (e.g., 10 unlimited user licenses for $500 per month). In contrast to virtually every other technology business model, Distributed Ledger Technology (DLT) allows you to pay for what you use at the moment you use it.

For enterprises, this coin-operated model should be of particular interest to personnel who are in financial, compliance and procurement roles. Similar to how an arcade player might roam around the arcade with a pocket full of tokens that were acquired in a bunch, a digital ledger’s coin-operated model essentially requires an organization to keep cryptocurrency on-hand (known as “holding crypto”) in order to pay the necessary fee at the moment that a transaction or smart contract workflow starts. For organizations, there are pros and cons to this novel arrangement.

Perhaps the biggest pro is that a pre-arranged software contract or procurement process is not necessary to start using a public distributed ledger. The biggest con is that there may be legal, tax or compliance implications for holding cryptocurrency.