What Is a Picks-and-Shovels Model And How It Applies to Crypto Right Now 

One of the most interesting lessons from the California Gold Rush is about a name Samuel Brannan.

In 1848, Brannan heard about the gold discovery at Sutter's Mill before almost anyone else in San Francisco. 

He didn't rush to the hills with a pan. 

He walked through the city shouting the news to create a frenzy.

Before that, he bought up every pick, shovel, and mining supply he could find. 

He then sold those supplies to the thousands of miners flooding into California.

Brannan became California's first millionaire. 

Most of the miners went broke.

The phrase "picks and shovels" entered the business vocabulary from that story. 

It describes a specific strategy: rather than betting on which competitor wins a race, you sell the equipment everyone needs to run it. 

You profit from the activity itself. Not from picking the right winner.

And this is directly relevant to understanding where the money actually flows in the crypto payments industry right now.

What the Picks-and-Shovels Model Actually Means

The core idea is straightforward. 

In any industry experiencing rapid growth, the companies building and operating the underlying infrastructure tend to generate more predictable, durable returns than the companies competing within the industry itself.

The Gold Rush is the origin story, but the modern examples are more instructive.

When the internet began its commercial expansion in the early 1990s, Cisco Systems was selling networking equipment — the routers, switches, and cables that made internet connectivity physically possible. 

Cisco didn't need to predict which websites would succeed or which dot-com companies would survive. 

It just needed the internet to grow. 

Every new company that came online needed Cisco's infrastructure to do it.

Cisco's revenue grew from $70 million in 1990 to $22.3 billion in 2001.

A roughly 300-fold increase in eleven years. 

Its stock delivered approximately 100% annual returns in the decade following its 1990 IPO. 

At its peak, Cisco briefly became the most valuable company in the world at $546 billion.

Pets.com went to zero. Cisco built the pipes they ran on.

The parallel to crypto is direct. 

The question isn't whether Bitcoin goes to $200,000 or falls to $20,000. 

The question is whether crypto transactions keep happening. 

Every transaction that moves through payment infrastructure generates a fee. 

The infrastructure operator earns that fee regardless of price direction.

The Companies Running This Playbook Right Now

The picks-and-shovels approach in crypto isn't a theoretical concept. 

It's the operating model of some of the most profitable companies currently working in the space.

Coinbase reported full-year 2024 revenue of $6.564 billion. Up 111% year-over-year. Its net income was $2.6 billion. Its subscription and services revenue hit $2.3 billion, up 64%. Coinbase earns from custody, compliance tools, staking infrastructure, and developer APIs. 

It earns whether Bitcoin's price is rising or falling, because it earns on activity, not on price.

Chainalysis, a blockchain analytics company, generates approximately $250 million in annual recurring revenue, with over 70% coming from government clients including the Department of Defense, the FBI, and the IRS. 

Chainalysis doesn't own crypto. It builds the tools that governments and financial institutions use to monitor and analyze blockchain activity. 

The more crypto transactions occur, the more valuable their data becomes.

Stripe processed $1.4 trillion in total payment volume in 2024, representing roughly 1.3% of global GDP. In 2024, they acquired stablecoin infrastructure company Bridge for $1.1 billion, the largest fintech M&A deal in the stablecoin sector. Stripe CEO Patrick Collison identified stablecoins as one of two "gale-force tailwinds dramatically reshaping the economic landscape", alongside AI.

Visa's on-chain stablecoin settlement reached a $3.5 billion annualized run rate by late 2025, reflecting 460% year-over-year growth. Visa doesn't hold crypto. It processes transactions. It earns a small percentage of an enormous volume. That is the entire business model.

Franklin Templeton CEO Jenny Johnson articulated the thesis clearly at the SALT conference: "The real value lies not in the asset itself but in the foundational systems enabling its existence."

Why Visa and Mastercard Are the Most Instructive Examples

If you want to understand how the picks-and-shovels model creates wealth over time, Visa and Mastercard are the clearest case study available.

Neither company lends money. Neither takes credit risk. Neither holds deposits. They operate the payment rails: the infrastructure layer that every card transaction passes through. 

And they collect a small assessment fee on each one.

Their combined market capitalization reached approximately $1.1 trillion. 

Built entirely on clipping fractions of a percent from transaction volume, globally, indefinitely.

The fee structure that makes this possible runs through three layers on every card transaction. 

• Interchange fees – paid to the issuing bank — represent 70 to 80% of total processing costs, typically running 1.5% to 2.1% of transaction value. 

• Assessment fees paid to Visa or Mastercard add another 0.13% to 0.15%. 

• The processor markup – the competitive layer where independent agents and ISOs earn their income – adds roughly 0.2% to 0.5% plus a per-transaction fee.

The McKinsey Global Payments Report 2024 pegs the global payments revenue pool at $2.4 trillion in 2023, handling 3.4 trillion transactions worth $1.8 quadrillion, growing 7% annually since 2018. McKinsey projects that pool reaches $3.1 trillion by 2028. 

The combined market capitalization of specialist payments companies grew from $400 billion to $1.4 trillion over the past decade.

This is what a picks-and-shovels business looks like at full maturity.

Visa and Mastercard operate at the top of the payment infrastructure stack. 

But the same economic logic,  earn a small percentage of every transaction processed, indefinitely – applies at the independent agent level through the ISO model.

An Independent Sales Organization, or ISO, is a registered third-party company that sells and manages merchant payment processing accounts. Agents who work within the ISO system earn residuals: a percentage of the processing fees generated by every merchant they sign, for the life of that account.

The math is simple and it compounds. 

A merchant processing $20,000 per month in transactions pays roughly $550 in total processing fees at a 2.75% flat rate. Of that, approximately $50 per month flows to the agent who placed the account. That $50 arrives every month without any additional work — as long as the merchant keeps processing.

Shaw Merchant Group, which publishes agent income examples, illustrates: an agent signing one merchant per week, at $50 per month residual per merchant, accumulates $200 per month after one month, $2,400 per month after one year, and keeps growing with every additional placement. 

Residual portfolios compound because each new account adds permanently to the base while existing accounts continue generating income.

Beacon Payments states plainly: "Some of our reps have not written a deal in five years yet continue to earn money through their recurring residual stream every single month."

Residual portfolios in merchant services are also transferable assets. They can be bought and sold. An agent who builds a portfolio of active merchant accounts hasn't just created income — they've built an asset with independent market value.

Why the Crypto Payment Version of This Model Is Structurally Attractive

The traditional ISO and agent model for credit card processing is mature and competitive. The early window for capturing territory — roughly 1979, when Visa introduced its first POS terminal, through the mid-1990s when electronic terminals became near-universal — closed decades ago. The merchants are signed. The residuals are owned.

Crypto payment processing is in an earlier phase. The gap between crypto consumer demand and merchant infrastructure is enormous: approximately 70.4 million Americans own cryptocurrency, and fewer than 2,300 businesses accept it as direct payment, according to current tracking data. The ratio of crypto holders to accepting businesses sits at roughly 24,000 to one.

The same residual model that applies to traditional card processing applies to crypto payment infrastructure. 

An agent who places a crypto payment terminal at a local merchant earns a percentage of every transaction processed through that terminal — indefinitely, without ongoing active work per transaction.

The structural differences that make this version potentially more attractive than traditional card processing at this moment:

First, the competitive landscape for merchant acquisition is far less saturated. 

Traditional card processing agents are competing in a market where nearly every business already has a processor. Crypto payment agents are approaching merchants who have no existing crypto payment relationship.

Second, the secular trend is favorable. 

The picks-and-shovels model works best when the underlying industry is growing. Stablecoin transfers totaled $27.6 trillion in 2024 — surpassing Visa and Mastercard's combined transaction volume. Retail stablecoin transactions rose over 125% between the first three quarters of 2024 and the same period of 2025. VC investment in stablecoin-related infrastructure companies grew from under $50 million in 2019 to $1.5 billion in 2025.

Third, merchants have a documented financial incentive to switch. 

Crypto processing fees run 0.5% to 1% versus 1.5% to 3.5% for card processing — a 50% to 65% cost reduction. 

Chargebacks are eliminated by design. 

The value proposition for the merchant is concrete and measurable.

The Historical Pattern: Early Infrastructure Capture

The credit card terminal analogy is worth examining in detail because it's the closest structural parallel to the current crypto payment infrastructure moment.

Visa introduced its first electronic POS terminal in 1979. Verifone launched the ZON terminal series in 1983. The first to be considered a modern terminal. 

Through most of the 1980s, the majority of merchants still used manual imprinters. 

The electronic terminal buildout was underway, but far from complete.

Agents who placed terminals during that early window, roughly 1979 to 1995, captured merchant relationships and geographic territories that compounded in value over the following two decades, as consumer spending shifted from cash to cards and processing volumes grew with the overall economy. 

Each signed merchant was one fewer available to competitors. 

Switching costs — installed equipment, trained staff, integrated systems — kept merchants in place once the relationship was established.

The industry grew from a niche in 1979 to near-universal merchant adoption by the late 1990s. 

The early agents who built portfolios during the buildout phase earned compounding residuals for decades.

The crypto payment infrastructure market is in an analogous position. 

The major platforms have launched. 

The technology is proven. 

The consumer demand is documented. 

The merchant adoption hasn't happened yet at the local level, which is precisely the condition that creates the early-placement opportunity.

The upfront capital requirement is significantly lower than other infrastructure businesses. 

A crypto payment terminal costs between $200 and $1,500, compared to $2,000 to $14,000 for a traditional ATM plus cash float requirements. 

There's no inventory to manage, no physical restocking, and no cash handling. 

The primary investment is time during the early sales phase.

The underlying logic is the same logic that built Visa's trillion-dollar business and Samuel Brannan's first California fortune: when a lot of people are going to need a specific kind of infrastructure, the person who builds that infrastructure earns from the activity — not from picking the winners. 

In 1848, the activity was mining. 

In 1990, the activity was internet traffic. 

In 2026, the activity is crypto transactions.

Gedam Tekle is a former U.S. Marine and Oakland Police Sergeant who left law enforcement to build crypto payment infrastructure businesses. He has personally exited two eight-figure companies and helped over 4,000 entrepreneurs build residual income. He is the founder of Dividend Shift.