How Blockchain Works: Marketplace & Price

Hi, my name is Kinjal Shah and I'm a partner at Blockchain Capital. My name is Olayinka Odeniran and I am the founder of Black Women Blockchain Council and I'm also a blockchain enthusiast. We were founded back in 2013, so one of the earliest to focus specifically on blockchain use cases. And we invest across the entire industry. The mission of Black Women Blockchain Council is to make sure that no one gets left behind. In particular, the black women. We want to make sure that this technology is a field that they see themselves at. I think of blockchain as a horizontal technology that can be applied to many different sectors. What really drew me into blockchain is how interdisciplinary it is. It pulls on threads from economics, politics, social sciences, and even beyond that to philosophy. I myself am an investor up blockchain capital. I spend most of my time better understanding the technology, researching and doing diligence on a number of opportunities, and then working with founders to help build this industry together. The Bitcoin Surge. Every week you read that Bitcoin's price is going up to record highs or down. Markets are plummeting. Some new fangled cryptocurrency skyrockets in value, and a piece of digital art famously sells for $69 million. But a few months later, you read that everything is crashing and people are losing money. And then it all goes back up again. What's going on? What does it even mean for things to have value on the blockchain? Blockchain as a technology allows us to make new forms of cryptocurrencies and new forms of ownership. It does this by enabling decentralized record keeping. But the technology itself doesn't assign prices or values. People do that. Prices on a blockchain are determined by how much people are willing to pay using traditional forms of money. How does this work? Well, transactions are saved on a blockchain when somebody gives their currency to somebody else. But what do they get in return? Well, it could be anything, really. Like buying a pizza, using Bitcoin. These days, the most common transaction is to trade digital assets for each other or for traditional money on an exchange. An exchange is a marketplace where anybody can buy or sell something. The price at any given moment is not set by a central authority, but by what people are willing to pay. But if lots of people want to buy these same assets, we may see the price go up. As an example, consider the London Stock Exchange. When this marketplace emerged in a coffeehouse in the early 1700s. People traded stocks by shouting the price, making a deal and then handing over cash. Cryptocurrencies and other tokens are bought and sold in the same way on modern exchanges. In both cases and in any free market, there's no higher power deciding prices. Just to free for all based on the economic principle of supply and demand. But why do the prices swing so much more for digital assets? That depends on the asset and why people value it. Digital assets on a blockchain could have physical real world value. Today, people are experimenting with selling concert tickets on the blockchain. One day blockchain could be used to record government recognized ownership of a home with real walls and a real roof. The price of a home is determined by supply and demand in the real world, independent of how its ownership is recorded. A blockchain is just a digital setting in stone to record that ownership and doesn't impact the price. Other digital assets only have psychological value. You value it because you believe somebody else will also value it. Like digital art, where price is based on how much the buyer believes they'll get for reselling a given piece. Even traditional currencies don't have real world value unless others believe in them. Consider the US dollar. The paper itself has no value. Dollars are only valuable if you believe you can use them for payment and that the person you pay believes the same thing. With a traditional currency this belief depends on a country's military or economic power. If everybody believes a currency has value, if they stop believing, a currency stops having value. This is why some traditional currencies can drop in value causing inflation. Many factors can lead to why people believe there is value in cryptocurrency. Things like media hype, government regulations and businesses accepting digital currency can all cause people to believe or disbelieve. The price of Bitcoin or any other cryptocurrency on a blockchain ultimately measures how much people believe. Blockchain technology is touted by many for its potential. And yet many blockchain projects have failed because of hacks and scams. Beliefs can fluctuate wildly, which is why prices go up and down so much and so quickly. If a lot more people believe digital assets could one day become much more valuable, if a lot fewer people believe these assets could become completely worthless. And with so many different types of projects using blockchain technology, it's hard to tell which will succeed and which are doomed to fail.