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.