Bitcoin: What's the big deal?

TechTalk Summary: The intention is to understand a topic by raising and answering questions by participants, all of whom are interested in exploring the topic further. Most of the discussion is performed by novices in the field, so most progress is based on first principles. And there could be technical faults in the discussion captured below.

{ This is Part 2 of the Bitcoin TechTalk series. The previous TechTalk about Bitcoin is available here: Bitcoin: A Bubble? }

A: So new currency you say, why do you need a new currency?
B: It is a decentralised network, there is no central authority. So a central authority cannot ask you for a high percentage of commission. A network of miners maintain the network and they are rewarded by new bitcoins for their work.
A: Well, that is for now. Once the transaction volume increases,who is to stop them for charging high commission?
B: Well since anyone is free to participate in the miner network, hopefully economic/competitive equilibrium is reached.
A: Hmm... but if anyone can participate in the miner network, how do you avoid malicious activity?
B: That is the crux of the bitcoin algorithm. It maintains a distributed ledger of all transactions since Bitcoin's birth. Adding transactions to this ledger requires high computing power. And every miner in the miner network is in a race to add transactions to this ledge. On the other hand, validating transactions from the ledger requires very few computational resources. So it is easy for the miner network to identify and discard malicious transactions.
A: While the distributed ledger in itself is useful in a lot of situations beyond currencies, the very low transaction charges implies that you could perform very small transactions without incurring much cost. A slew of new and interesting ideas could be implemented with this. (Ref: Why Bitcoin matters)
B: But the cost of bitcoins is too high, I don't think micropayments is an option at all.
A: Actually, the bitcoin protocol has a nifty feature where you could divide a bitcoin down to as small a fraction as you wish. Currently the smallest unit of bitcoin, also called a satoshi, is 1/100,000,000 BTC

Bitcoin: A Bubble?

TechTalk Summary: The intention is to understand a topic by raising and answering questions by participants, all of whom are interested in exploring the topic further. Most of the discussion is performed by novices in the field, so most progress is based on first principles. And there could be technical faults in the discussion captured below.

[ Please contribute in the comments section, that is the place for most revelations / insights ]

• A: Why does its value fluctuate?
• B: Same reason why the value of any other commodity or equity shares fluctuate.
• A: What is it backed by? Equity shares have the products created by the corporation or its assets as its backing?
• B: I don't think its backed by anything per-se. Even in case of corporations, the perceived value as reflected in the market capitalization wouldn't always match the assets or the created products. 
• A: All currencies are usually backed by gold, aren't they. There is no such backing for bitcoins. Could the energy spent in mining the bitcoins the backing for bitcoins?
• B: True that. That makes it seem like a bubble. I don't have anything to show for it when things are going south. The energy spent is actually energy spent, I still don't have anything to show for it.
• A: Actually, what happens if the price of gold itself goes down, what do we have to show for that? An ornament?
• B: Let's go back to the time in human civilization where only food and wood (shelter) was required for survival. At that point, what would be the value of gold, nothing. I can't eat it, I can't use it for shelter. It's as good as stone. It's price rose only when multiple people were interested in it.
• A: And it was scarce enough. Demand-Supply. As long as you have demand, the value will be maintained. So yeah, apart from food and shelter everything else is pretty much perceived value driven by demand-supply.
• B: The supply is throttled at about 25 bitcoins per 10 minutes for miners, so that addresses the supply side
• A: I wonder what is the number of bitcoin owners. If all of them together dump bitcoin, only then the demand will go down. 
• B: Hmm, that will affect the value of bitcoin, but we could still continue to use it as a medium of currency exchange. 

Some links that I search after this discussion:

• Only once currency is still backed by gold: http://www.businessinsider.com/are-there-any-currencies-backed-by-gold-2012-3?IR=T
• Number of unique bitcoin addresses: https://blockchain.info/charts/n-unique-addresses
• Bitcoin Venture Capital Investments: http://www.coindesk.com/bitcoin-venture-capital/