Quote from: EconomyBuilder on August 21, 2010, 09:23:07 PM

Blinded cash issuers (using for example this system) and the bitcoin system could make a pretty good combination. It could be similar to how private banks kept gold reserves and issued bank notes:

* Use bitcoin or a modified bitcoin/RPOW/bitgold like system to create a securely auditable, unforgeable, public, non-anonymous "high power money" analogous to gold.

* Issuers (or "banks") of securely anonymous (blinded) bank notes keep bitcoins as reserves. By analyzing their public bitcoin chains, any customer can audit the reserves of any of these issuers.

This idea is really cool, I just repeat it below to expand it a little bit.

1) An OT issuer backs up his "OTBitcoins" with bitcoins. These "OTBitcoins" provide instant payment and untraceable digital cash.
2) Everybody can verify that he does not issue more "OTBitcoins" than he really holds, simply by inspecting the public bitcoin blockchain. This is something that could be done automatically in a combined bitcoin OT client whenever a user wants to purchase "OTBitcoins"

Now here comes a little expansion, I would be interested what you think of it:

There is one little problem in the above example:
The OT issuer can still be unable to deliver bitcoins if he lost the private key to the bitcoins he used to backing up the "OTBitcoins".
So just inspecting the public blockchain will not help.
The OT issuer of "OTBitcoins" also has to proove that he has access to the bitcoins which form the backup.

Solution:
The OT issuer backs up his "OTBitcoins" with two bitcoin addresses.
He then sends *continuously* back and forth bitcoins between these two addresses, so that everybody can see that he really has access to the private key and that he can make good his "OTBitcoins" with real bitcoins.
Performing this check could also be done automatically in a combined bitcoin OT client whenever a user wants to purchase "OTBitcoins".

So at least at the date of purchase of "OTBitcoins" the user knows that the issuer can make up good the claim of delivering real bitcoins.

Of course if the issuer looses the private key in the future or runs away, the "OTBitcoins" from this issuer will become worthless.
So the idea of multiple issuers forming a "OTBitcoin" basket currency will help to reduce this risk.

Since I very much like the idea of crowd-based services, the amount of "OTBitcoin" issuers could be equal to the number of bitcoin users.
The only thing needed for it would be that a combined bitcoin OT client allows the user to become a "OTBitcoin" issuer with a part or all of his bitcoins in his wallet. The parts of the bitcoins used for issuing "OTBitcoins" would then start the above ping-pong sending back and forth of bitcoins between addresses and would be locked from normal bitcoin spending.
As a reward the user receives a share of the "OTBitcoins" equal to the bitcoins he dedicated to this from his wallet.
He can then use these "OTBitcoins" for instantanteous payments and untraceable payments.

In a nutshell, every owner of bitcoins can sign up to become part of a crowd-based "OTBitcoin" bank which provides untraceable digital cash.
I would like to see how governments try to shut down or control something like this!

Maybe there are better or easier solutions.
Curious what you think of it.