Quote from: Melonhead on April 19, 2013, 03:41:19 AM

Quote from: AlphaWolf on April 19, 2013, 02:55:53 AM

I would like to reverse the question: Does fiat need to be backed by Bitcoin instead of "full faith and credit of the State"? I would say, wholeheartedly YES. I doubt this would happen... but if we could get governments to be open again about how much money they have in circulation, and this was tied to the balance a specific Bitcoin address, this would solve the single problem I have with Bitcoin (how difficult it is to trade, especially with no power), and ALL the problems of government-issued currencies. Or am I completely wrong?

Backing fiat money with bitcoin (or gold or anything else) would convert the fiat money into an honest money substitute (and no longer fiat) again. Fiat money is "money by decree". It is in a very real sense fake. The only things which gives it value are the cultural memory of "dollar-ness" coupled with the legal tender laws which make it illegal to issue private competing currency.

Bitcoin has most of the properties necessary to make it money. If and when it is widely considered to be money, then it could conceivably be "kept" in a safe place (e.g. the distributed network in which it currently exists) as backing for some unspecified, more transportable surrogate. In the heyday of private and state banking, the checks cross-written against groups of banks were cleared every day at a clearing house. The differences at the end of the clearing calculations were then settled between the banks by physical gold transfers. This was done continually all over the world in a local, regional, national layered fashion with the final clearing done in London. Only the interbank differences were settled in gold.

The days of the gold standard did not mean that everybody carried gold around in their pockets. It only meant that their "paper money" was fully backed by gold. And "at the end of the day", all accounts were settled. It worked beautifully. This may be a good model to think about with respect to Bitcoins. We don't all have to deal directly with Bitcoins, as long as the accounts are settled in Bitcoin periodically. This leaves us free to invent an honest bitcoin substitute that may be more convenient to use, but is backed by Bitcoin (like gold used to back bank drafts).

Right, that's exactly what I was getting at, and why I thought it would solve all the issues of "fiat money", and also my single issue with Bitcoin. The advantage of turning fiat money into representative money backed by Bitcoin (over, say... gold or oil) being that if I own a large store BTC, I can (presumably) convert it instantly to the local Bitcoin-backed currency no matter where I've traveled without carrying it with me.