Let's say I am an owner of gold and a seller of gold certificates.  People would like to use gold, but it's hard to buy and sell things with it.  I am honest; and trusted (people already buy my certificates).

Enter: Bitcoin (technology).

Forget Bitcoin as it is now for a second.  Bitcoin's blockchain lets us trade anything securely; the only caveat is how that "anything" enters the system.

Remember, I'm trusted and honest.  I get together with all my trusted and honest friends who also have gold.  We all declare how much gold we have (by weight) and we all certify that those declarations are valid.

Now... we modify bitcoin to create a new genesis block (and hence chain) which issues exactly the agreed amounts.  We all independently write those amounts into our genesis blocks (that way no one can cheat, since we all independently create the same genesis block).  We all now run our bitgold nodes.  We could have coinbase transactions that have to be signed by every member of the gold group, not issued with every block, just when needed when new gold is imported into the system.

Haven't we now got a gold trading system?  All the advantages of bitcoin (save one*), and perfectly acceptable to the masses who don't like bitcoin but do like gold (like the fuddy-duddies on mises.org).

Want some gold?  You buy it from one of these initial gold dealers, and they send that gold to your bitgold address.  You can trade it with whomever you like, just as with bitcoins, and the gold traders aren't involved (other than running the bitgold miner nodes, and hence taking the transaction fees, so they are happy).  When gold is removed from the system, it's a simple matter of deleting the address to which that gold has been moved (again, requiring trust).

I'm not actually advocating that we do this (although it would work).  Haha!  Tricked you.  It's actually an argument for the fuddy-duddies.  Here is the final step...

bitgold is so convenient and successful that nobody ever actually goes and claims their gold.  Why would they?  What if, at this moment, 99% of the gold vanished?  Literally.  It gets zapped by aliens.  But... nobody knows that it's happened.  Nobody need care.  Trade is happening as it always has.  Nobody actually wanted the gold (and for those that did, the 1% that's left will be fine).

Ignoring some minor differences about how the coins/gold was introduced to the chain, we've gotten to a point where bitgold is equivalent to bitcoins.  Goldbugs of the world, and mises.org fuddy-duddies: where is your god now?

* We have to trust that the gold brokers really are honest.  But people who like gold already have that problem.  Very few gold bugs are actually buying physical gold, they are buying a promise of gold.

(I wasn't sure if this should be in economics; but I think the idea of bitgold is good enough on its own that it can go in disussion).