Quote from: KenJackson on March 10, 2014, 01:02:01 AM

In centuries gone by, merchants could accept coins with little fear of being fleeced because the coin's issuer, the government, stood by it's weight and purity and therefore its value.

But with this decentralized model, what's to prevent a cheat from pouring or drawing his own thinner silver and gold or to make alloys with a less expensive metal? And who's to track down the cheat? Surely not ShireSilver. So it's up to the merchant to be able to discern real gold and silver from fakes and in the right amount.

Branding. People trust government's currency in large part because it has the government's branding. The market can figure out which brands are trustworthy and which ones aren't.

Plus, with the small denominations much of the cost is in the manufacturing. Replacing the precious metal with faked metal wouldn't create much profit. You'd have to mass produce them on a large scale for it to be worth your time, and if someone can do that why not just do it legitimately? You'd be much safer and likely to make more in the middle to long term. To put it another way, it would take too much effort to do a pump-n-dump to be worth it.

Quote from: KenJackson on March 10, 2014, 01:02:01 AM

If we are to believe the movies, prospectors in California and Alaska would walk into the general store and place a few nuggets of gold on the scale. The merchant would weigh it and accredit the prospector's account so he could buy his grub and supplies. It was up to the merchant to know the difference between real gold and fools gold or other cheating.

So do you advocate the return to the days where it's up to each of us to discern if the money is real?

This discussion reinforces something. The most shocking and significant aspect of bitcoin is the extent to which the possibility of cheating has been eliminated.

Yes, I do advocate the return to the days when people took responsibility for themselves. And yes, it does point out that the bitcoin protocol does make accepting that responsibility much easier, at least for technically inclined folks. But the cases like Mt Gox do show that people still need to be aware of how the system really works, in that if you don't control the private keys you don't control the bitcoins.

Also, to use your prospecting example, people didn't just accept nuggets by weight. Gold dust was easy enough to accept by weight because the pieces were so small that counterfeiting them was (at the time) essentially impossible. Gold dust was also probably discounted somewhat based on the risk the merchant thought he was taking. Larger nuggets would be assayed before being accepted.