grue, do you understand that the entire point of a smart card is that the private key never leaves the card?
Basically, the POS terminal just sends the balance due to your card, which displays it for you. You then press the button to verify, and the card creates the transaction and signs it. No need to trust anything.
This is what I have proposed. If you'd like to discuss any flaws you see in what I have proposed, I'd love to hear them.
benjamindees here's a question for you. Could we issue these cards here in the US, buy the hardware and use the chip as form of Cold Storage? With an eye toward make these cards dual wallets (USD & BTCs)?
No idea. I haven't had a chance to speak with the manufacturer. Obviously that would depend on particulars such as being able to source cards with the features you'd need, including memory and cryptographic requirements. For long-term storage, you'd probably also want to know what happens when the battery runs out.
As for dual-usage, I can fairly confidently predict that no credit card company would consent to this. I'm guessing that you mean for some type of proprietary payment network? Which, sounds like an interesting idea and I'm sure would work in theory.