ALTERNATE MONETARY APPROACH

For comment:

Rep. Paul’s bill (see below) would seem to legalize digital currency systems like BitCoin ( http://www.bitcoin.org/ ). These systems have some amazing properties & potential. But, first, a little more on BitCoin from their FAQ:

What is Bitcoin?
Bitcoin is a peer-to-peer digital currency. Peer-to-peer (P2P) means that there is no central authority to issue new money or keep track of transactions. Instead, these tasks are managed collectively by the nodes of the network.

How does Bitcoin work?
Bitcoin utilizes public/private key digital signatures (ECDSA). A coin has its owner's public key on it. When a coin is transferred from user A to user B, A adds B’s public key to the coin and signs it with his own private key. Now B owns the coin and can transfer it further. To prevent A from transferring the already used coin to another user C, a public list of all the previous transactions is collectively maintained by the network of Bitcoin nodes, and before each transaction the coin’s unusedness will be checked.

For details, see the technical paper: Bitcoin: A Peer-to-Peer Electronic Cash System.

What backs up Bitcoin? What can I buy with Bitcoin?
Check out the Bitcoin-accepting sites listed on the wiki. If you have a service provider you often buy from, ask if they'd like to accept Bitcoin as payment!

Where does the value of Bitcoin stem from? What backs up Bitcoin?
Bitcoins have value if they are accepted as payment by many.

When we say that a currency is backed up by gold, we mean that there's a promise in place that you can exchange the currency for gold. In a sense, you could say that Bitcoin is "backed up" by the price tags of merchants – a price tag is a promise to exchange goods for a specified amount of currency.

It's a common misconception that Bitcoins gain their value from the cost of electricity required to generate them. Cost doesn't equal value – hiring 1,000 men to shovel a big hole in the ground may be costly, but not valuable. Also, even though scarcity is a critical requirement for a useful currency, it alone doesn't make anything valuable. For example, your fingerprints are scarce, but that doesn't mean they have any exchange value.


Since “there is no central authority to issue new money or keep track of transactions” digital currency is a very powerful tool to democratize money. People could simply opt not to use the central bank’s money. Monetary reform could happen from the bottom-up, without passage of any bill to abolish the Fed. Additionally, it would seem that users of this (or similar) technology might avoid taxes based on income or sales. So, it tends to diminish centralized power in society.

The big limitation for BitCoin, like any digital currency, is overcoming the hurdle of widespread acceptance. However, it is foreseeable that this might happen if one of the state-owned banks now under discussion were to offer exchangeability between a digital currency and US dollars. Other measures a state could take would be to agree to accept a digital currency for purposes of tax payments, or to allow state employees to elect to be paid in the new currency, etc. If this were to happen in a single state, I expect the observed benefits would make it spread.

Interesting idea but I don't think I would trust it. At least for big sums.

Will we ever see a world currency administered by a United Nations type body? After seeing the issues with the Euro right now, when do you tighten money supply and vice versa, I wouldn't support it.

Isn't this the type of "economy" that the game "Second Life" is using - you turn these electronic credits into actual cash or goods?

It's the wave of the future, to be sure.

Actually LH - it it preferable to "turn" the electronic cash (what we mostly use anyway).....into GOLD by the ounce.....or silver. Fiat (paper money) is only as good as the fed/private Banks dictate via monetary policies.

Having difficulty figuring how this would work in real life. What am I missing?

Too complicated. Dead on arrival.