Bitcoin Forum

Do they say hey, we're exchanging all our fiat for a lump sum in BTC? They couldn't because what would the BTC sellers use the fiat for? What steps would a country have to take to fully adopt Bitcoin as the primary trade medium?  I'm a bit iffy on the process though.

I'd deduce that once an area uses accepts bitcoin as local commerce and only charges bitcoin to export their own products, that bitcoin will truly and naturally make it by virtue of networking effects. But how will a state fully adopt bitcoin for its country?

Intra-regional or even intra-country should be possible, but do not forget that the economy is global in nature.   Unless you are a self subsistence farming economy, chances that you still have to use the green backs.   It will be very hard to fully adopt the Bitcoin.

A government moving to Bitcoin would need its CB to buy an amount of BTC comparable to their monetary base and set a conversion date. The public would need Bitcoin wallets and tutorials in advance and would then receive BTC in exchange for giving up the old currency.  Tax breaks should be given to encourage people to buy ASICs for mining. Financial systems would need to be re-denominated. A big logistical exercise.

The best candidate is Iceland. Their kronur is a sick dog of a currency and needs euthanasia. Its population of approx 300,000 is small enough to make the transition viable sooner.

The Icelandic monetary base in 2013 is about 100 billion kronur or 8 million BTC which is clearly too large. So they would need to acquire a more realistic number, such as 400,000 BTC and wait until BTC reached $2000 each in value, then do the switch-over. A delay is necessary anyway as Bitcoin needs the scalability problems resolved and the zero-confirm add-ons up and running, plus all the pull-payments, scheduled payments and other changes which Core Dev are working on to make it more merchant friendly.

Bitcoin is the perfect currency to put the Icelandic economy on a sound footing, and indirectly make them the richest country (per capita) in a few decades from now as the BTC value rises against all the fiat currencies.

Iceland CB data:
http://statistics.cb.is/en/data/set/28s8/#!display=line&ds=28s8!2s1q=5.h.1j

Another would be Cyprus, I doubt Cypriots are too fond of EU by now.

Yes. Agreed, another good candidate. Interestingly, Cypriots have long been used to having a strong fiat currency, whereas the Icelandic kronur has lurched from one disaster to another for decades. I remember going to Cyprus in 1990 and the UK pound was rubbish compared to the Cypriot pound.

So more likely if crypto were to take over, it'd happen as fiat falls from natural disuse, rather than a state taking the initiative to adopt crypto.

Iceland GDP is doubled that of Cyprus, I feel that Cyprus with its small size and problematic issues with EU as well as its high adoption rate for Bitcoin will be the perfect candidate.

I suppose this piece is relevant
http://bitcoinviews.com/bitcoin-london-2013-sveinn-valfells-should-iceland-adopt-bitcoin-as-its-national-currency/

My bet goes to iceland.

Many Reasons:
- they are very fit in those internet-things. High rate of facebook and so on, many start-ups. In team with the high grade of education they have good chances to deal with the technical aspects.
- Since the Viking-Bank-Crash iceland has chosen an unorthodoxial way to deal with the crises (the refused the common austerity-concept). And it seems that the icelanders like this role.
- icelanders know for their bad that a currency has no garanty. This knowledge makes bitcoins a lot more trustworthy.
- Icelanders don't like the banking-etablishment. And even if it's no Bank-vs-BTC-thing - Bitcoins make some bank-services unneccesary.
- Iceland has a strong "Pirate"-Support.
- Last but not least: Out of iceandic earth hot water quells. Energy is very cheap, it is a good soar for miners.

Too bad Iceland is in their bad economic position because they suck at economics. I don't think they could pull it off to be honest.
EDIT: My money is on Cyprus as their economy is international in nature. With lots of outside "investment". Bitcoin would only make the tax heaven complete.

So I don't know if my question was answered. How would a central bank buy a sum of bitcoins with their fiat? What bitcoin market would take a country's currency if it was going to be switched out by bitcoins? Where would bitcoin sellers spend their newly acquired newly worthless kronur? This is basically why I think it will only happen organically, with local people choosing to accept bitcoin over the state alternative and continuing to do so until fiat declines in the value and utility transferred into Bitcoin.

The state only needs enough of BTC to back all their currency. In order not to screw everybody they would have to fix the value for a transitional time same as it happened with the Euro. So they'd need to have enough BTC to back all circulating currency at said value.

They would not even need to collect all their kronur to effectively have their currency backed by BTC, just allow people to go to banks and exchanger their kronur for BTC at the decided rate.
Obviously they'd lose the ability to inflate kronur without previously getting BTC to back the monetary mass.

The local currency which will be switched off is going to the central bank.  For acquire the Bitcoins in the first place, they have to offer something else (otherwise, everyone they bought coins from would just buy them back after the bank announced that the old currency should now be changed for Bitcoin).  They could use their gold reserves, foreign currency holdings or by exporting goods for Bitcoins.

Exactly. Iceland or Cyprus would use dollars or euros earned from exports or existing fx reserves to acquire BTC from the exchanges and OTC marketplace. However, probably not even one small country could do this without sending the BTC rate a lot higher than it is today.

Simply make a law to allow (mandate?) Bitcoin as currency for settlement of all debts.

I think y'all putting the cart before the horse with this possibility of a nation becoming an early adopter of bitcoin.

Currency is about trust, and no matter how desperate the situation or "ideal" the national economic factors may be, the proposal to switch to an alternative currency would need to be embraced and understood by the citizens of such nation.

Bitcoin currently has serious usability and infrastructure gaps, low circulation, and high dependence on technology that's not ubiquitous.  It's main client is still a beta release.

It just isn't an option that can be effectively sold to the people of any country of import.  With so many holes to fill, trust just wouldn't exist.  Why would a country switching currency, decide to jump to bitcoin, when there are other fiat options which have higher global trust-factor and established trade and legal infrastructure?

Once usability is worked out, volume is high, and trade becomes established, then it'll be a plausible option, not before.  By the time these conditions are in play, having a country adopt bitcoin will make little difference to the rest of its holders.

http://en.wikipedia.org/wiki/Dollarization#Countries_using_the_U.S._dollar_exclusively

First, they should get a mentally deranged government.

They go bankrupt and default, and then don't come up with a viable plan, or come up with a plan and inflate their way to adoption.

1 send BTC to 1DTsz888k6TNoHRP1Hwqr8y8hDD9Z9T4Lv

2 recieve buttcoin.

3 Profit

This is easy. All western government are mentally deranged (someone more, someone less).

Icenlandic Kronur are around 14400 ISK/BTC today

Seriously?
0) Acquire 100K BTC (today) or better 200K BTC.
1) Legalize the circulation of BTC along the official currency. (no profit taxes on gain from increase of BTC value, legal tender laws, etc.)
2) Announce the will of the government to switch from fiat to BTC in a number of years months.

Fireworks ensues.

People will pay their taxes in fiat (because of legal tender laws the government must take the currency) and the government will use that fiat to pay back the central bank loans (making the currency unit disappear as they cancel the debts) and pay government employees.
Government employees will convert their fiat to BTC ASAP (and at a discount) and the fiat will be used to pay taxes by the rest of the population.
This should allow to drain the fiat until it will disappear completely from circulation and people MUST pay their taxes in BTC because they have no access to fiat (at a discount).

There could be a "little problem" on this plan: there is near always more debt in fiat than fiat in circulation. So as fiat and debt cancel each other, the value of fiat will increase faster than the value of BTC, because there will be left a debt to be repaid with fiat that can not be repaid in fiat because there is no fiat left.
So, the government must evaluate how much is the difference between central bank issued debts and fiat circulating and decide the conversion rate in BTC.

So, if there are 100 B ISK circulating and the central bank have 200 B Kronas of total government assets  and liabilities for 400 B kronas, the government could decide to put a max exchange rate of 1M ISK/BTC (10K US$/BTC)
This should cover the 100 B kronur difference in their balance sheet (so the central bank will not go broken when no one is able to pay back the debts in kronars).
A nice discount (10-50%) if people pay their taxes in advance or in BTC or double discount if they pay them in advance and in BTC.

Substituting the Monetary base of Iceland (100 B Kronurs) with BTC would imply, at minimum, 40$/BTC (if all 21 M BTC were used just by Icelanders). It is 100 B ISK/21 M BTC --> 5.000 ISK/BTC.

If they want do it, they have not so much time to do it.

Neither Iceland nor Cyprus. My vote goes to North Korea and Iran. Cuba, Venezuela maybe. What a great way to disrupt the Western banking system around the world and to bolster their own economy at the Western loss and discomfort. Too bad the monkey pygmies running these third world countries don't have the brains.

Voluntarily--one person at a time.

Your question has not been answered, though it's a really neat question.  If i understand it correctly, "What would the actual mechanics of a country converting to bitcoin be?"
For the changeover to happen, bitcoins would have to have 0 value at the time of the exchange, and notes "converted" to bitcoin could be destroyed at the time of conversion -- no different than replacing worn-out notes for freshly-printed ones.  Which pretty much means Bitcoin is out, and altcoin/bitcoin fork is needed. 
This is the problem at it's barest -- excluding technical details like wallets, pos mods, consumer education, yada yada.

they might have the brains even, but not the knowledge.

So, if any country wanted to revert 100% to the gold standard, and replace their paper currency with gold coins, like krugerrands and sovereigns, then it couldn't do this until the gold price first went to zero???

No, it couldn't.  If you're being sarcastic, and think otherwise, please explain the mechanics.

Edit:  It's a bit unnerving that the same people insisting that fiat is worthless *at the very same time* believe that worthless paper can buy a bunch of gold. ::)  Assume for a second that gold has intrinsic value -- why would anyone want to sell it for worthless paper, made *explicitly worthless* since the state which issued the paper is no longer planning to back it (they switched to gold, remember?  The notes are as valuable as yesterday's newspapers) ???

But if we decide that bitcoin is an otherwise attractive currency, its current value is irrelevant.  A country can start using *an exact copy of bitcoin,* starting with a blank blockchain.  This will provide the necessary zero-value bitcoins, the issuing state can premine as much or as little as it wishes, use whatever algo it wishes, and release the coin into the wild in a controlled fashion.  It will be as conceptually elegant as the bitcoin of today, without the drawback of having to pay anyone *anything.*

I wouldn't want a state-created Bitcoin.  Blockchain, with its "pseudonymity" would turn into the best transaction-tracking software evar.  But that's a different topic.

I was trying to make the point more obvious that a country can move from a fiat system to a gold (or bitcoin) system if it chooses, and the target currency does not have be valued at zero. In fact, it is far better if it is worth something already, and gets bought by a CB using its fx reserves. If Greece, for example was to create a "New Drachma" expect it to devalue 50% within a year - as the world, and most Greek citizens, won't trust it.  It would be better for a CB to use Bitcoin than start its own crypto as it would need a massive amount of hashing power to secure it, and it would be a weak golden goose for buccaneer miners all over the world to have a go at getting a 51% stranglehold on it.


No one is saying fiat is worthless, just that it is heading to worthlessness as the years pass. Of course you can buy a gold bar for a bunch of paper currency today. It happens all the time in jewelry and precious metal retail stores!

fiat should be worthless, but we still accept things for it, and that, that is what makes it worth something :p

oh the tragedy

Agreed. But until 2009 none of us had any other choice (apart from stashing some gold away for emergencies).  Most people still don't know that a paradigm shift is underway. Soon they will all wake up....

This is patently absurd.  If Greece was solvent (*had* enough dollars/goodies in FX), it would be ... well, solvent, but it's not, so it isn't.  Greece has this much in its CB, in euros:

http://www.tradingeconomics.com/charts/greece-foreign-exchange-reserves.png?s=greeceforexcres

But it's not in euros, or in dollars or gold -- it's in SDRs.  Have fun shopping :)


Are you suggesting that  all the bitcoins that exist right now are worth less than all of the mining gear hashing right now?  Otherwise it's clearly cheaper to buy a few ASICs and sling some hash :)  Or buy just 51% of those ASICs & double-spend into prosperity.  


Please understand that the very thing that makes fiat worth less (monetary inflation) also makes more money (monetary inflation).  If a gallon of milk costs me twice as much as it did before, but there's twice as much money to buy it, nothing has changed (other than i now owe exactly half as much as i used to -- PROFIT!). :)

If I would suggest some countries going Bitcoin, I would suggest some little country, with little to lose abandoning the US$ or the €.
Maybe an island like St.Kitt & Nevis, Dominica, Panama, etc.

Panama is an interesting example of a country without a central bank.
They have a local currency pegged to the US$ but they just mint a few coins, no banknotes. They use US$ instead.
No central bank to control capital influx or outflux, if there is too much capital incoming, it will go out as easily as it come in. So it is difficult to have an housing bubble or any other bubble.

They were thinking to introduce € side by side of US$ as legal tender. Nothing prevent them from doing the same with bitcoin; nothing apart the wrath of the US.

Yeah, you say that until you want to save for a rainy day ie retirement.

I chatted with a lawyer yesterday about this topic. He told me that if the government (CB) could not issue and endorse the currency, other countries would not accept it as a legal foreign exchange.

But I do not agree, because if lots of people accept bitcoin, we can do our exchange without the government like what we do now. No government endorse the value of gold, but a government can still use gold as its primary currency, so does bitcoin.

As in,  a country is forced (legally) to exchange national currencies via forex, but won't be forced to exchange national currency for Bitcoin? makes sense

Well:

1. Buy some BTC.
2. Announce conversion date 2 yrs in advance.
3. Educate public (no tax breaks for mining wtf does that help??)
4. Give BTC for old currency at a set (favorable) rate.

I think it would be insanely profitable for a country to do this.

But wouldn't that mean that just upon announcement, the value of fiat will instantly plummet? I just don't see the the incentive for bitcoin sellers to this country.  

1. Your scenario's 1 and 2 happens
2. I sell bitcoins for their fiat..
3. I hold the country's fiat that they do not wish to hold, seeing as they want btc
4. ???
5. broke

1. They have to buy some BTC using $$$ or euros or by selling gold. If you sell the CB some BTC you get hard currency back.
2. For their people they guarantee a conversion rate for their old dying fiat. i.e. xxx old fiat for 1 BTC.

 It's do-able. Lots of detail, but doable.

oh, that makes a bit more sense to me. i could see there being quite the slippage though. also, for foreign holders of the native currency, do they get a guaranteed conversion rate too?

Yes., indeed. All holders of their old fiat would be allowed to exchange at the fixed fate, but there would probably be a time limit of a year at retail banks, but several years at the CB HQ. I believe old French francs can still be converted to euro at the CB, 12 years after the euro was introduced.

That's also the case with Austrian Schillings (of which still billions are out there as cash), and IIRC the CB guarantees to exchange them "forever" (at least without a deadline already fixed).

2.  For the people, they guarantee 1 BTC for for X deprecated fiat.
3.  Sellers of BTC bump BTC ask price to >X, knowing that this time, profit is assured.
       3a. Having sold 1 BTC for 2 X, they convert each X  to 1 BTC, for 2 BTC total (capitalising on the government guarantee).  Rinse & repeat.
4.  ? ? ?
5.  broke. :(

Alternate take:
  
2.  Let's assume the government is clever, and only converts each note once by scribbling "VOID" on the face of each bill in permanent red marker.
3.  Sellers of BTC are also not stupid, quickly catching on that bills with red "VOID" aren't the same as unvoided bills, since the also not stupid storekeepers won't take them.  The Greater Fool paradigm instantly runs out of greater fools, voided bills are worthless for anything but paying taxes, and are sold for pennies on the dollar.  
    3a.  Bitcoin sellers jack BBTC price sky-high.
4.  ? ? ?
5.  Back to the first version. :(

Yes. That's it and then the CB incinerates the old currency so there is no chance of it re-entering circulation.

I could only hope that you're not saving for retirement by stuffing your mattress with bills *now.*  Please, at least stick them in a savings account where they will accrue *interest.*  Interest allows you to save (remain static) in an inflationary system.  One of the reasons inflation is so darn attractive is it discourages hoarding & encourages *investment."   Flux is life!

Wait, The government buys your bitcoins, gives you dollars in exchange and then takes them away from you and incinerates them???  What are you left with after such a successful transaction?  Why would you do something as patently silly?

There are 2 fiats: USD and XXX.
USD is used to buy BTC in the market and then that BTC is used to buy currency XXX which is incinerated. All the people who used to have XXX now have BTC instead.

Not sure i'm following.  Does the XXX currency have any value to begin with, i.e. is it convertible to $$$?  If it is, what's the point of the shell game?  Simply exchange the XXX to $$$ for this hypothetical, so we can deal with a single variable :-\

Edit:  Assume 1x = n$, and take it from there.

XXX is the currency of the small country which wants to switch-over to Bitcoin. XXX is convertible to $$$ but the country wants a BTC economy not a $$$ economy. So it uses its $$$ holdings to acquire BTC which it can then use to replace the XXX. That is the point of the exercise, a change to a new (and better) currency.

anyone that purchases XXX will be shittttttty

1.  Spend $$$ on buying bitcoins from original holders.
2.  Spend BTCBTCBTC to buy back the $$$ from your slick deal (you have promised to buy up $$$ for BTCBTCBTC at a favorable rate, the guys who sold you bitcoins now hold those dollars, which you have to buy back at a loss :))
3.  Run out of $$$ before you're even out of the gate.
4. ? ? ?
5.  And you don't even hold all the *any* bitcoins. (you have spent all of the BTCBTCBTC buying back the $$$ from the bitcoin sellers like you have promised, at a premium :D) (edited for clarity)
  

Are you assuming that a country's CB holds enough $$$ assets to back its currency? :D
Edit:  You just ran into a very common misunderstanding about money -- that somewhere, there's another pile of money, of equal value, backing it up :D

Only the CB which issued XXX in the first place will be buying it for BTC once the changeover is announced.


This is the beauty of the whole idea right now. BTC is cheap today so any CB would have $50 million (which is CB pocket money) it could use for its BTC purchase, That would get it a few hundred thousand coins. Then the CB needs to wait until the value of BTC rises so that its coin holdings are equal to its monetary base. Then it can change over from its rubbish old fiat currency to a super-strong currency of the future.

Only a few countries will be able do this before the value of BTC will go too high for them to get such a one-time gain.

what?

CB: trade XXX for USD
CB: USD for BTC

the person holding XXX is screwed!

If your whole example revolves around BTC being cheap at the moment, two objections:

1.  Why go through all the complexities of buying x for y etc., if what you're doing is simply snapping up bitcoins?  You're still incurring losses, only you consider them to be nominal.  Once the word gets out that you (a country) are buying up bitcoin, the prices will (appropriately) skyrocket, the losses will not be nominal.

2.  If you are planning to make each bitcoin worth more than you have bought it for, the bitcoins still out in the wild, and those to be yet produced, will be similarly valuated, further debasing your currency (if you buy only one bitcoin, for instance, and substitute it for your entire currency (dealing in microfractions)), Joe Shmoe will be able to collapse your economy with his single bitcoin :D

There's more, but this is plenty.
  

No. The CB issuing XXX uses its existing USD holdings to buy BTC. Then buys XXX for BTC.
Persons with XXX now have BTC. Not screwed, the opposite in fact, happier.

It helps if it is a secret CB project until the coins are acquired!


Only market values are important. If Bitcoin never reaches the required value then the $$$ spent are merely invested in BTC, the currency conversion does not proceed. Shmoe is irrelevant, all boats float the same on the same tide.

Ohh, the idea of preexisting USD holdings was not intuitive to me

See my reply about FX reserves etc.

Edit:  For simplicity's sake, why not just buy up the XXX for the USD holdings, burn the XXX & take it from there, using only the $$$ as a variable? What is functionally different?

cyprus?

There would need to be a transition period. If the switch was done within one day the BTC price would skyrocket, even if it was a small economy.

Since the government of a country owns all money (through the central bank), the government would have to take it back. Or to be more concrete buy the fiat money back. In order to do this, the government would need to purchase enough BTC. Therefore I think the process would take quite long. Once a large entity announces it is going to buy a large number of BTC - and since the quantity of money in a given economy is publicly known, everybody would have a good estimate about the amount of BTC to be purchased - the BTC price would skyrocket simply as a result of this announcement. Think of of it as the announcement of a corporate takeover. When the public knows, that one company is going to buy another, everybody wants shares of the target because they know the price is going up.

So the process would have to be slow and the announcements very cautious.

I think it's best to just let the free market work this one out

Think so, too! Then if you have a transition it will probably be at a pace which is acceptable for everyone. Bitcoin is bottom-up and so should be its adoption.

In other words:  "I have nada.  The free market will take care of it!"
Mr. Freemarket could not be reached for comment.

Missed this yesterday, but i'm not sure what you mean.  Here's my point, i'll step through it starting with a summation of your scheme.  Point out where i go astray:

First variant:
1.  State buys bitcoins, let's assume at $100 a piece, until it has half of the total bitcoins.
2.  State establishes a conversion rate for its XXX currency, such that total(bitcoins owned by the state) = total(XXX in circulation)
3.  State proceeds to exchange its BTC for rendered XXX, distributing all of its BTC & incinerating all the XXX.
   3a.  Result thus far:  The state is now short exactly the amount of $$$ it has spent on BTC, it's FX reserve is depleted, and its currency is now BTC.
   3b.  Result thus far:  State FX reserve depleted, its currency is valued less by other countries, no matter what its called -- bitcoin or XXX.
   3c.  Result thus far:  Even though state controls half of the bitcoins, half remain in foreign hands, and some are yet to be mined.  If state backs its bitcoins
         (a state backs its currency), it also backs every bitcoin that exists or will exist.
4.  This creates a curious situation:  How much is the sum total of this new currency worth?  Does it represent the state's economy, i.e. can everything of value within the
     state  be bought for its currency?
   4a.  If yes, then the remaining half of BTC (in Joe Shmoe's hands) *can also buy the state's entire economy.*    As you can see, Shmoe is *very relevant* here.  

Your point about the tide is well taken:  While before buying into bitcoin, the state could float it's own boat, any attempt to do so after adopting bitcoin would result in having to float the whole flotilla  :D

Two steps:
1.  Restore the right to contract.
2.  Wait.

Legal tender laws give privileged status to some currencies, to the exclusion of others.  Removing those laws is the only necessary step that a country would need to take to (eventually) switch to bitcoin.

If some country was interested in speeding up the process, they could just edit their legal tender law to give bitcoin the same privilege as their local currency (or instead of their local currency).

So, once 3c is reached the CB is very much in a diminished state and is not a currency issuer anymore. All it does then is facilitate the state's interaction with the private sector, and regulation. It does not back the bitcoins in circulation, just like it would not back gold in a gold-based economy. The CB has moved out of the business of backing anything. CB backing of currency has been the biggest, most monumental financial disaster of the last 100 years, so this needs to change.

4 & 4a This is the situation in Panama (which uses US$) and Zimbabwe (which uses US$ and the South African rand). These countries could be "bought" but that is not really a concern. They are using a stronger currency but they do alright. Bill Gates or Apple or ExxonMobil are "schmoes" that could buy Panama right now, but they don't. And politicians can always stop unwanted purchases if necessary.

Before i set off on writing more lists, an answer to this might save us a bunch of time:
If you think that using half of all the bitcoins in existence is fine, would buying & using *just one* bitcoin be just as good, assuming there are no divisibility or fee problems?  If not, why? 

For a country to adopt Bitcoin and completely discontinue its own currency then there needs to be an amount of Bitcoin in domestic circulation equal to the monetary base needed to support GDP. So, the answer to "how many bitcoins are needed" depends upon the world market value of them (lets use US$ value) and required monetary base .

So, country X has a monetary base in XXX equivalent to $10 billion (in 2013 dollars)

If BTC value is $100 then 100 million bitcoins are needed to support country X GDP. Impossible.
If BTC value is $10,000 then 1 million bitcoins are needed. Country X would struggle to get that many from the market.
If BTC value is $100,000 each then 100,000 bitcoins would be needed. This could be acquired today, but then need to wait some years for the value to go up (hopefully).
Just one bitcoin would never be enough because the value of BTC will never be $10 billion each (in 2013 dollars).

So, any country bigger than a shoebox will have to wait 'till bitcoin value climbs into the minimum of mid-five digits?  You agree that bitcoin value would have to climb *first*, and then be adopted, rather than the other way around (i.e. currently=valued bitcoin gets adopted by a state & its value grows)?  
Snapping up bitcoins (are you watching gox?!) at today's low prices might be a great investment, but certainly not a way for a state to adopt bitcoin.

Edit:  I probably should make it clearer that if bitcoin value was high enough (let's say ~$100k/BTC), and stable enough (more than a few trader on Gox & BTC-e setting the price), a country could adopt it as currency.  It would be no different from switching to a gold standard -- a step back imo, but nothing unheard of.  Let's make bitcoin as reputable & solid as gold.

Absolutely. Bitcoin is no good now to use for an entire country, BUT, now is the best time for any CB to acquire a Bitcoin holding that could be used at a future date if it decided to, which kind of gets us back to the OP.  :)

Yes. Gox is going crazy, but how much of that is scared fiat?

I found out i can't even guess, the last few weeks stripped all of my "i think i get it" delusions :(  Though the growing spread seems to say you're asking the right question.   Forget it.  Gox is down. >:(

Sorry we are nowhere near there yet. Infrastructure is not in place

The infrastructure is all there...it just needs to be laid out

Whats the bitcoin alternative to a direct debit?

This goes partway towards it:
https://en.bitcoin.it/wiki/Payment_Request
https://en.bitcoin.it/wiki/BIP_0070

So every month a utility company could issue payment requests to their customers. A customer can easily action the payment from their bitcoin wallet. A completely automated system would need improved wallet software where certain historical payees (like the utility company) would be pre-authorized up to a certain BTC limit by the wallet holder.  The payment request might arrive on the 1st with the meter reading and usage info giving time for the customer to validate the account. Assuming here the due date is the 20th, and the wallet software would also be set to not respond to the request until the due date.

If the utility company makes an error, the customer would be refunded or credited for the next account, as is normal in the fiat system.

The country that is larger than a shoebox only has to wait IF they are following the steps of having a central bank buy bitcoins and exchanging them for their currency.  This is the centralized, non distributed approach.

If you follow kjj's steps (listed above) - the step of allowing the right to contract and merely allowing bitcoin as equivalent to their local legal tender - you do not need to have a central authority buy up a lot of bitcoin, it will happen naturally and organically.  And it would quite likely help the country quite a lot in the long term.  The problem (for the country and central bank, not everyone else) with having a central bank do the "buy and exchange" process is that it would drive the price up quite quickly. 

 :)

You mean these steps?

Not sure what (1) means, and (2) is a truism (if we subscribe to such metaphysical notions as "flux implies time").
The rest of the post (the part i've rephrased & marked with an asterix & confused smileys) is both nonsensical and financially suicidal.
Nonsensical since bitcoin is, by design, non-centralized & unbacked by states -- unlike legal tender.
Financially suicidal because if a state puts bitcoin on the same legal footing as its own fiat -- establishing a constant exchange rate between the two (let's say $100=1BTC) -- it enters into a lose/lose bargain:  If bitcoin goes up in value, bitcoins will be exchanged privately, at the higher exchange rate.  If it goes down, the state is obligated to exchange bitcoins at $100 to 1BTC.  In other words, the state is *forced to become a guarantor of bitcoin value* :(
I wish there was an exchange that did something like that, i'd be filthy rich :)

People have strange ideas about money's legal status.

Legal tender laws basically only do one thing:  courts will consider debts paid in the named currency to be paid, regardless of the denomination specified in the contract.  As in, if I sell my house for 150 ounces of gold, but the buyer gives me a check for the cash value instead, I can't sue.  As far as the law is concerned, the contract has been satisfied.

This is the only thing special about, for example, the US dollar.  That the dollar comes from the US government is incidental.  Without the backing of the courts, no one would have switched from the old dollars (gold and silver coins) to the new ones (Federal reserve notes).

All that is necessary for bitcoin to take over in some area is for the local courts to enforce contracts as written.  People wanting sound money will specify payment in bitcoin.

The emboldened text describes the current state of affairs -- nothing needs to be changed. 
If i wish to sell you a cat for twenty dollars, i would make out a contract specifying a twenty dollar payment for the cat (not my cat, my cat likes it here). 
Alternatively, i can specify "20BTC" in the contract, or "twenty Chuck-E-Cheese coins."  The court will treat those contracts with all appropriate vigor & gravity.  Even the IRS will want a cut.  In dollars.  What would you like to happen differently?

As far as people wanting sound money, there is nothing stopping them from specifying bitcoin today.  All are welcome to sell houses for dollars *or* bitcoins. 
As long as they pay taxes in dollars. 
If you wish to be able to pay taxes in bitcoins or Chuck E. Cheese coins, i'm afraid you're out of luck. 

No, this is most emphatically not the state of affairs anywhere in the world today.

If the contract for sale specifies 1 cat for 20 BTC, and you pay that value in dollars, I can not refuse the payment and sue you for the BTC.  If you don't pay at all and I have to take you to court, the court will not insist that you deliver the BTC, they will insist that you deliver enough dollars to match the value of the BTC.

Note that an instant sale is not the same as a contract for sale  (see  article 2 of the UCC (http://www.law.cornell.edu/ucc/2/article2.htm)).  For an instant sale, the seller can refuse to deliver unless paid in the manner they prefer  (see here (http://en.wikipedia.org/wiki/Invitation_to_treat)).  But, in a contract for sale, the buyer has the option to pay in dollars, regardless of what the contract says.  This is the very essence of being legal tender.  Further note that in the US, gold has special status since October 27th, 1977 because of 31 USC 5118 (http://www.law.cornell.edu/uscode/text/31/5118) which re-enables gold clauses (http://en.wikipedia.org/wiki/Gold_clause).

Contract for sale is used in article 2 of the UCC as a superset, encompassing present sale. 
Strictly speaking, you are correct.  If we engage in cat barter, i fail to render the cat due you, and you petition the Court to be made whole, the Court will award you the dollar value of the cat. 
You may safeguard against such trickery by further narrowing the terms of the contract by specifying the accepted payment method to be *exclusively cats,* thus making article 2 of the UCC inapplicable due to exception clause § 2-102.

A particularly lulzy consequence of bitcoin being made legal tender on par with the dollar: 
Legal tender is, by definition, fungible, thus the counterparty *always keeps the option to compensate you in dollars, rather than bitcoins.*  As we all know, the FED prints as many dollars as it darn pleases.  You propose to devalue bitcoin by putting it on par with that paper trash.  Are you a FED infiltrator? >:(

Gold, of course, is neither here nor there, irrelevant to both bitcoin and cat dealings.

If the person selling the cat fails to deliver, the court will order them to supply the cat if at all possible, and the dollar value of the cat only if the cat itself cannot be supplied.  But that is backwards, because we aren't talking about cats becoming money, we are talking about BTC.  Since BTC is being used as money in this transaction, the court will not insist that BTC actually be delivered.


Where on earth did you get the notion of granting legal tender status to bitcoin?  And why would it be at par value?  I talk about removing legal tender status from federal reserve notes, so that people can insist on getting paid in bitcoins, or whatever else they want.

You've chosen to introduce a new term, "money," without defining it.  You obviously do not mean "legal tender," as you clearly state below.  This breaks the conventional understanding of the term, so what, may i ask, do you mean?  
Will this money be one of the many moneys?  
Will this money be fungible?  
With other monies, e.g. dollar?  
Could it extinguish all debts, public & private?  
Will a calico tabby be an instance of this money?  
Will my IOU?


Remove the notion of legal tender altogether?  Why would a state wish to devalue its currency by openly stating that its currency is no better than Monopoly money?  Or do you feel the value of the dollar will skyrocket upon such an announcement?   I'm starting to feel i've been trolled.

It would be much simpler than you are all making it.

To fully adopt bitcoin, all a nation would have to do is to start accepting it for payments, along with their own currency.  Giving it the same standing within their law as the the other currency could be done, but that is not even necessary.

What advantage would a country have in buying into bitcoin vs creating their own clone of bitcoin? They can then fix the initial exchange rate, among other things. Not have to go into the open market to buy heir first batch of coins, etc.

Current law allows people to accept bitcoin, tree bark or calico cats -- not only dollars -- as payment.  Nothing needs to be changed but the minds of those insisting on being paid in US dollars.  I see no problems.

I mean money in the conversational sense.  It isn't necessary to define it tighter for this discussion.  Prior to (or in the absence of) legal tender laws, money was whatever people used as money.  It would be daft to require "money" to mean "legal tender" when discussing the removal of the laws that define and specify legal tender.


No state would.  Are you aware of which thread you are reading?  It isn't the "which states want to give up their monopoly on free money" thread, it is the "what would need to happen for a state to give up their monopoly on free money if they wanted to, which none of them do" thread.

Whenever i say "money," i mean dollars, living in US and all.  All the people i converse with also mean dollars, which happen to be the legal tender of United States of America.  When people from other countries use the term "money" in their conversations, they are referring to the currencies of their nations. You, on the other hand, mean something other than state-issued money.  What "conversational sense" do you mean?


This thread is titled How does a country fully adopt Bitcoin?   I'm guessing your thoughts on the matter are "Ain't no way in heck it's a' gonna happen," am i correct?  In that case, we're in perfect rapport :)

People are free to accept it.  Currently no government institution does, or at least none of which I am aware.
When one does, that government will begin to accumulate bitcoin, which will in turn bolster and improve it's fiat currency as it will have some crypto currency assets.  Then when BASEL IV or V or IX or however long it takes for bitcoin to be recognized internationally as an asset class hits, they will be ready.

Whether folks would willingly part with their precious bitcoins in a transaction with their government remains to be seen.  I suspect at least some might.
Gresham's law may come into play at that point.

Languages are rarely clean.  The word money has several meanings, among them are "the specific things used as money in a given time and place" and "the concept of abstract tokens of value".

I don't know what sort of conversations you have on a normal basis, but when I say money in a discussion, I usually mean the concept rather than a specific implementation.  And when I do refer to the implementation, I'm typically referring to whatever the appropriate implementation happens to be at the moment, rather than the one specific implementation.

Does that make any sense?  If I ask to borrow money, I may expect that loan to come in the form of little green papers, but it isn't the papers I seek, but the abstract notion of value that we place on them.  In different circumstances, I may expect different tokens, but what I'm always looking for is the value.

To gauge the number of folks willing to part with their precious bitcoins in transactions with the government, the order books of every exchange where bitcoins are traded for fiat are a good ledger :)

Yes, spoken language is imprecise & ambiguous.  I assume that's why you have opted for "conversational sense," which i in turn assume to mean "most immediate & common interpretation."
So, when a mugger tells you "your money or your life," i hope your don't feel that he is inviting you to a lengthy philosophical discussion of abstract concepts -- he wants your cash.  GBPs if the period goes inside the quotes, USD if the other way around.


Who does your shopping? :D  You may be saddened to learn that what you consider to be conversational meaning of money *doesn't even rank* as far as online dictionaries are concerned.  MW offers us many examples of money, including winners of a race & "[old] money," but none that fit your definition.  Your usage is interesting though far from common or conversational.


Whatever it is you seek is likely to be denominated in dollars if you're in US or GBP if you're in England.  This is degenerating into sophistry.


I hope you don't ask for sirloin steak or a gallon of milk by saying "i'd like some money," though both are instances of value.  As is just about anything you care to name.  Money is not synonymous with value, those are not merely two words describing the same thing.  They are different.  Honest.
If you get a blank stare when you ask a friend to borrow some value, that's why.

This is the saddest post I have seen in a while.
The notion that "Legal Tender" = "money" is one of the greatest tragedies of modern human history.

The Legal Tender law is one of the greatest thefts of freedom and would have Andrew Jackson rolling in his grave if he were aware of his face on paper with that writing on it which spits out of ATM machines all over the USA.

Famines, earthquakes, floods, wars, genocides, plagues -- rifle through these for the greatest tragedy of modern history.
I'm afraid "legal tender = money" doesn't even rank. 

Not necessarily.

A government could grab some BTC and/or claim a certain amount.  They could for example claim that 1 ZMB would get you 0.00001 coin passed to an address you control at any branch.  Hey presto, you now have a currency backed by BTC!

Okay, so not a tragedy in the same sense as a natural disaster or an act of violence committed by a state, but fiat, debt-based currency is certainly the greatest scam to be perpetrated in modern human history.

A government will never accept or promote any other currency besides their own. This is why it can only be done by the people themselves. Bitcoin was created by the people, so it should be promoted, used and adopted by the people and only the people. A government shouldn't have any say in this.

I completely agree.  In the USA, I like to think that we would never allow Congress to establish an official religion.  In fact, our Constitution expressly forbids it.  The same concept should apply to money/currency.  We should each be free to individually choose what we are willing to accept in exchange for our labor, time, services, etc.  Forcing us to accept their fiat is tantamount to involuntary servitude.

You don't have to accept their fiat, as long as you render it.  Buy only enough to pay taxes, like you'd buy any other commodity.  Problem solved.

And I'd add that it's no coincidence that pursuit of money in a fiat system takes on some seriously religious overtones. It's the modern belief system really, hence why so many people find the Bitcoin concept or the nature of the fiat con so difficult to accept, you're basically inviting them to blaspheme against their one true God.


It is involuntary servitude, let's not mess around. I know you're one of the good guys, but lets start boiling these sleepy frogs, I think gently slapping them in the face with half of the truth is looks and feels like what it is: a compromise. You can't compromise on honesty, not about something this vital!

It's true that right now we are free to use bitcoins and aren't legally obligated to accept fiat, but will that continue to be the case in the future?  In the past, when an alternative like e-gold or Liberty Reserve began to emerge, they found a way to shut it down.  Fortunately, it won't be that easy with Bitcoin.  In response, I suspect they will resort to more drastic measures in an effort to force us into their debt-based fiat currency.  After all, their survival will depend on it.

Well, it's not the same as being locked up in chains, being beaten with a whip, and being bought and sold like a piece of property.

Right now, it's not illegal to transact or save in bitcoins.  We just need to ensure it stays that way.

You have a point.  If bitcoin is seen as a real threat, all hell will break loose.  It *is* their survival we're talking about.  I suspect that's why Satoshi was so against people flexing bitcoin muscle with wikileaks & putting bitcoin in the spotlight.  Tough revolutionary talk on this forum only validates bitcoin as a real threat, playing right in the hands of the opposition.

Maybe.  It's also possible that Satoshi just thought that it was too soon to be so vocal and just wanted to keep Bitcoin under the radar until it had gained wider acceptance.  We can't bite our tongues forever.  Now that the bankers and politicians are coming out with the predictable red herrings of money laundering, tax evasion, funding terrorism, drug trafficking, etc., it's important that we all understand the real issue at hand.

Bitcoin has a total valuation of around 1 Billion is not a threat to anything close to even a small bank, much less a central bank of a small country, much less to anyone that has any real power.  Just the QE buying of the US Fed is 85x that per month.
We are still a speck on the windshield of the bullet train.  We remain a couple orders of magnitude away from having a significant impact.

^I'd say everything that comprises bitcoin right now is much more than 1B, ie the Network. Market cap (ie shares*$spot) does not equal valuation.

For one, you cannot sell 11.5M bitcoins for $1B at market.  Slippage. Same thing with buying $1B. You can't just raise the price 100% doing that, the price would be much much higher. Might be more cost effective to buy a mining monopoly instead.

Supposedly some of the bankers would have the knowledge to see the potential of bitcoins well before the value of the sum of bitcoins passes the value of the sum of all dollars.

Lol, sell 11.5 mil BTC at market?  In the unlikely event that every single person holding BTC decided to sell at once, the price of BTC would drop to sub-single digits, that's slippage :D
As far as buying up all the coinz?  What idiot would try that with a single buy order? :D 

Guaranteed.  There was approximately $1.2 trillion USD in circulation as of August 14, 2013, of which $1.16 trillion was in Federal Reserve notes.
http://www.federalreserve.gov/faqs/currency_12773.htm

So presumably if some banker sees the potential prior to bitcoin being worth >US$100,000 each...(and some may already)  but by then, now many FRN will there be?

It's a thought exercise, maybe you should try it sometime.

In that case, the market cap is far more than the actual value (hence the term "cap). If there was a major sell, the price would drop. So realistically, the BTC economy is worth less than the 1.3 billion that it is valued at.

You're forgetting all the services, goods for sale, goods wanted, worth of the participation in the protocol, ongoing investments, etc. everything you can do with bitcoin is tied into its worth, but not its market cap. Market caps can be misleading and do not tell the whole picture

For instance, bitcoin allows me to send money, past borders, anywhere in the world, securely, for pennies. Is that reflected in the market cap? Could I not do the same thing when bitcoin was worth $10? What was its market cap then? I value the sort of network that can allow me to do that, but outstanding bitcoins*spot is not the way to value that.

Because ANYONE can use bitcoin to do the above, I value bitcoin much more than its market cap for that reason. If I could buy bitcoin outright for a billion I would

I'm not forgetting anything. The market cap is simply the number of BTC * the average value. This should represent the maximum worth. If every bitcoin was spent (not realistic as the price would fluctuate) you could still only buy 1.3 billion dollars worth of services and goods.

"Everything you can do with bitcoin" is tied into its worth, and is represented by the market cap. A bitcoin is worth 118 at Gox because the majority of people believe that they can buy $118 of goods with one bitcoin. Multiplying this value (averaged) by the number of bitcoins should be a good estimate of the market cap.

You can say that low fees and easy transferability are an aspect of value, but that's simply your opinion. You can "value" bitcoin all you want but you still can't buy 1.4 billion worth of goods, It's impossible unless the number of bitcoins increases or their individual value increases.

That being said, your opinion is part of the market cap. If you're willing to pay say $130 for the technical aspects of bitcoin then the market cap will factor that in, and it will increase. But just you thinking that bitcoins are more valuable than they actually are does not change anything.

Granted, the same could be said of other currency apparatus.
Which apple should we use to compare with which orange?  
The difference in M1 is more than 1:1000 so as order of magnitude, consider the threat Iceland poses to the USA as a world currency, except bitcoin would be about half of that.

Interesting to see this subject generate immediate media interest:

"Winklevoss twins say Bitcoin could become a country's currency"
http://uk.reuters.com/article/2013/09/17/us-bitcoin-currency-idUKBRE98G0X320130917

No further detail unfortunately.

Well having bitcoin ATMs would be a start.

I would expect a country adopting bitcoin as their economic backstop, would also be compelled to get into the mining game in a big way. Iceland has geothermal energy supply but their cost of kw/h is worse than the US, but not bad. Kuwait has the lowest electricity rates in the world by far at 1c a kw/hr. Someone should really start an exchange on the cayman islands actually.....

The title question presumes incentives for a country to fully adopt Bitcoin.  This question of "How" skips over quite a bit of what is discussed here. (Lots of why, whether, which, and when discussions).

To put an answer to the OP question, the howto, is by the people fully adopting it.  The government is just made up of some people (albeit people paid in fiat).  
This is the method of the modern revolution:  The model works when the leaders, at some point, call out the armed forces to "create peace" in their nation, and those armed forces instead do not take up arms against their fellows, this (or its monetary analog) can lead to full adoption.

But Bitcoin is not much a threat to any nations as it may be to some few institutions and national endeavors (such as central banking vs decentral banking, or wars of conquest funded by monetary easing).  Nations can do quite well without these institutions and endeavors as evidenced by the peaceful and prosperous period between the 2nd and 3rd central banks in the US.

In the mean time, Bitcoin is beneficial to people and businesses regardless of any greater purpose it may hold.  Focusing on those benefits, rather than what ends these means may bring, is the way to attain both.

NewLiberty: well said. I've come to respect you for the content of your posts quite a bit recently.

Surely there are mechanisms how a country could back their currency by bitcoin, no problem. It's just not realistic at all.

Most realistic scenario:

1. Remove the guns - allow competing currencies.
2. Slowly destroy your old currency through inflation (already being done in all states).

Just let the best money win. We all of course know it would be bitcoin :)

Then again... even if you could pay your taxes in bitcoin rather than fiat... would you be patriotic enough to do so?

What countries do when they want to convert to a different money system is to announce, first, that they will accept payment of taxes in the new money.   They set exchange rates (floating exchange but not quite free-floating) so that it is just a few percent cheaper for citizens to pay in the new money than in the old.

Citizens seeking to save on taxes acquire the new coin on their own by international trade or by local enterprise if it can be mined or manufactured.  In doing so they will create demand for it, driving its price (hence value) up.

The government begins to acquire the new coinage as a result of collecting taxes.  Gradually they begin using it to pay some fraction of the debts they owe, again at a floating but not quite free-floating exchange rate, so they don't go broke.   They begin to reduce the production of the bills constituting the older monetary system, while carefully keeping demand for the old notes about sufficient to supply so as to avoid making sudden shock or implosion of old economy.  This is difficult; it is probably must be accomplished by having different departments of the government demand particular currency types for payment in a way that responds in a very carefully measured way responding to current supply of both money types. Finally old bills are mainly curiosities; the government ceases to print them or accept them, and those that remain acquire value as collectors items.

Above process works for anything.  Doesn't have to be something people were thinking of as money at start.

Bitcoin owing to its small and highly inflexible supply would make this very difficult.  Its adoption by any national economy would require deflating it by thousands of percent, creating speculative firestorm that would further complicate process. 

Currency conversion is difficult enough when adopting widely-used money of powerful neighbor state which speaks for volume of a large economy, has high availability and denominates already sufficient value that it won't be noticeably affected when you start using.  But when your use would multiply value for which a very limited supply of money must trade by a factor of hundreds,  is very nearly impossible.  To do so would make the exchange market too unstable during the transition, and cause too many people to lose too much. 

Short version, they won't do it.  Far better from their POV to simply use protocol, create their own cryptocurrency with big enough premine to allow them to bring coins into circulation at a rate that permits control of the exchanges to avoid ridiculous speculative bubbles. 

Also Bitcoin as such is not suitable for a national economy.  No one has any incentive to invest Bitcoin in any productive business, because in Bitcoin economy, with constant finite money supply, an investor can always do at least as good as an average business - with no risk - by simply sitting on money instead.  So there is no rational investment in anything.  This makes it completely impossible to build businesses or infrastructure without nominal 5% inflation rate or so.  Mild inflation is sort of a tax on letting wealth lie around being useless to everyone.

Edward.

Beware false profits!

Edward.

Beware false profits