Bitcoin Forum

Idea is to use fiat currencies for digital currency transactions. Fiat currencies are well distributed, difficult to counterfeit and they all have unique numbers. We also have various digital currencies, and these are not well adopted as fiat currencies. Can digital currencies use fiat currencies for a ride?

Say, someone transfers 10 BTC to a $10 bill with a specific number '12345ZXCVB' (script?), then he can use that particular $10 bill (worth $10 + 10 BTC) for offline bitcoin transactions, right? This $10 bill will work like a cassaious coin.

I think, it should be possible, but am I missing anything in the puzzle?

(This post was moved from "general discussions".)

I have described the solution in the best possible way that I could.

Please go through this solution and comment on feasibility.

There are various bitcoin transactions; like, pay-to-pubkey-hash, pay-to-pubkey,
 or transaction that requires solving given puzzle, etc. This new transaction,
'pay-to-fiat-currency' can be made as follows,


what's missing / unknown ?

Any comments?

IIRC the previous topic, someone said there isn't enough entropy by just using a bill's serial number. But I'm not a programmer, so all your posts above might as well be in Enigma code as far as I can understand them.

Entrophy doesn't matter, as we use fiat currency only as a token. We can use another key to protect the Bitcoin. Please check my second post.

I'm proposing 'pay-to-fiat-hash' transactions, and may be we need special script keywords. We can use one more key, to protect the transaction other than fiat serial number hash.

Or, may be other solutions that enable anyone to exchange bitcoins by exchanging fiat currency. We also need a way to check the balance on the fiat. It's ($xx + yy btc), means even one can transfer 100 btc to a $10 note.

May be my solution, and they way I explained it not so perfect, but anyone understands the problem (exchange btc, just by exchanging fiat), can start think towards the solution.

Balance in my previous post may be misleading.. I mean, only BTC balance.

But, the note is worth, fiat + btc.

1. Bitcoin was Paid to 2-of-2 address
2. You have both 2-of-2 keys
3. One usual key + another key was generated from fiat serial number
4. Check block chain for balance
5. To transact, give $$ note to a person, transfer btc to new 2-of-2 Bitcoin address

Or,

With new 'pay-to-fiat-hash' transactions, these amount can be marked as un-spendable through block chain.

And, through a reverse trxn, 'pay-from-fiat-hash' btc can be paid back to a regular Bitcoin address.

I'm not clear with the complete details, can anyone understand the potential uses?

Three comments:

1. For the less- technically minded, could the original OP please post an explanation for his proposed scheme in non-technical language. As I understand it, an off-chain transaction involves transferring the private key rather than the BTC. How does this scheme achieve that?

2. Step 5 seems to involve an on-chain transaction. So how is this off-chain?

3.  How does this scheme take advantage of the distinctive feature of a bank note which is that it is unique and difficult to forge?

I get the feeling that there may be a very clever idea lurking here, but I am having trouble grasping it....

The core idea, that a difficult to counterfeit banknote can be used for off-line Bitcoins transaction is EXCELENT. I emphasize, IMHO it's completely fantastic.

The problem lies in the details: a banknote does not have something to hide a private key, and so prevent double-spend.

I propose a simpler solution: Using an unspendable Tx output that holds the banknote country and serial number, some BTC are associated forever with a certain banknote. (the data is described in the public script).

Every one agrees that the bill's value is now X BTC. That's it. The only party that can reliable try to cheat making a perfect counterfeit bill is a government. If governments create counterfeit bills, then they'll be terribly exposed to loss of credibility. Therefore nobody will create a perfect counterfeit bill.
To check that a bill has value, you carry a portable database of BTC-to-Bill binding outputs. Everyone agrees that to be valid, a bill binding transaction must be one day old, so everyone can carry the small database and sync it once a day. (This is the same system the Firmcoin.com (http://Firmcoin.com) uses)


We would be actually using the government low-cost of manufacturing facilities to create difficult to counterfeit banknotes for Bitcoin. For example, a 100 USD banknote costs 10 cents to manufacture in a batch of a billion bills.

From the economic point of view, the bill's value is the maximum between the fiat previous value and the BTC value, so it's seems that some value has been created from thin air, because you could just create money by accepting the fiat value, and then selling the bill by the other BTC denomination (or vice versa). By using a very low-valued bill, for example a 1 USD bill for 1 BTC, the problem is mitigated. Nevertheless I doubt the governments put the same security features in a 1 USD bill than in a 100 USD bill.

Finally, for the system to work, everyone must agree that those BTC bills really hold the BTC value.  But you can count on me:  I would agree! Why not?

Now imagine people using ALL USD bills as BTC banknotes!
Since the creation of Bitcoin, I never heard a more disturbing idea for governments than that!

So let's define a standard for the creation of dollar BTCs and make it a reality!!

Thanks btcusr: one never stops getting surprised by crazy ideas...that come true... I will post about this in my blog...

Best regards,
Sergio.

POLL

I would like people to vote if they would accept such a BTC banknote (if the supporting banknote has enough security features, such as the US dollar).

Make history: If we believe in BTC Banknotes, then it will come true today.

This is an awesome idea! Problem is, I don't think there is enough proximity between bitcoin users to justify the need.
But maybe I am wrong.

Sergio:

is there any way to redeem the note for BTC in your scheme? ... (also do you mean an "unspendable output Tx" or an "undependable output Tx"?)

In related news, the new U$100 C-note has lots of gold (colouring) apparently

http://www.marketwatch.com/story/new-100-bill-costs-60-more-to-produce-2013-10-08 (http://www.marketwatch.com/story/new-100-bill-costs-60-more-to-produce-2013-10-08)


Using only new notes for BTC linking would greatly reduce counterfeit risk ...

Thanks, Sergio. I'm happy to see positive responses.

I had theories like, bitcointalk was taken down as a result of my post to avoid possible implications. :)

One issue I see is, with bitcoins (10 BTC) transfered to a bank note ($100), now it would worth more ($1550).

Let's say it would cost $80 to print one copy of $100 perfect counterfeit note. Now, people are not likely to spend $80 to print a $100 note, but they will surely spend $80 to print something that is worth $1550.

So, may be we can not store higher values unless we do something  (encryption / hash) to bank note serial number, through scrypt.

Yes,  was aware of that problem. The problem is that Bitcoin value tend to rise, so any denomination one choses for the note, sooner or later, it will provide lower security than expected. Nevertheless, governments won't allow counterfeit notes to exists for much time, or would they?

If Bitcoin banknotes become common, then I really don't know what the heck governments will do...

We need another cryto-currency which have almost the same inflation as USD. They print money, we mine money. Then we can do it :)

One this we must standardize from time 0 is that a USD banknote with value N must be bound to a tx output of N/100 BTC.

So for example, a 1 USD bill must be bound to 0.01 BTC (1 centiBTC, now roughly equivalent to 1.3 USD)

We should reject any BTC-bill that does not follow this convention. Using this convention we can use the denomination of banknotes as centiBTC easily.

We also should build an iPhone/Android App that scans the serial numbers of banknotes (and the denomination) and responds YES if the BTC-banknote is valid and NO if it's not (unbound or invalid denomination).

Regarding the mixing of fiat/BTC values, from the economic point of view, a BTC-banknote is a BTC bill with an insurance in USD and at the same time a USD bill with an insurance in BTC. Something never seen before...

Yes, my spell checker did not have the word "unspendable" and "corrected" it to "undependable". :)
I corrected the post, because it was confusing without the correct word.
Thanks.

We're creating the future. It has no importance if this will be used today, but in five years.
The same happens to the Firmcoin, their time will come.

I posted more thoughts about the btcusr idea (which I named BitBanknotes, so it can be referred) in my blog:

http://bitslog.wordpress.com/2013/10/09/a-disturbing-idea-bitbanknotes/ (http://bitslog.wordpress.com/2013/10/09/a-disturbing-idea-bitbanknotes/)

Why not?   Because, the bitcoins cannot be spent electronically.    They then lose some their value.  At a minimum, these coins lose fungability.

Now what I could see happening is an "issuer" making these fiat into "colored notes" [Edit: in the same vein as how a bitcoin output can be dual-purposed to represent a share of an equity].  Each note can be redeemed for bitcoins, on demand.

So simply needed is some way to verify the XBT value of the note, using the note's serial number.  

This still requires that you trust the issuer, but if the issuer is honest there is little the government can do to confiscate funds from either the issuer or from the bearer except at the exchange points.

Hi Stephen Gornick, thanks for your comments. I'll get back to this.

Yes, it would be a little like "coloured notes" using the terminology of the coloured bitcoins concept ... assuming I'm understanding it correctly.

In another weird twist it would then be possible for an ATM operator (trusted bitbanknote issuer) to receive regular notes and issue bitbanknotes. An unknowing observer would see someone putting cash notes into a machine and getting probably less cash notes back out in the same transaction ... ! Or vice versa ?! ... and who could know the difference except the operator of the machine and the specific user.

A centralized, color coin use-case would make this technique all the more valuable. In theory you could tie a color coin to a bank note and trading this note would be the equivalent of transferring whatever value is embedded in the bill, entirely offline. When one party wants to redeem that value (e.g. contract, property, asset) they bring the bill to the issuer.

Not sure how legal it is to modify legal tender and/or give it more than face value, but let's consider it a thought experiment for now.

I would not accept it if there is no way to redeem the BTCs from their associated banknote and if such possibility exists, then we need to have a mean to test if a banknote still holds its BTC value.

If it were not possible it would be a problem, because in 5 to 10 years that banknote could be worn out to the point that you cannot circulate it anymore.

Or the government could make all the (now) new 100 USD bills no more legal tender from january 1st 2040... and we would lose all our associated BTCs.

spiccioli

Hmmm, that's another interesting twist ... turning FRN into T-bills (or asset-backed bearer bonds) via blockchain securitisation ... lol.

Seriously? 

Right, the same way nobody involved in a government ever commits fraud or crime anymore due to their fear that other people in government will be exposed to loss of credibility.  Using your logic here we can rest assured that no counterfeit fiat bills have ever been created.     

Lets face it, with this idea ANY party can reliably try to cheat by creating a counterfeit bill..  just like they can today with fiat.  BTW not recommended today unless you know just who needs to be paid off to let you continue this business.   

On the plus side, the I <3 counterfeiting economists will love your idea because then their favorite king can control the monetary supply again.       

It doesn't matter whether government is invalidating $100 notes.

  - You created the transaction during 2013, and paid 10 BTC to a $100 bill
  - 2050, You are spending it
  - to spend / transact, you just need to give that particular $100 bill
  - if the scrypt requires, then you should also broadcast the transaction to the network

There would be no transaction to broadcast if the TXO (transaction output) is unspendable.

Solving that problem would probably require a central issuer who uses a two factor password for the coin. When you want to redeem the Bitcoin value you would have to send them the bill and they could unlock its contents and send you the Bitcoin.

If the Bitcoin is spendable whoever has the private key could spend the coin; how could you trust someone giving you the bill that they won't spend the coin when you turn your back? Unspendability solves that problem, but it creates another (if the bill is destroyed, so is the coin). That's a hard problem, but one might argue that is the cost of doing business in this scenario.

Regardless, such a scheme requires consensus, and that is hard to achieve.

Critique my idea?

If a trusted entity is involved, send coins to sha(serial number) under their trusted public key.


* A Trusted Bitcoin Company puts out a public address on a website:
04C4F72B99D120AFDE0C4CEAD09CFA4C0336F4C672807E5D8BAA80C1F984A260AA1F2EAFC579546 4F7EC97D5D642F7ECB72EB1F1E53F554CCB1A4B67B309FB78BE

* I look in my wallet, and have a $1 US fiat note serial number b71626423n. Using an EC calculator (bitaddress.org or armory for instance), I multiply the public key and the sha(serial number). The sha of "b71626423n" is : 0aecd03819d9c5a693df67e876d5d228270b8f9b725e6b3c7da9c9bd5f83d723

* Which results in a public key with bitcoin address: 1PnMoiwmLBmGMgyNTHVYo1jq467JzAN3jo

* I send 0.10 BTC to 1PnMoiwmLBmGMgyNTHVYo1jq467JzAN3jo.

* The Trusted Bitcoin Company probably doesn't know that I sent coins to the bill (adding optional entropy to the bill ensures they don't.)

* I meet you for a trade, and say this note is worth 0.10 BTC. You do the math yourself and discover that there is indeed 0.10 BTC at that address. Because you trust the Bitcoin Company (or know someone who does), you know they are the only ones who can decrypt the private key and coins are locked until redeemed.

* You wish to redeem the 0.10 BTC. You physically send in the $1 note to the company with an address that you control. The Trusted Bitcoin Company receives the genuine note and sends the balance to the address provided. Depending on how trustworthy the entity is, there wouldn't be many redeemed, as the physical form may be superior.

* Trusted Bitcoin Company keeps the $1 fiat as fees.


Here is the private key to the public key above:
5JjVqgLXS1cRmjxBJRcpfSnR6o4nYhmafMhDDWbyYiCfviJMQUM


EDIT: The bitcoin ATM system would be an optimal trusted entity. You put that $1 into the machine, it reads the $1 bill and serial number and asks where do you want your 0.10 + $1/200 = 0.105 coins sent.

I think this is brilliant. You probably also need to specify that balance checks on the address should be done using a copy of the blockchain, not more than X days old (30?) and that the trusted entity keeps the physical bill in their possession until >X days after they have redeemed it.

This might mean that for certain use cases bills that are being removed from circulation, but are still legal tender might be preferred, since the trusted entity can go deposit them at a bank immediately upon receipt and they should subsequently be destroyed. However when a given bill is being removed from circulation, it is usually because counterfeiters have become too good at producing good forgeries of that design and new security features are being introduced.

This stuff is messing with my head.

I absolutely luv this bit ... "keep the change".

Really nice idea btw .. I wouldn't be surprised to see it in action real soon, it is simple and easy to implement.

@TTBit, Great idea. Central trusted entity / Bitcoin ATM machine really useful in this scenario.

Public key entropy can be increased using multiple fiat notes; say, one $10 bill + 2 $5 bills + 3 $1 bills.

@TTBit, Anyways, let's just wait for reviews from top-devs, but in the meantime, I request you to post first such a 'public address' in new thread, and start the service. All the best. :)

Yeah, I might have to do just that. Any idea what the legal issues would be? I don't want to go to SEC jail over $20

Just collect all required details from the last guy who sends you the fiat note. That's enough.

I asked a question in the legal forum:https://bitcointalk.org/index.php?topic=327073.0 about it.

I'm making a mockup of exactly how it will work. Will get something going in the next few days.

To me it looks functionally equivalent to Cascius coin except you use a serial number of a note for the seed ... just do it, imho.

@TTBit, one thing. You put some effort to think through,

how you are going to remember / generate / store / safe-guard the private key?

How long / for how many years you are going to support key?

May be people want to know you still own the key every now and then, or every time they do the transaction.

May be you can develop an app, or google drive based site for transaction, updates and support.

Here from /r/Bitcoin. Amazing idea!!

Has this idea progressed at all?

The idea I floated definitely has. We have had a website all set up for about a month now, but haven't posted it publicly yet. There are a few details that need addressing (redeeming, getting a PO box?, how long do I plan on doing this?, etc). Holiday downtime did not help, but it is not a forgotten project.

@ttbit, did you check bip-38?
Is that anyway useful here?

In Kenya, the largest note issued by their central bank is the 1,000 shilling (KES) note.  That's worth about $12.  Cash is still used widely for making purchases such as appliances, used cars, etc.  Imagine going shopping for a new large screen TV and having to carry a 3" thick stack of bills.

Then imagine being the merchant, having to carry a satchel to transport the previous day's cash sales to the bank.

This idea has potential.

cool. 8)