If you have to trust the issuer to provide the backing (exchange for beer or usd at a certain rate), then you may as well also trust them with maintaining the transaction history (block chain)...hence, no need for proof of work based block chain creation.  But yes, this would enable decentralized bitcoin exchange, especially if combined with a ripple style routing of privately issued coins (maybe you trust mtg usd coins but I trust tradehill's. ...as long as mtg and tradehill trust each other, a trade can still happen).

Agree with OP...it's interesting how the MSM is attempting to marginalize this protest by turning it into a left vs right thing...same playbook they used against the tea party protests.

The ideal would be if craiglist had better support for alternative currencies.  If you could create listings that offer to sell for either dollars or bitcoins and could browse for listings in bitcoins, it would be great.  Someone could suggest this to craigslist...you wouldn't have to even talk about bitcoin, just mention that you might like to create or browse listing of items for sale for silver rounds for example.  If they added generic support for alternative currencies, people would be able to list things for bitcoin.

Yes, but that's primarily due to convenience issues...if it were as easy to use as checks, credit cards, or cash, and if the US gov't had not confiscated it in 1933, I'm quite sure people would still be using it regularly for exchange...once it became fully decoupled from the dollar (such that Gresham's Law would cease to apply), it might have even become the dominant form of money (which is probably why it was banned in 1933 in the first place).

Once something becomes widely used as a pricing mechanism, then it follows that its value will become much more stable...with one important assumption: that people don't change prices too often.  With point of sale software and highly liquid and easily integrated exchange markets, I'm not sure you can make that assumption any more.  Irrespective of bitcoin, more and more merchants might start setting prices based on real, continually updated indexes to real goods instead of indirectly via the dollar.  That's bound to increase the volatility of the dollar.

So, where does that leave bitcoin then?  Well, I think we can say that ignoring some near term usability and security shortcoming, if everyone used bitcoin as money, then it would be far more convenient, cost effective and private than using the traditional banking system.  By design, bitcoin would also hold its value over the long term better than a currency that uses debt for issuance and backing (pretty much all national currencies today).  Out of necessity, you have to expand the money supply of debt backed currencies, otherwise there wouldn't be enough money in circulation to repay old debts (the deflationary spiral problem that debt backed currencies have)...that makes it inevitable that the value of such a currency must fall over time.  So, given a choice of holding a currency that is going to decline in the long run and one that will appreciate, you'll want to hold at least some of the one that will appreciate (even if you're not entirely certain that something might cause that currency to completely fail).  You may even want a portion of your pay to be automatically converted into that currency.  And, once you have that currency, you'll want to use it to buy things (otherwise, there would be no point in holding it or any other currency at all).  And since there are some people that want to direct a portion of their income to bitcoin, there will be people willing to sell you things in exchange for bitcoin.

Exactly!  I hadn't seen that before.  So beertokens is both an index (to Leo Beer in Thailand) and a currency.  Unlike bitcoin, you have to trust a central issuer of the currency...holding a beertoken is basically a contract with this central issuer.  Beer would be fairly easy to hold as backing for this currency.  This is rather like any commodity backed ETF that holds the actual commodity, but with the key difference that the shares are issued as crypto coins and would be readily compatible with existing bitcoin payment infrastructure.  A Multicoin wallet capable of holding both beercoins and bitcoins would let you easily diversify your holdings without compromising privacy.  A beercoin would have absolute stability relative to the price of a can of Leo Beer in Thailand (as long as you trust the issuer).  You could decide what percentage of beercoin and bitcoin you prefer to hold and when making purchases, the system could automatically spend a percentage of each so as to maintain that balance.  Likewise, merchant that accepts both bitcoin and beercoin could decide what allocation of each they prefer to hold and have the system automatically maintain that percentage as they received payments for goods.

I haven't read your proposal in full, but yes, that's basically the idea.  Such a reference coin (and there could be many different ones indexed to different things that people derive real value from) could be used generally as a unit of account and for pricing.  When you think about it, it makes sense to think of the value of things relative to other things we desire since the whole reason we work is to afford those very things (either now or in the future).  The most basic such reference index could be: 1 = the price needed to provide 1 day of basic sustenance for the average person in some region

Also, I believe that over time the market will start to develop derivative instruments that either help to stabilize the value of a bitcoin, or that create derivative, privately issued coins, that use derivatives and hedging techniques to create stability.  Bitcoin itself might remain fairly volatile even once it has achieve broad use, but you might have an alternative to purchase company X's coins that provide more stability (and those coins could be made compatible with bitcoin based payment systems).  We're a long way from this of course, but I do see it as the likely shape of things to come.

I do agree completely that the volatility of bitcoin is an impediment to its use, however I also believe there are ways of dealing with it (today, and even more in the future).  Consider that you can buy bitcoins on an exchange today in cash...you can withdraw cash, make the deposit and you'll have the money in an exchange all within ~1 hour.  You can make the bitcoin purchase on the exchange and then buy something with it.  The merchant can then transfer those bitcoins to an exchange and sell them within ~1 hour (or use a service like bit-pay that can convert to dollars for a flat rate).  Total exposure to the bitcoin volatility is on the order of a few hours in that case.  Now, you might say why go through all that hassle, but you have to remember that bitcoin does have advantages in that it's an irreversible, 2 party transaction that is relatively private.  There are transactions for which those are important properties and which would warrant the effort.  The other possibility is that you accept the volatility but believe in the long term value proposition of bitcoin and hence you don't have an issue holding and transacting with some bitcoin.  Again, I agree with the OP that volatility is an impediment, one that can (and very likely will) be overcome in time.

It's not that different except for the fact that you establish prices relative to other real goods (the index) instead of relative to any currency.  By doing so, your real prices aren't affect by the mismanagement of a currency or swings in the market.
I never said btc wasn't more volatile than usd.  Most currencies are naturally going to be more volatile than the currency that is predominantly used for pricing purposes.
Are you sure about that?  Gold is certainly more volatile than dollars relative to real goods.  Gold has not disappeared.
I do.  I have transacted nearly as much in btc the last few months as I have in usd.  I'm finding many people that appreciate the convenience of bitcoin and like using it.  If people find it useful and use it, while it might be volatile, the long term trend will be up and people will tolerate the volatility.

The unit of exchange could be anything you want, paypal dollars, physical dollars, gold, or bitcoins...that's the point.  The price in any one of these units of exchange would be determined based on market exchange rates.  The index itself would be set based of the price of goods in one of these units of exchange.

The important point I was making is that the very notion of a stable currency is flawed.  And, central bank market actions to keep a currency stable are exactly the activies that enable the banking industry to extract wealth without providing anything of any real use to the market (ie front-running the FED based on insider information).

Not quite.  Corporations exist to make money for their shareholders.  They do it by providing a good or service to customers that place a higher value on that good or service than their money.  Problems arise when corporations start to monopolize a certain market.  Problems also arise when governments make laws or regulations that favor these corporations over the interests of the general population.  Governments are supposed to set a regulatory environment that ensures fair and competitive market places, however all too often, they create laws and regulations whose primary purpose is to establish monopolies, duopolies or oligopolies by creating artificial barriers to competition.

To a lesser degree, there is also a problem with the corporate liability shield that sometimes leads to bad behavior by people on behalf of the corporation knowing that they'll be insulated from the consequences.  Groupthink can also lead to incredibly poor behavior by corporations.

It's a fair point and I do agree that the volatility of bitcoin at this point in time impairs its usability.  However, I wouldn't advise using dollars as a store of value.  I'd rather have a diversified mix of assets that preserve their wealth better than dollars.  Bitcoin won't become as stable as dollars relative to the price of a loaf of bread until people start using bitcoin for pricing loaves of bread.  Another possibility is that we experience high inflation with the dollar and people switch to setting prices based on indexes to real goods.  With the technology we have today, it's conceivable that this could be made so easy for merchants that we see a permanent switch from setting prices in dollars to setting them based on such indexes.  If a shift like that were to occur, the FED will have a much more difficult time maintaining the stability of the dollar...prices will be much more sensitive to fluctuations in the money supply.  Then bitcoin might start to look a little more favorable when compared against the dollar in terms of volatility.  But, the most likely scenario is that bitcoin simply keeps rising in value over time and people want to hold some of it for its ability to retain value...and the more people that have a few bitcoins, the more likely we are to see commerce in bitcoin.  And the more commerce we see in bitcoin, the more people start to perceive value in relation to bitcoin, and that will lead to greater stability.

In the mean time, you can deal with the volatility of bitcoin through dollar cost averaging into and out of it as needed (tools on the exchanges that make that easier and more automatic would be nice).  It's a hassle, but it works.

Would it be able to handle credit/debit cards as well?  Or would the device have to be bitcoin only?

What does it mean for a currency to be stable?  Stable against what?  It seems like every year the definition of the CPI is changing.  The value of real goods and services is always going to fluctuate relative to each other.  Has the dollar been stable against the Euro?  Has it been stable against gold?  Oil?  Corn?  Wheat?  I think the very notion of trying create a "stable currency" is flawed.  Instead why not price your goods and services relative to the things you covet the most in life?  And why not view the prices of others' goods and services as well as your own assets in those same terms?  We have the technology to this and I've just dismantled 50% of the justification for the FED's existence.

Glad you updated the title with the location...San Antonio is a great town for conventions.

Bitcoin is the people's money.  (should resonate with communists)

Bitcoin is internet money.

Eventually the public will figure out how silly it is to pay a fee to have a company store bits of data in a database for you.  When people start taking their money out of banks, then the banks will also realize how silly that is and they'll start paying you for access to your money.

That's correct, we can only payout USD to US based businesses at the moment.  Our fees are 0.99% if you take bitcoin as your payout and 2.99% if you take USD payouts.  The 2.99% figure is substantially cheaper than credit cards, especially for small merchants accepting credit cards online.  Credit card processors will advertise their "discount" rate, but that rate only applies to the most ideal of scenarios and doesn't include a lot of other fees they'll charge you (setup fees, monthly fees, minimums, chargebacks, dispute resolution, support, etc).  On top of that, we're starting to see banks introduce more fees on the consumer side.

Thanks for mentioning bit-pay.com.  I think you have to be careful with this type of marketing.  Marketing is most effective when your audience is already keenly aware of some need they have and you have a solution that addresses that need well.  In that case, the target of the marketing effort is actually grateful to have learned about your solution.  However, if the person doesn't perceive themselves to have a need for what you're selling and you're too presumptive (i.e. "What! You mean you don't accept the currency that 0.001% of the people on Earth use!  What's wrong with you?"), too incessant, or too forceful, then they just become annoyed and resentful.  Also, even if the person believes an alternative money is a good idea, bitcoin is not really ready for the non technical user just yet.  So, such a person might give it a try and then be quickly turned off for a number of reasons and that could actually harm bitcoin's reputation.  Also, a merchant that starts accepting bitcoin needs to have appropriate expectations about their likely volume of bitcoin sales (0.001% wasn't just a figure I made up, it was an estimate).  

I think it's good to let merchants that you deal with know about bitcoin's existence (blasting unsolicited emails out to random merchants probably isn't a good idea), but if there's no response, I would just drop it and not keep pestering them about it...you've already achieved the most important objective.

I do think it would make creating lightweight web and mobile apps much easier.  Wallet apps, whether desktop or mobile, wouldn't need to deal with connecting directly to the p2p network or with managing the block chain.  They could use the proven c++ codebase for that.

There are problems with using the current wallet for the implementation of web based, hosted wallets (chief among them is the inability to handle key creation and transaction signing outside of the bitcoin process).  By separating the wallet and client, you could decouple their evolution with some people focusing on making a really good p2p client and others working on the wallet code.  The wallet side could itself evolve into a daemon that supported both desktop and web based UIs.  And other projects building wallets could benefit from being able to use the proven c++ client for the interface to the block chain and p2p network.  I also foresee the need to have substantially different types of wallet implementations (imagine a company needing to manage its funds...the wallet UI for those users may need to be completely different...allowing for a workflow where multiple signatures are required to spend funds and such).

This doesn't surprise me at all (having done a complete refactoring of the code back in Feb).  So, I think if I were working on this, I'd start with the goal of running a bitcoin instance without a local block chain available and make it communicate with another instance of bitcoin whenever portions of the block chain were needed.  The wallet.dat file would be the only thing persisted, everything else would be pulled from the other bitcoin instance as necessary (local caching of transactions could be added later if this proves to be too chatty to be very useful for some remote connectivity situations).  Once this works, you've resolved at least one significant usability issue with bitcoin.