further information:

* Bitcoin will work as long as one country in the world allows the legal cashing in and out of bitcoins. For example, if it is made illegal in the USA, it does not really matter. People in the USA can still use it and just run it on Tor so nobody can tell they are using it. Then when it is time to cash out, sell them to an exchanger in a country where it is legal. Unless Bitcoin is made illegal globally, it is workable. The chances of it being made illegal globally are slim to none. In fact, the last country to allow Bitcoin will have a huge economic advantage in that everyone will use the exchangers there, probably bringing said government an enormous amount of money in taxes.

* Bitcoin is similar to Hawala. In a Hawala network you can give money to a member of the network in return for an IOU. This IOU can be cashed out at any other member of the network. Periodically, members of the network meet up and even out their IOUs. Bitcoin is similar:

Alice -> Gets Bitcoins from Exchanger A. She pays $100 dollars and gets $100 worth of bitcoins, these bitcoins can be seen as a cryptographic IOU.

Alice -> Sends the bitcoins to Bob.

Bob -> Sends the bitcoins to Exchanger B for $100 worth of $. In essence, Exchanger B is respecting the IOU issued by exchanger A.

Exchanger A -> Sells Bitcoins to Carol, and the cycle repeats.

Of course exchangers make profit by charging an additional fee.

* The ideal bitcoin transaction looks something like this:

Alice buys bitcoins from Exchanger A. She can do this either anonymously (cash in mail, etc) or even with her own bank account for all it matters, thanks to blind signature systems. Let's assume she uses her own bank account, so we can demonstrate just how awesome bitcoin is.

Alices Bank -> Bitcoin Exchangers Bank

Bitcoin Exchanger -> Sends coins to Alice by signing a message with their private key and distributing the message through out the network.

Alice -> Sends Bitcoins to an anonymous mix, along with one thousand other people. alice gets blind signature certificates for this.

Alice -> Opens twenty new bitcoin account addresses

Alice -> Has her bitcoins sent from the mix to her 20 bitcoin addresses in random amounts

Alice -> Sends her bitcoins to Bobs 20 accounts

Bob -> Sends bitcoins to a mix along with 1000 other people

Bob -> Gets bitcoins from mix to 20 new bitcoin accounts

Bob -> Sells the bitcoin for bank wires, or WU to many of his friends if he is worried of correlation attacks at his bank and Alices bank resulting in linkability indication
______________________

Alices Bank <-> Bitcoin Exchanger <-> Alices Bitcoin (1) <-> Mix <-> Alices Bitcoin (2-21) <-> Bobs Bitcoin (1-20) <-> Mix <-> Bobs Bitcoin (1-20) <-> Exchangers <-> WU / Bobs Bitcoin

Even though Alice loaded funds from her bank account, by the time they come out of the mix the chances of linking the coins to Alice are small (an attacker following up to the mix will know 1000 different bitcoin addresses Alices funds could have gone to, assuming a crowd size of 1000, but not be able to tell which of them belong to Alice). Likewise, an attacker who sends Bob Bitcoins will be lost at the Mix, there will be 1000 different accounts that Bobs bitcoins could have gone to with an equal chance of any of them being Bobs. The chances of them dedicating enough resources to continue the trace are slim, especially as it will create a jurisdictional nightmare since each of the 1,000 accounts could belong to someone in a different nation each of whom cash out to a bank/wu in a different nation via an exchanger. Thus, it will require global cooperation to even narrow Bobs crowd size down to potential locations where he cashed out. If Bob attacks Alice, by the time he makes it to the mix the same thing is true, 1,000 different possible load points for the funds and that is IF he has global cooperation and all of the exchangers kept know your customer records.

* What makes Bitcoin awesome is all of the exchangers can follow know your customer rules and it makes no difference.