How does a country fully adopt Bitcoin?

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

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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

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.

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  

[kjj]

What steps would a country have to take to fully adopt Bitcoin as the primary trade medium?

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).

[solex]

  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  

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.

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  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  

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? 

[solex]

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).

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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.

[solex]

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.

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?

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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.

[djtriggz]

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

[vokain]

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

[djtriggz]

Whats the bitcoin alternative to a direct debit?

[solex]

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.

[cr1776]

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. 

 

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.

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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?

1.  Restore the right to contract.
2.  Wait.
* grant bitcoin the same status as the state's legal tender (my, possibly incorrect, rewording of the rest of kjj post)

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

[kjj]

You mean these steps?

1.  Restore the right to contract.
2.  Wait.
* grant bitcoin the same status as the state's legal tender (my, possibly incorrect, rewording of the rest of kjj post)

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.

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You mean these steps?

1.  Restore the right to contract.
2.  Wait.
* grant bitcoin the same status as the state's legal tender (my, possibly incorrect, rewording of the rest of kjj post)

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. 

[kjj]

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).  For an instant sale, the seller can refuse to deliver unless paid in the manner they prefer  (see here).  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 which re-enables gold clauses.

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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).  For an instant sale, the seller can refuse to deliver unless paid in the manner they prefer  (see here).  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 which re-enables gold clauses.

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.

[kjj]

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.

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.

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?

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.