How to use fiat currencies for Bitcoin offline transactions?

[btcusr]

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".)

[btcusr]

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,

Code:

1. Generate a new key pair, (key1, addr1)

2. Generate another new key pair with the serial
    number from 'fiat note', (key2, addr2)

3. Create 2-of-2 key, (key3, addr3); so, to spend, 
    one needs both 'key1' and 'key2'

4. As anyone can get 'key2' from a look up table, 
    'key1' secures bitcoins

5. Owner of 'key1' also owns the hard-copy of fiat 
    currency, with the serial number that gives 'key2'

6. During the spend, there are 3 different cases,

  a. Use different fiat note; 
        pay to, [new key pair (key4, addr4) +  
           new fiat currency serial number (key5, addr5)]

  b. Use same fiat note; 
        pay to, [new key pair (key4, addr4) +  
           same fiat currency serial number (key2, addr2)]

  c. Get rid of fiat note; 
        pay to, [new key pair (key4, addr4)]

what's missing / unknown ?

Code:

1. How to know one of multi-sig address is 
    a 'fiat-currency-serial-number-hash'? would it need 
    a new script key word?

2. Is it possible to specify into the transaction, 
    that spending requires both keys and a hard-copy 
    of fiat note? or, only hard copy is enough to spend?

[btcusr]

Any comments?

[TheButterZone]

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.

[btcusr]

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.

[btcusr]

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.

[btcusr]

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

But, the note is worth, fiat + btc.

[btcusr]

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?

[davidgdg]

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....

[Sergio_Demian_Lerner]

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 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.

[Sergio_Demian_Lerner]

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.

[knight22]

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.

[marcus_of_augustus]

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

The government has printed 3.5 billion of the new $100 bills, which it began delivering to financial institutions Tuesday. How soon customers will see the new bills depends on their distance from a regional Fed office, demand, and a few other factors.

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

[btcusr]

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.

[btcusr]

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.

[Sergio_Demian_Lerner]

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...

[fattypig]

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

[Sergio_Demian_Lerner]

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...

[Sergio_Demian_Lerner]

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"?)

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.

[Sergio_Demian_Lerner]

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.

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.