How to use fiat currencies for Bitcoin offline transactions?

[Sergio_Demian_Lerner]

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/

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[Stephen Gornick]

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?

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.

[btcusr]

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

[marcus_of_augustus]

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.

[jedunnigan]

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.

[spiccioli]

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

[marcus_of_augustus]

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.

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

[hashman]

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.

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.       

[btcusr]

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

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

[jedunnigan]

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

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.

[TTBit]

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.

[hannesnaude]

Critique my idea?

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.

[marcus_of_augustus]

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

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.

[btcusr]

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.

@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.

[btcusr]

@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.

[TTBit]

@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

[btcusr]

@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.

[TTBit]

@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.

[marcus_of_augustus]

@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.

[btcusr]

@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.