Physical bitcoins, take 4

[Ian Maxwell]

I'm bringing up this old topic again because I think, while we're all hip and cyber-savvy here, a surprisingly large number of normal folks still don't put much stock in that blasted inter-net and won't really take an intangible currency seriously. This may be reasonable or not, but either way I think it would improve our perceived legitimacy and lower the barriers to entry if we had some physical tokens to hand out. I'm sure my friends would be more interested in bitcoins if I could hand them one.

There have been some really clever technical solutions as far as sending bitcoin "checks" or scratch-off cards worth a certain amount, with a private key or part of a private key included. I think this is a good idea for what it does, but I don't think it's suitable for cash, which would have to put up with too much abuse. You'd need a note that was secure in the hands of potentially hundreds of people of varying levels of cleverness and malice.

Instead, I'm interested in paper money that works the old-fashioned way: on the honor system. Bitcoin Warehouse X would issue a receipt saying, "This note is redeemable by the bearer on demand for ONE BITCOIN (or whatever amount)" on the obverse, perhaps with redemption instructions on the reverse. A public address could also be printed on the note, and the holder could check that indeed there were ten bitcoins stored at that address.

"Honor system" isn't quite the right term: Distributor X could agree to audits and such to ensure that it had enough reserves. You'd need to trust that they wouldn't renege on their obligations, but that sort of trust can be justly earned. You'd need to trust that they would remain solvent, but for a single-purpose warehouse that didn't try to branch out into market speculation and such, insolvency wouldn't be very likely.

Now for other questions:

How would the issuing agent turn a profit (or at least recoup its costs)? Off the top of my head, options include

• a mint fee, wherein first-issue notes are sold with a surcharge to cover the cost of production, plus some. (Could be prohibitively expensive with small denominations.)
• a deposit fee, wherein all notes (new or old) are sold at a small amount above face value. (Not bad, but it may take a while to recover the costs.)
• a redemption fee, wherein notes are redeemed at a small amount below face value. (May hinder general acceptance of the notes.)
• a fractional reserve system, wherein the issuer only keeps enough bitcoins on hand to honor, say, 90% of notes issued, in anticipation of never being called on more than that at one go. (Not very dangerous in itself, but could set a dangerous precedent: once you're at only 90% reserve, dropping to 89% reserve doesn't sound so bad...)
• an expiration date: notes must be redeemed within, say, five years of issue, or be forfeit. (Sort of defeats the idea of cash.)

I'm sure no one will admit here to preferring the last two options (though a limited fractional reserve pegged to the expected rate of accidental note destruction might actually work out). But what about the first three or some combination thereof? Someone has to pay for the production, and it sure won't be the issuer. Under this view, a mint fee is the most "honest" in that it reflects the actual cost of business, and would be appropriate for (say) a volunteer effort to create physical bitcoins for the good of the community. But for a for-profit agent, transaction fees would probably make the most sense since deposit and redemption are the actual services being provided.

Another, no less important question: What would you like physical bitcoins to look like? There's no need for them to literally be paper notes, though that's probably the least expensive possibility: imprinted vinyl or ceramic "coins" would be possible too, or plastic cards, or really just about anything that can be made hard to counterfeit. Since one aim is to improve the perceived "normality" of bitcoin, coins and bills might be most appropriate, but I'd love to hear more ideas.

In case you haven't guessed, I ask because I'm interested in producing these if I find out there's a demand. I'm looking for any sort of input on what would increase the chance of general adoption, because I really can't afford to spend a ton of money on printing with no expectation of recovering the costs. In addition to design and implementation advice, it would be great to hear advice about the business model as well.

[grondilu]

For physical exchanges, just use gold.

[Ian Maxwell]

Sure, your coffee will be 0.04 grams, please.

No way can I break a gram, I'm sick of people coming in here with their large bills!

[Bruce Wagner]

SunAvatar,

I am very very very interested in what you're putting forward.

I've been thinking about this concept --- of a Bitcoin backed paper currency --- almost since I first learned about Bitcoin!

While on vacation in Spain last month, my family can attest to the fact that I subjected them to all my brainstorming on it... and even forced them to give me feedback on my ideas.

A simple paper currency, backed by real Bitcoin....  Imagine how easy to sell some to friends.   Imagine how easy for small merchants and shops to accept them... and redeam them.

Counterfeiting is the main concern, I would imagine. 

I feel strongly that --- in the spirit of Bitcoin --- only the minting fee would be something I would support.

Also, I would not be involved nor support any such system unless it guaranteed 100% Reserve.... and agreed to independent surprise audits at any time.

It should be run by a trusted not-for-profit, such as The Bitcoin Foundation.... which we are in the process of forming. 

I'm very interested in what you know about minting paper currency... and what sort of system could be used to prevent counterfeiting.

One idea I had was a system based on the "group coupon" concept of validation.... where anyone could call a specific telephone number to VERIFY the authenticity of that "coupon".   However, I haven't figured out how that could be used on a paper currency which could be used over and over repeatedly.   Also, the added cost of operating a call center to verify authenticity....  Who pays for that?

Anyway, tell me what you know about minting paper currency.

In case I miss it, please cc via email too:  bruce@onlyonetv.com

[grondilu]

Sure, your coffee will be 0.04 grams, please.

If bitcoin take off, gold won't worth that much as it will be less nessary as currency.

Moreover, it's not so difficult to mint coins with very little gold on it.  A thin layer of gold on some other material will do.

PS.  Oh, and I forgot to mention that silver exists too, for small change.

[Bruce Wagner]

Sure, your coffee will be 0.04 grams, please.

If bitcoin take off, gold won't worth that much as it will be less nessary as currency.

Moreover, it's not so difficult to mint coins with very little gold on it.  A thin layer of gold on some other material will do.

PS.  Oh, and I forgot to mention that silver exists too, for small change.

The currency we're talking about has nothing to do with gold or silver.  It's backed only by 100% real Bitcoin.  I think paper would be the best material to make it out of --- to keep the minting overhead down.

[grondilu]

There is no way you can prevent the counterfeiting of a physical stuff.  Unless it is based on a rare physical element.


Also, what do you mean exactly by "backing"?  Who would guarantee that your paper can be turned into bitcoins?  Banks?  States?

I have nothing against a private corporation guarantiing such a backing, based on its reputation.  But it would be fiat money.  I might use some but I'd prefer use a precious metal based money.

[Insuremeplz]

I'm maybe 3 days into learning about bitcoin and tbh don't even 100% understand it yet, but I can guarantee you that if I could buy physical currency I'd be handing it out by the dollar just for the novelty of it. I think it would be an awesome way to get people interested.

[Bruce Wagner]

I'm maybe 3 days into learning about bitcoin and tbh don't even 100% understand it yet, but I can guarantee you that if I could buy physical currency I'd be handing it out by the dollar just for the novelty of it. I think it would be an awesome way to get people interested.

I totally agree!   

And I know several shop owners and small businesses that would begin accepting it immediately --- just on my word that I would redeem it for them.

Now....  I guess I need to research "minting" (printing) your own paper currency.

If I find a printing method that I'm convinced would work, I'll begin doing this tomorrow. 

And yes, it would be backed 100% in Bitcoin reserves, based on my personal reputation ...and the reputation that The Bitcoin Foundation not-for-profit would build.

It's not even a stretch.  No one knew Jed the day he launched MtGox.com

[Bruce Wagner]

By the way...  Any thoughts on this item?

http://www.chrismartenson.com/forum/defendant-convicted-minting-his-own-currency/55031

Another case for using paper, I should think.

[grondilu]

By the way...  Any thoughts on this item?

http://www.chrismartenson.com/forum/defendant-convicted-minting-his-own-currency/55031

This story is just outrageous.   This guy has nothing to do in jail.

And yet I'm sure some rapists or murderers will go out of jail before he does.

[Jaime Frontero]

hmmm...

what about this:

a little coin-shaped USB thumbdrive-type gadget, with just enough storage for a couple of blocks and an implementation of SHA-256?  and a tiny CPU of course.

you carry it around loaded with whatever - say, 100 BTC - on a part of your blockchain that has been reserved, or 'frozen', from participating in normal transactions.  but those blocks are known to be frozen across the network.  you give it to somebody, they plug it into their phone (or netbook or iPad) to verify that those frozen block(s) have adequate BTC for the transaction being contemplated.

then, once they've verified it against the blockchain residing on their device, you plug it into *your* device, authorize the transfer of X-number of BTC (which changes your frozen blockchain for later upload), they plug it back into their device and the transfer is completed.  their blockchain updates, removing the freeze from that quantity of BTC known to the network as having been frozen.  for somebody with whom you've established trust, the first step (them plugging it in to verify) could easily be eliminated.

cash!  ...and p2p off the internet.

[grondilu]

Well yeah, or a smartcard.  That would be nice, but AFAIK, noone has ever compiled bitcoind for such a device.

[Jaime Frontero]

Well yeah, or a smartcard.  That would be nice, but AFAIK, noone has ever compiled bitcoind for such a device.

BSD runs on *anything* - or so they're fond of saying... 

[Bruce Wagner]

Those things are all coming.   

On Saturday, in fact.   

Basically, the Bitcoin for Android wallet app.  That will be (effectively) the same thing.

It will work off the network as well as on the network. 

But this proposal is all about the hyper - Low Tech.... paper money.

How can I find the best private company that can print me some of my own paper currency (or "credit receipts", technically)...?

What company prints those other private paper currencies, like BerkShares and Detroit Bucks, etc...?

[Jaime Frontero]

Those things are all coming.   

On Saturday, in fact.   

Basically, the Bitcoin for Android wallet app.  That will be (effectively) the same thing.

It will work off the network as well as on the network. 

But this proposal is all about the hyper - Low Tech.... paper money.

How can I find the best private company that can print me some of my own paper currency (or "credit receipts", technically)...?

What company prints those other private paper currencies, like BerkShares and Detroit Bucks, etc...?

straight paper can be counterfeited - in fact, so can gay paper. 

Bitcoin cannot be counterfeited.  and just about everybody on earth has a phone - soon, everybody will.  and integrating a tiny, purpose-based printer into a phone isn't terribly difficult.  they already exist.

all it has to print out is QR code.  there. that's your paper money:  little squares of print-on-demand QR code.

[steelhouse]

I don't think this would work with physical.  I mean you can do it and it might last for a century but in the end it will fail.  It failed with the gold and the goldsmiths.  Suppose there is a 100,000 bills backed by 100,000 there is no real way to verify the bitcoin and who owns them, thus you would be taking the banks word that the bitcoin backs the currency.  Sooner or later someone is going to cheat and the bitcoins won't be there.  Just ask FDR in 1933 or Nixon in 197X.  There is the moral hazzard no one is responsible, so what happens is the paper currency crashes.

But this is no problem, why not just trade real bitcoins in the future you could push a button and beam someone a bitcoin and it would not get your hands dirty.  bitcoin is far better than physical.  Assuming the whole system does not come down.

[ryepdx]

But this is no problem, why not just trade real bitcoins in the future you could push a button and beam someone a bitcoin and it would not get your hands dirty.

I personally think this is the best way forward. If we can create a cheap throwaway physical client, that would solve the "real-world bitcoin" problem in a way that should satisfy purists.

[silvercardbank]

a physical coin is needed as a stepping stone or bridge to bring regular folks over to bitcoin.
a silver coin is the best possible way of doing this that has no dollar amount marked on it and should look exactly like the bit coin logo .
being 99.9 % fine silver of a certain weight could be exchanged at the market rate against any currency including bit coin and could not be counterfeit.
They would be valuable in there own right and a useful tool in marketing & advertizing to friends.
not necessarily designed to be spent in stores for coffee and the like, but definitely exchangeable and liquid enough to change into cash at any coin shop or pawn dealer..
i know that i for one would spend my electronic bit coin to buy them for investment purposes and as a second option of storing  my accumulated digital value.
silver minted coins always command a higher price than the spot or melt value and thats how the mint makes its profit. putting labor into raw silver and making a finished product.
we already have enough paper to trade, so use that to turn attention to bitcoin it,s quite simple.
instead of stamping www.bear-river-dollar.com right across it in red ink ,you stamp the bit coin website.
every time you spend cash you tell people about it.
when the bitcoin community has accumulated enough silver between them, we will be in a position to issue our own bitcoin plastic instead of mastercards and visas, as mastercard and visa will be wanting to rent your technology and not you renting theirs at point of sale.
only discovered bitcoin this week and putting links down here  www.bear-river-dollar.com

[grondilu]

a physical coin is needed as a stepping stone or bridge to bring regular folks over to bitcoin.

We don't need to bring "regular folks" to the network.  Screw them.

Bitcoin can be a perfectly valid currency without being accepted by the average Joe.   As long as we have efficient market exchanges, we don't need everyone to even know about bitcoins.

Bitcoin is not a religion nor a political movement.  We don't have to care if people don't like it.