MasterCoin Proposal to Make Bitcoin More Feature Rich

August 1, 2013

MasterCoin protocol Bitcoin

Complete MasterCoin Specification Released

J.R. Willett, aka dacoinminster, is a Seattle-based software engineer and Bitcoin expert. Like many in the Bitcoin community, he sees a future where Bitcoin is adopted by the mainstream for a wide variety of purposes. To achieve that goal, Willett believes that there’s more work to be done around the Bitcoin protocol.

After 2 years of research and discovery, Willett has released a complete specification for building a protocol layer on top of Bitcoin, similar to how HTTP runs on top of TCP/IP. He calls the new protocolMasterCoin.

The coins of the new layer have
•   Additional security features to make your money much harder to steal
•   Built-in support for distributed betting (no need to trust a website to coordinate bets)
•   Capability to hold a stable user-defined value, such as an ounce of gold or U.S. Dollar, with no need to trust a person promising to back up that value

The name of the new protocol layer is “MasterCoin” and it is 100% message-based, meaning that it encodes all its protocol data as hidden messages in the block chain which have special meanings, such as placing a bet, or transferring MasterCoins to another address.

Once you own MasterCoins, you have the building blocks for creating GoldCoin, USDCoin, EuroCoin, and any other real-world asset. These child currencies will then be “meta stable” (holding their values as long as they remain sufficiently backed by MasterCoins held in escrow). Their target values are maintained by protocol actions which control the available supply.

Here is the complete MasterCoin specification.

Willett is inviting early adopters to purchase MasterCoins by sending Bitcoins to the Exodus Address: 1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P. These funds will be used for development of software implementing the MasterCoin protocol.

For more information, read or join the discussion at bitcointalk and Reddit.

Below is a video of J.R. Willett speaking on a Bitcoin expert panel in May 2013.

Willet or Won’t It? (Mastercoin)

Yesterday, JR Willet announced official launch of Mastercoin

which includes an interesting “investment” opportunity. Send coins to the “exodus address” and you will get 100x that amount of master coin. Mastercoins aren’t worth anything now, but neither were bitcoin back in the day, or litecoin when it was launched, or… that’s the general idea.

IIUC, there will only ever be as many MasterCoins as are sent to the exodus address by September 1 2013 (reedit comment from above thread). So if master coin is a success, the initial investors should win big. Well… To be honest, I don’t understand how exactly they win big yet, but I haven’t given up on understanding the whitepaper. Even if the scheme fails, I think the ideas are important, so I am devoting some time to building up real intuition.

TLDR: It sounds like a scam, but I don’t think it is. But that doesn’t mean it will work. But I hope it does! But it has some problems.

The Mastercoin project is in the same spirit as Colored Coins (http://www.bitcoinx.org/) and, less directly, ripple and open transactions. Build services on top of bitcoin where non-crypto assets can also be traded. Open Transactions might fulfill all the requirements without the added complexities of Bitcoin, and without being a burden on its blockchain.

Overall I like the direction Colored Coin is taking better, but the colored coin development effort seems to be stalled in disarray at the moment, perhaps allowing MasterCoin to take center stage.

My concerns with Mastercoin are pretty much summed up by this thread.

http://www.reddit.com/r/Bitcoin/comments/1jftts/official_launch_new_protocol_layer_starting_from/cbeexys

It comes down to… why? Why get behind MasterCoin, and place faith in the centrally managed system and the development effort of Willet, when there is Colored Coin, and Ripple, and… Open Transactions

That being said, while my brain doubts, my heart likes. I like the whitepaper, and I like Willet.

Has Bitcoin gone legit?

Image

Bitcoin is now money as defined by the US legal system and can now be accepted by various local municipalities thanks to a new software system called  E-Gov Link.

The so-called “cryptocurrency” once best known for providing anonymity to those who buy drugs on black-market websites is suddenly the hottest new toy of venture capitalists and entrepreneurs. The Bitcoin economy has risen into the billions of dollars, and now everyone wants in on the action.

The currency that was once celebrated as a counterculture, underground phenomenon has — dare we say — gone mainstream. So much so that government is now taking a closer look at Bitcoin, which is not backed by a nation and is available only digitally.

Some financial experts and Bitcoin enthusiasts say government intervention is necessary to legitimize and protect the currency. But others are worried that Bitcoin will lose its luster as the public sector gets involved.

 A Texas man accused of running a bitcoin Ponzi scheme cannot dodge securities fraud claims by denying that the virtual currency is money, a federal judge ruled Tuesday.

In court last week, Mr Shavers argued that his bitcoin investment plan (i.e, Ponzi scheme) was not under the jurisdiction of the SEC because Bitcoin is not money, and is not part of anything regulated by the the Securities and Exchange Commission or the United States legal system.

Wrong.

So says, Judge Mazzant in a four-page order the US Magistrate found that federal securities law gives the court subject matter jurisdiction over the case. “Bitcoin is a currency or form of money,” the judge wrote. Mazzant added in support of his finding that investors expected a profit and that a common enterprise existed.

Source: Court House News

In other news, Bitcoin can now be accept by various local municipalities.

A small e-government services firm called E-Gov Link has heard this dual sentiment more than most. When the Cincinnati-based company announced this spring that acceptance of Bitcoin payments was an option within the back-end software it provides to local governments, strongly worded opinions poured in immediately. There were mixed feelings about the idea that a local government could opt in on the new feature, which would accept Bitcoins from citizens when they pay for permits, parking tickets and other common services.

“People’s reactions ranged from those who said ‘this is the beginning of the end’ — real paranoia — to people who said, ‘This is great because the best way to prevent the federal government from outlawing Bitcoin is if local government uses it,’” said Jerry Felix, vice president of software development at E-Gov Link.

source: http://www.governing.com/blogs/view/gov-military-gang-software-bitcoin.html

Is It Time to Start Using Bitcoins?

Bitcoin and the Bitcoin Network >>>

Bitcoin and the Bitcoin Network >>>

What is bitcoin?

Just like email was created to send messages from person to person around the world for free, bitcoin was created to send money from person to person around the world for free.

And just like the email system works with email addresses and emails, the bitcoin system works with bitcoin addresses and bitcoins.

While on the email system the format of an address is name@example.com and you have to type this on the “To:” space to be able to send an email, on the bitcoin system the format of an address is a 30 character code like 1JqjAHgjCmNCRUHWKHrtUcvCofhWt9FTSW and you have to copy this on the “To:” space to be able to send a bitcoin.

To start using email you need to go to an email service like Gmail, open an email account, and start sending and receiving emails. On the bitcoin system you need to go to a bitcoin service like Coinbase, open a bitcoin wallet, and start buying, selling, sending, and receiving bitcoins.

Email is something you can create and store in your “Sent emails” box infinitely, and the receiver can also store, copy, and resend endlessly. Bitcoins are something there is a limited amount of and when you send one it goes away from your wallet just like a dollar bill would from your physical wallet. The receiver can store it in his wallet or send it away, but when he does send it away it will be deleted from his computer. Thus, unlike emails, bitcoins are finite and unique. In this way they are more like gold than email; there is a limited amount and they cannot be copied or replicated.

These last two characteristics, finite and unique, are what make bitcoin ideal to be used as a currency. The fact that it is electronic and used only on the internet is what makes it a digital currency.

This is a video that explains bitcoin produced by some of the original bitcoin developers and engineers:

Is it time to start using bitcoins?

As adoption of bitcoin accelerates, its use case and functionality may become more compelling for a growing number of merchants, consumers, traders, and investors. Although it’s not yet suitable for everyone, the following are some features that make bitcoin attractive:

It is a valid currency: While many are still analyzing if bitcoin will be a valid currency or not, I say it is a store of value, an exchange mechanism, and a unit of account, therefore it is already a currency.

A store of value: Although the price of bitcoin has been volatile, since inception it has been gaining value and already has a market capitalization of more than $1 billion. As bitcoin users grow globally its function as a store of value will be reinforced.

A unit of account: Since bitcoins can be used to store value, this value can be compared with the value of any other currency or merchandise. This makes it a valid unit of account to price products and services and to measure cash flows, among other things.

An exchange mechanism: Since it is easy to transfer, bitcoin can be exchanged for products and services or used to payoff debts if the parties agree. Therefore, it can be used as an exchange mechanism.

It is a global network: Just like email, anybody in the world with a computer or a mobile device with internet access can have a bitcoin address. With a bitcoin address and a bitcoin wallet it is possible to send and receive bitcoins to and from anybody and anywhere in the world.

It is decentralized: The bitcoin network is the sum of people transacting in bitcoins with one another directly on the internet. There is no central server or entity, like a government, central bank, corporation, or foundation that controls the network.  Therefore it cannot be manipulated like normal currencies issued by decree and controlled by governments.

It is free: Because it is an open source protocol and it is decentralized its use is free. To store, send, and receive bitcoins has no cost. This must not be confused with the purchase and sale of bitcoins. Bitcoins have value so to buy bitcoins you need to pay for them!

Wallet services: To be able to use bitcoins there are wallet services that are easy to subscribe to and provide the functionality to transact with bitcoins.

Send and receive: The basic functionality of a bitcoin wallet is to manage a bitcoin address so you can send and receive bitcoins. You can see your bitcoin balance and the transaction history so you can track your bitcoin activity.

Buy and sell: Since bitcoins can be stored and transferred they can also be bought and sold. You can do this by transacting with someone directly and then sending or receiving the bitcoins or you can use a bitcoin exchange.

Connected to the dollar system: Some bitcoin wallet services may be linked with your regular dollar based bank account. This makes it easier to convert bitcoins to dollars and vice versa and to move money between your wallet and your account.

Global exchanges: To facilitate the exchange of bitcoins with other currencies there are many global exchanges like Mt. Gox or Bitstamp where bitcoin users can trade them for different currencies like dollars, pounds, yens, or euros.

Sell and get paid: Once you have a bitcoin address it is easy to post it on your website or send by email so other bitcoin users can send you bitcoins in exchange for your products and services. You can also use a bitcoin wallet provider that offers merchant services so you can install a “buy” or “pay” button on your site so you can get paid to your wallet directly.

What are the risks of using bitcoin?

Because it is a new technology in its early stages, bitcoin has certain risks associated with it:

Volatility: Since inception bitcoin prices have been very volatile. Recently the bitcoin price went up from $70 to $260 and then down to $50 again to be traded now at around $100. This happened in a matter of weeks so it is still very volatile to use it as a savings or stable investment mechanism. For now it seems to be suited for very small investments and short term trading. Bitcoin is not suitable for the risk averse because there is a great risk of permanent loss of capital.

Theft: Although the majority of bitcoin services like wallets and exchanges have established bank level security in their systems, some are still not very sophisticated and may be subject to hacker attacks and theft. This is a serious risk in the bitcoin network because once bitcoins are transferred they cannot be recovered.

Trust: Related to the above and because bitcoin has been around for only a few years, all bitcoin services are mainly start-ups or companies with no significant capitalization. This poses an additional institutional risk as the majority of these services wouldn’t be able to respond to customer claims like theft, fraud, or errors.

Accessibility: Many bitcoin exchanges and wallet services have been affected by hackers with denial-of-service attacks (also known as distributed-denial-of-service attacks – DDoS). These are not internal thefts of bitcoins or information, but massive attacks that overload their servers. These attacks make these services unavailable for long periods of time so there can be little or no access to your wallet and thus the ability to withdraw money or transfer bitcoins out of your account.

Conclusion:

Bitcoin is still a new concept, but it’s in the process of being understood and adopted by a growing number of consumers, merchants, and investors around the world. As this process continues the reasons to start using bitcoins are becoming more compelling.

There is also increased investment in the sector and many new finance companies are offering more professional and consumer friendly solutions for everyday use.

Bitcoin is not for everyone at this point because it still poses significant technological and financial risks, namely the permanent loss of capital. However as these risks are mitigated, more consumers, merchants, and sophisticated investors should start learning about and using bitcoin.

How Bitcoin Works

The bitcoin logo

By Investopedia Staff

Bitcoin is a digital currency that exists almost wholly in the virtual realm, unlike physical currencies like dollars and euros. A growing number of proponents support its use as an alternative currency that can pay for goods and services much like conventional currencies. Bitcoin is the first and easily the most popular cryptocurrency, or currency that uses cryptography1 (see “Definitions and Key Concepts” at end of article) to control its creation, administration and security.

Bitcoin was set up in 2009 by a mysterious individual or group with the pseudonym Satoshi Nakamoto, whose true identity is yet to be revealed and who left the project in 2010. It rocketed to prominence in 2013, when the value of a Bitcoin soared more than 10-fold in a two-month period, from $22 in February to a record $266 in April. At its peak, based on more than 10 million bitcoins issued, the cryptocurrency boasted a market value of over $2 billion.

Bitcoin Versus Conventional Currencies

Bitcoin differs from conventional currencies in some very fundamental ways, as noted below (for the sake of simplicity, we use the U.S. dollar as a proxy for conventional currencies).

  • Bitcoin uses P2P technology without a central authority: Bitcoin is a decentralized currency managed by peer-to-peer technology (P2P2), without a central authority. All functions such as Bitcoin issuance, transaction processing and verification are carried out collectively by the network, without a central supervisor or agency to oversee operations. In contrast, a conventional currency is issued by a central bank as part of its mandate to manage national monetary policy. In the U.S., only the Federal Reserve has the power to issue dollars; it is also the central authority that conducts monetary policy, supervises banks, maintains financial system stability, and provides financial services to depository institutions.
  • Bitcoin is primarily digital: Although physical Bitcoins are available from companies such as Casascius and BitBills, Bitcoin has been designed primarily to be a digital currency. Physical Bitcoins are somewhat of a novelty, and the very idea of a tangible form defeats the purpose of a digital currency, according to the most ardent supporters of the concept. Conversely, your dollars exist primarily in physical form; the balances that you hold at your bank and online brokerage can be converted into physical dollars within minutes if you so desire.
  • Bitcoin has a maximum 21 million limit: The total number of Bitcoins that will be issued is capped at 21 million. The Bitcoin “mining”3 process presently creates 25 Bitcoins every 10 minutes (the number created will be halved every four years), so that limit will not be reached until the year 2140. While Bitcoin critics argue that the maximum limit is not large enough, supporters maintain that since each Bitcoin is divisible to eight decimal places, the number of fractional Bitcoins (called “satoshis”) – at 21 x 1014 – will be more than enough for all conceivable applications. Conventional currencies, on the other hand, can be issued without limit.
  • Bitcoin is a complex product: The concepts of cryptocurrencies in general are abstruse and abstract, and understanding how and why Bitcoin works requires a fair degree of technological knowledge.
  • Bitcoin has limited acceptance: It has limited acceptance so far and cannot be used at many brick-and-mortar storefronts, although that may eventually change if it continues to gain traction. The dollar, on the other hand, has near-universal acceptance as the world’s global reserve currency.
  • Bitcoin transactions have limitations: A Bitcoin transaction can take as long as 10 minutes to confirm. Transactions are also irreversible and can only be refunded by the Bitcoin recipient. These limitations do not exist with conventional currencies, where debit and credit transactions are confirmed within seconds; certain transactions can also be reversed for valid reasons by the originator, without having to rely on the recipient’s largesse.
  • Bitcoin balances are not insured: This means that if you lose your Bitcoins for any reason – for example, your hard drive crashes, or a hacker steals the digital wallet in which your Bitcoins are stored, or the Bitcoin exchange where you held a balance went out of business – you have little recourse. Currency balances held at banks, on the other hand, are insured against certain events such as bank failure by agencies like the Federal Deposit Insurance Corporation in the U.S.

How Bitcoin Works

Let’s say you want to test the Bitcoin waters. The first thing you need to do as a new user is install a digital wallet on your computer or mobile device. This wallet is simply a free, open-source software program that will generate your first and subsequent Bitcoin addresses. There are three types of wallets – a software wallet (installed on your computer), a mobile wallet (which resides on your mobile device) or a Web wallet (located on the website of a service provider that hosts bitcoins).

Bitcoin uses public key encryption4 techniques for security. This means that when a new Bitcoin address is created, a cryptographic key pair consisting of a public key and private key – which are essentially unique, long strings of letters and numbers – is generated.

Each address has its own Bitcoins balance, so all you need to do is acquire a number of Bitcoins that will be held at one of the addresses in your wallet. You can acquire Bitcoins through a number of ways – by buying them from a Bitcoin currency exchange such as Mt. Gox or Bitstamp, or through a service like BitInstant that enables fund transfers between Bitcoin exchanges and supports various payment mechanisms.

Note that all Bitcoin transactions are stored publicly and permanently on the Bitcoin network, which means that the balance and transactions of any Bitcoin address are visible to anyone. Experts therefore recommend that Bitcoin owners create a new address for each transaction as a means of ensuring privacy and enhancing security.

Once you have created a Bitcoin address and have acquired Bitcoins, you can use them for an online transaction with a company that accepts Bitcoins as a payment mode. The company will send you the Bitcoin address to which you can send your Bitcoin payment. You direct the payment to that address; while the transaction takes place within seconds, verification can take 10 minutes or longer.

All Bitcoin transactions, without exception, are included in a shared public transaction log known as a “block chain”. This is to confirm that the party spending the Bitcoins really owns them, and also to prevent fraud and double-spending.

Why does transaction verification or confirmation take so long? Because the complex algorithms involved in Bitcoin mining (see description below) take time to solve, even with immense computing power at one’s disposal.

An Example of a Bitcoin Transaction

Let’s assume you want to make an online payment to a company – call it BitChamp – using 5 Bitcoins that you have in an address in your digital wallet. Here are the steps in the transaction:

  1. BitChamp creates a new Bitcoin address and directs you to send your payment to it. This creates a private key (known only to BitChamp) and a public key (available to you and anyone else). Note that just as a seller does not need to know your physical identity if you pay cash, you do not need to disclose your real identity to BitChamp and can remain anonymous.
  2. You instruct your Bitcoin client (the free Bitcoin software you first installed on your computer) to transfer 5 Bitcoins from your wallet to the BitChamp address. This is the transaction message.
  3. Your Bitcoin client will electronically “sign” the transaction request with the private key of the address from where you are transferring the Bitcoins. Recall that your public key is available to anyone for signature verification.
  4. Your transaction is broadcast to the Bitcoin network and will be verified in a few minutes. The 5 Bitcoins have been successfully transferred from your address to the BitChamp address.

Note that only the first two steps involve action by the seller and you respectively. The latter two steps are automatically executed by the Bitcoin client software and Bitcoin network. As well, storing the private key attached to an address safely and securely is of the utmost importance; otherwise, anyone who obtains the private key can control the Bitcoins at that address and use them fraudulently.

Bitcoin Pros and Cons

Bitcoin has a number of advantages:

  • As the first cryptocurrency to capture the public imagination, Bitcoin has “first mover” advantage and a head start over the competition.
  • Total issuance is limited to 21 million, so it is unlikely to be devalued because of the prospect of a massive influx of new bitcoins.
  • As a decentralized currency, Bitcoin is free from government interference and manipulation.
  • Transaction costs are much lower than with conventional currencies.

On the flip side, Bitcoin’s disadvantages include:

  • The price of a Bitcoin has been increasingly volatile, making it difficult to assess its real value and increasing the risk of losses for investors in the cryptocurrency.
  • The relative anonymity of Bitcoin may encourage its use for illegal and illicit activities such as tax evasion, weapons procurement, gambling and circumvention of currency controls.
  • The fact that bitcoins exist primarily in digital form renders them vulnerable to loss.

Conclusion

Bitcoin has made significant progress in its adoption and usage since it was unveiled in 2009. Its evolution over the next few years will determine whether this leading cryptocurrency will become an integral part of the global financial system, or whether it is destined to remain a niche player.

Definitions and Key Concepts

Cryptography refers to the practice and technique of using encryption for secure communication and transmission of data and information.

2 In a P2P network, a group of computers is connected to enable the sharing of resources and information by users, and there is no central location for the network. This is diametrically opposed to a typical client-server network, where the central server controls the level of access by users to shared network resources. Popular applications of the P2P concept are Skype and file-sharing services such as BitTorrent.

Bitcoin mining refers to the computationally-intensive task of generating Bitcoins. While any computer can be put to the task of Bitcoin mining by using a free mining application, in reality a great deal of computing power is required to solve the extremely complex algorithms involved and to share those solutions with the entire Bitcoin network. The mining process is quite complicated and involves advanced concepts such as cryptographic hashes and nonces.

In simple terms, Bitcoin miners use powerful computers to track and compile pending Bitcoin transactions every 10 minutes into a new block. These miners then set to work doing the intensive number-crunching required to verify all the transactions in the block. This is a competitive process, and the first miner to solve the algorithms and verify the transactions transmits the results to the entire Bitcoin network. Upon confirmation by the rest of the network, the block is then added to the block chain. Each block includes a certain number of Bitcoins in a “coinbase” transaction that is paid out to the successful miner. This reward was set at 50 Bitcoins when the system first commenced operations in 2009, but was halved to 25 Bitcoins in November 2012, and will reduce by 50% approximately every four years.

Public key encryption combines a public key and a private key. While the public key is available to anyone, the matching private key is stored securely in the digital wallet and is generally password-protected. Each Bitcoin transaction is signed by the private key of the initiating user, providing mathematical proof that it has indeed originated from the owner of the address, and preventing the transaction from being altered once it has been issued. Since the key pair is mathematically related, any data or information encrypted with a private key may only be decrypted or deciphered with the corresponding public key and vice versa.

Double-spending means spending the same digital currency twice, something that is impossible with physical currencies.

Also From Investopedia:

Bitcoin May Be The Currency Of The Future

Can Internet Technology Destroy the Financial Monopoly?

Will bitcoin break up the big bank monopoly destroying our country?

Global Research, February 14, 2013
bitcoin-225

The big banks are destroying our economy … and our country.

They are literally run as criminal enterprises (even the mainstream media now admits that), they own the politicians, and they are encouraging the worst, most authoritarian tendencies of our government.

As the former overseer of the bank bailouts noted recently, the big banks are “still holding a gun to our heads“, and – as long as they rule the roost – things will not improve.

But – as the Bank of England’s Chief of Financial Stability pointed out recently – Internet technology will break up the big bank monopoly.

Bitcoin is the most exciting current trend in using technology to chip away at the stranglehold of the big banks over our wallets and our lives.

Open Democracy points out:

A lot of people are busy trying to figure out how to make banks better. There is anger about what has gone on and puzzlement about the apparent inability of anyone to start doing something about it. [W]e seem to be frozen in a technical discussion of bank separation, capital adequacy, product authorisation, remuneration and incentives, or taxation. All worthwhile subjects in their way, but guaranteed to keep the sans-culottes at home.

So let’s ask another question. Why do we need banks – what are they for?

***

Which brings us to Bitcoin. Launched a couple of years ago and still in its infancy, it calls itself a peer-to-peer virtual currency. This means that instead of a bank, the collective network of users maintains a complete encrypted record of bitcoin (“BTC”) transactions and how many BTC each user has. Payments involve a public-private key exchange so that only valid identities can participate and each BTC can only be transmitted once. Because both parties have the complete data set, no external trust system is required. It’s a mechanism that removes the need for us to transact through banks.

At a macro level, the total number of BTCs in issue will approach a known fixed limit at a geometrically reducing rate (as in Zeno’s paradox, never quite reaching it) and expansion of the money supply takes place through the collective computation of the network. The advantages are claimed to be resilience, safety, absence of transaction costs, decentralisation, international acceptance, and no debasement. Because no physical currency is involved, arbitrarily small decimal units of BTC are possible. If convenient, BTC units could be subdivided or consolidated merely by a network-agreed software change. The monetary authority is therefore the network of users and their machines, which once it has reached a reasonable size becomes hard for even a super-computer user to dominate.

Even if we no longer need banks to store and handle our money, the BTC system, like any other currency, allows credit creation through fractional reserve banking. The BTC money supply could therefore exceed the number of BTCs in issue. However, without a BTC central bank, the imprudent lender may well go bust. It will be interesting to see how regulators deal with mainstream banks that acquire significant assets and liabilities in BTC. They might outlaw the BTC operations of regulated entities, but could they really close down an unregulated global user network?

It remains to be seen whether this is an advance of democratic self-determination. At this stage I would be optimistic, especially if Bitcoin’s proof-of-concept encourages others to develop distinct, communicating architectures that would create not just a digital currency but a digital currency exchange. There are some fascinating possibilities here:

  1. We may soon not need banks to carry out monetary transactions or keep our money. The benefit in terms of near-zero transaction costs, nearly immediate confirmation of payment (are you still waiting 4 days for your cheque?), reduced credit risk, security and resilience would be immense.
  2. Credit creation becomes an activity not linked to the transaction-handling franchise. It is also no longer underwritten by taxpayers. Inflationary behaviour requires public consent – not the taxpayer or voter public but the public that uses the particular currency.
  3. Because all transactions are peer-to-peer, people can switch their currency holdings at will and costlessly. How much people trade, if at all, depends only their beliefs about the riskiness of the currencies on offer.
  4. If peer-to-peer currency becomes mainstream, governments will have to decide whether to accept it and put the banks out of business, or refuse it and drive it underground. Either way, the relation of state and citizen in economic management is likely to be radically changed.

France has recently granted Bitcoin permission to act as a real bank.

Here’s an introduction to Bitcoin: