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Generally, fiat currencies have a number on them that identifies one paper note with other. Can a Bitcoin backed fiat currency be used or is in operation?

Let's say we have gold and their equivalent(approx.) as fiat currencies in the market.

So can it be possible to have a currency in offline market that correspond to bitcoins, so that bitcoins could be more effectively used?

Fakabbir Amin
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    I think you mean to ask either "Is it possible to create Bitcoin based [cash](https://en.wikipedia.org/wiki/Cash) money? or "…[representative money](https://en.wikipedia.org/wiki/Representative_money)?". –– It's a bit confusing that you instead write "fiat" because [fiat money](https://en.wikipedia.org/wiki/Fiat_money) has a specific meaning, i.e. that the money came into existence by decree of a government, which doesn't seem to fit here. Could you please edit your question clarify what you're interested in? – Murch Jan 09 '17 at 13:48
  • I agree with @Murch. It doesn't sound like you are asking about fiat currency at all: https://en.wikipedia.org/wiki/Fiat_money – Jestin Jan 10 '17 at 15:18

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It wouldn't be a fiat currency.

fiat money: money without intrinsic value that is used as money because of government decree

(N. Gregory Mankiw (2014). Principles of Economics. p. 220. ISBN 978-1-285-16592-9)

No government decreed its people to use Bitcoin. Quite the contrary: One of Bitcoin's goals is to take control away from governments, whereas fiat currencies are a means of governments to achieve and maintain control over their peoples' funds.

You appear to mean to ask whether it's possible to distribute banknotes the value of which is backed by Bitcoin which is what I assume to be the question I'm responding to in my answer.

In principle, it's possible.

The banknotes have to be created by an entity which is:

  1. able to create banknotes which are hard to counterfeit and of which it's easy to spot a forged one.
  2. trusted to keeps its promises.
  3. predicted to last a long time.

The 1st point requires advanced knowledge about creating verifiable documents and the ability to keep secrets.

The second point adds the willingness to keep those secrets as well as the willingness to actually pay out money in Bitcoin if asked to and provided banknotes sufficient in value. This means that the entity has to have something to lose.

The 3rd point should be trivial. If the entity disappears after giving out the banknotes, people can't exchange them for Bitcoin.

As far as I can see, these requirements can only be met by states or large companies.

However, even though it's possible, fully backed banknotes are very unlikely to ever appear again. No matter whether they are backed by gold, Bitcoin, or anything else scarce. We live in a world where barely anything is backed. The credit a bank gives you not only isn't backed by some scarce good but also not even backed by banknotes lying in the bank's vault. Yet most people seem to be fine with this.

If people's attitudes shift to more critical thinking about money, of course, partially or fully backed banknotes become more plausible. Such banknotes can be backed by any scarce good. This scarce good very well can be Bitcoin which has great advantages over gold:

  • It's easy to transfer.
  • Reserves can easily be proven to exist without endangering them. And I mean actually to be proven to exist. Not just "Here is a video someone made 10 years ago, look at all those shiny gold bars we totally didn't put in there using CGI." or anything alike.
  • Gold – which is a resource needed for to manufacture certain things (with far lower value than it's being currently traded for, though) – doesn't unnecessarily lie around in vaults.
  • Its volume can't be inflated. There is a huge amount of gold in Earth's crust. If an easy way to mine it emerges, its available volume is greatly inflated, decreasing its value dramatically.
UTF-8
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  • You got my question right. What concerns me is that, today with bank we have online as well as offline transactions. But with Bitcoin we only have online transaction. This could be a drawback in case of a natural disaster where access to electricity/internet isn't available, also paper currency could get damage in disaster but doesn't need any other resource to act as a medium of exchange. Which I think could only be solved if people themselves could print money in a way that transactions is only possible once. Is something like that possible? – Fakabbir Amin Dec 24 '16 at 15:54
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    First of all, fiat money is losing this advantage as more and more nations make cash payments above certain (astonishingly low) limits illegal. Secondly, no, this is not possible. By allowing each individual to freely print their own money, you're sacrificing exclusivity of production. This means that a bank note can be duplicated (printed twice). The only way to avoid double-spending in such a scenario is to keep track of whether a certain unit of money has already been spent which is exactly what Bitcoin does with its blockchain. Doing this without fast communication is impossible. – UTF-8 Dec 24 '16 at 16:14
  • Hmm. In India, about a month back, demonetisation took place along with other steps, that proves your point about cash payments. But still, it could be awesome if any offline transaction method could be developed without any centralised authority. – Fakabbir Amin Dec 25 '16 at 14:20
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I've recently learned about a product called Opendime. It's a USB flash drive which combines some entropy on the device with entropy fed to it to generate a key pair.

After initialization, the receiving address can be read via USB, allowing for bitcoins to be loaded onto the device and verification of the current balance, but the private key is only revealed after unsealing the device by breaking off part of it.

Thus, if you trust the device to work as advertised, you could safely accept the device as payment for the amount on its address because it couldn't have been spent as long as it remains unbroken.

Disclaimer: I've held one in my hands once, I can't vouch that they work as advertised.

See: https://opendime.com/faq

Murch
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  • Something very new to me and a brilliant concept, hope something much better could be unleashed. But I think it would be adding extra cost to make usb and handling too many usb at once. Specially when critics blame bitcoins for energy sucking in terms of computation. – Fakabbir Amin Jan 13 '17 at 13:30
  • @FakabbirAmin: Remember, you could transfer the Opendime multiple times and/or increase the amount it is storing before it is unsealed. – Murch Jan 13 '17 at 17:20