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I've heard a few prominent bitcoiners (Andreeseen, ppl from BitPay) say that currencies such as US Dollars can be "issued" over the bitcoin network. I'm not exactly sure how this is possible, and I don't think this has to do with the exchange rate necessarily. Can someone explain?

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If you are quoting correctly, he is 100% incorrect, and he should've consulted an old white man first.

"Issuance" as defined by economics and more importantly by law is the creation of a liability by the liable. The Bitcoin blockchain is not liable for Federal Reserve debts, in this case US Dollar banknotes; further, the Bitcoin blockchain has no power to create a liability owed by the Federal Reserve; therefore, the Bitcoin blockchain has no power to issue US Dollars.

Now, if it's a slight misquote, that the Federal Reserve could issue USD via a cryptocurrency implementation, that is 100% correct and would be a superior depository management system. Of course, the Bitcoin code would have to be altered and centralized to provide this functionality, but the point remains.

It would be superior for central banks to manage deposits with cryptocurrency implementations because the accounting can be made 100% accurate, and the security is bulletproof until the digital signature algorithm is broken. Costs would plummet, but gov't agencies rarely are concerned with cost...nor revenue for that matter.

  • Anyone can issue dollars with this method by transferring the colored coin. I transfer you a colored coin for $8 because you bought me lunch. You can transfer that colored coin to others and someone else could redeem it for $8 later. In that way, I have issued dollars. – hedgedandlevered Apr 22 '14 at 3:23
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    I guess the problem is the word "issuance" which, as you correctly mention, has legal implications and a very specific meaning in economics. But you do can "transfer" and (up to a certain point) "store" ownership of dollars, shares or whatever via coloured coins, mastercoins and the like. Should a central bank wish, they do could issue a fiat currency piggybacking Mastercoin, with the benefits you mention: clear accounting, cost tracking, etc. BTW, in Ripple we're indeed "issuing" (and destroying) liabilities all the time :) – Joe Pineda Apr 23 '14 at 6:12
  • OK. I think the term "issued" is slightly confusing. I think colored coins are what these specific comments were in reference to. – crazyhorse Apr 25 '14 at 2:21
  • @Gracchus from the context in which the original comments were made, I believe that they were talking about transferring dollars across the bitcoin network without ever really viewing (or exposing yourself to) a value denomination in BTC. So you get the power of the network applied to fiat currencies. An initially confusing concept, to be sure. – crazyhorse Apr 25 '14 at 2:30
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This could be accomplished with "colored coins", the idea being that you are transferred a coin that is tagged in some way, and the tag is exchangeable for something else. This can work with many types of contracts, including property ownership, currency futures, etc.

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