[josephholsten]

You should know that people have been trying reputation-style digital currencies since at least the early nineties. They require a ton of bootstrapping to get anywhere. That's because you end up with a trading system that's looks like a foreign exchange market with 7 billion different floating currencies. And that's assuming only individuals have them, excluding corporations. You'll notice old cypherpunks have a lot of skepticism toward the fiat-currency arguments against bitcoin. We've been trying to make fiat-currencies work. Keeping the rep net up to date is at least as expensive as mining bitcoins, but with none of the hard-crypto backing to the algorithms. And it's way more opaque. That's ideal if you're trying to soften shocks across a national economy. It's less ideal if you've got more self-serving interests than eyes.

Bitcoin isn't perfect. But we can test it, and if it breaks, we'll see quickly. Broken rep-net economies are like building markets on pyramid schemes: people have an incentive to pretend it still works until the damage is orders of magnitude larger than the economy proper.

And I encourage you to investigate what fractional reserve banking looked like in the days of specie-backed-currency. Banks still made loans and kept less than the entire value of their demand accounts on hand. It'll be weird, but there will be an M2 and an M1 in bitcoin, we aren't technically limited to an M0 money supply.