[Retric]

The USD is already a digital currency. The Fed keeps a ledger of how much USD every bank has and transactions between banks, which enables banks to go back and forth between hard cash and digital currency. Note the Fed does not know how much each account has but that's the banks job.

From a banks perspective there is no reason to change things. They can trust checks from random people as long as the Fed clears the transaction between them and Bank X at the end of the day there in the clear.

[dllthomas]

It's partly digitized. There's still quite a bit of shipping dollars around.

[Retric]

There are also physical Bitcoin's: https://www.casascius.com/

You could argue that the physical bitcoins simply represent digital ones but the same can be said for USD as they are numbered. Coins are not currently numbered but represent a small fraction of the overall money supply.

http://www.wheresgeorge.com/wild.php

[dllthomas]

You don't ever need to ship physical bitcoins, though. You can just digitize and transfer them. Which is preferred can be decided on the fly, which is quite a different situation than USD.

Personally, I'm not very convinced that physical bitcoins will really be meaningful: 1) cost of production is probably large compared to transaction fees, 2) counterfeiting issues. But I could easily be wrong there.

[Retric]

Ahh, this is the important point USD start as digital currency. When the fed 'makes money' they are not talking about physical objects. (There are other views of the money supply that include IOU's as money but that's something of a side issue and can also apply to bit-coins or stocks when someone shorts it.)

More importantly the physical dollars only go into circulation after removing a digital dollar that already exists.

[dllthomas]

None of that changes the fact that there is substantially more need to ship around physical stores of value with USD than with BTC. It's not just banks, it's every merchant accepting cash.

[Retric]

The inability for cryptocurrencies to do a transaction without an internet connection is a bug not a feature. Still, plenty of people go years without touching physical cash which makes up around 7% of the actual cash in the US. So it's not like Amazon.com or IBM have to use forklifts to move pallets of cash around. Better yet they can write a check for 100 million and the only transaction fee is the wait until the check clears.

PS: Sweden is down to 3% but we have a much larger underground economy which thrives on cash. Even more interesting MintChip is an example of a government backed anonymous digital currency system which supports USD. http://en.wikipedia.org/wiki/MintChip Which suggests cryptocurrencies may not actually make it.