Comment by akrymski

7 months ago

Double spending & verifying identities isn't really an issue in a mutual credit system because credit lines are set between trusted parties. You’re replacing an algorithmic double‑spend check with a social credit check.

The butcher would have to trust the milkman in the real world to extend credit to him. At some point the butcher would go to a lender and borrow USD against the IOUs from the milkman. The lender knows the butcher, but can also evaluate the IOUs from the milkman by evaluating who owes the milkman, etc etc. Based on the level of trust the lender has in the butcher (and his IOUs) the lender can lend some hard USD to the butcher, and sell IOUs in exchange for USD to people wanting to join the network.

USD is also not backed by anything, and relies on trust. The important thing is that someone would be prepared to exchange IOU promises for USD/BTC/GLD - market makers. Demand for IOUs comes from people wanting to access the network.