Paper money

We teach that money must be homogeneous, divisible and durable.  It must also be credible.  And politicized central banking can limit credibility.  We also teach that economic freedom means that people can be inventive about ways to dodge crises in their lives.

I can ignore debased currencies and revert to barter and some do, but that's horribly inefficient. 

But free instiutions have also brought us the internet.  Put all of these observations together and you get Bitcoin.

Here is a description from the May 9 Forbes:

The Internet has left plenty of dead and maimed paper-based institutions in its wake. If Gavin Andresen and his underground cadre of cypherpunks have their way, another archaic slice of pulped tree may be next: the dollar.

Bitcoin is a grassroots nonprofit project that seeks to fashion a new currency out of little more than cryptography, networking and open-source software, and Andresen is the closest thing the project has to a director. Bitcoin is not, he explains, just a new way to digitally spend dollars, pounds and yen. ... Bitcoin is different: It wholly replaces state-backed currencies with a digital version that's tougher to forge, cuts across international boundaries, can be stored on your hard drive instead of in a bank, and--perhaps most importantly to many of Bitcoin's users--isn't subject to the inflationary whim of whatever Federal Reserve chief decides to print more money. "Bitcoin is designed to bring us back to a decentralized currency of the people," says Andresen, a 44-year-old software developer and entrepreneur based in Amherst, Mass. "This is like better gold than gold."  As with shiny-metal-backed currencies, Bitcoins derive their value partly through their scarcity, which is defined not by how much can be dug up with shovels but by a cryptographic lottery. Anyone can get Bitcoins without paying cash for them by downloading and running Bitcoin's "mining" program. The machines in Bitcoin's mining network, now in the thousands, compute an encryption function called a "hash" on a set of random numbers, and coins are awarded every ten minutes to whichever miner happens to compute a number below a certain threshold.

That lottery tightly controls how many Bitcoins are created. There are currently close to 6 million in existence. By 2014 there will be about twice that number. Bitcoin's distributed software is set to slow production over time so that there will never be more than 21 million in circulation. "No banker can control it. No evil dictator tyrant can print zillions and destroy the value," says Bruce Wagner, organizer of New York's Bitcoin developer's meet-up.

Of course, the other factor that determines the worth of a currency is whether anyone will accept it in exchange for goods and services. And for Bitcoin, a subculture of geek-friendly merchants is catching on. About $30,000 worth of Bitcoins change hands every day in electronic transactions, spent on Web-hosting, electronics, dog sweaters and alpaca socks.

Also drugs. Particularly illegal ones. Since Bitcoins can be spent on the Internet without the use of a bank account, they offer a convenient system for anonymous purchases. There's no centralized storage of funds, so accounts can't be frozen by law enforcement or PayPal administrators. "Illegal stuff will be a niche for Bitcoin," admits Andresen. "That bothers me, but it's just like any currency. You can't stop dollar bills from being used for the drug trade either. That's an unfortunate feature of any cashlike system." ..

Sounds very geeky, but so did Facebook.

S&P downgrades the dollar and the response has been to scoff at S&P. Bond markets are derided as "bond vigilantes," a usage that smacks of ancient misunderstandings of "the speculators." No, they are facts of life. Name-calling will not stop the creative juices and better alternatives than simply barter or politicized money.