I like what you did there! But face to face transactions is not where the real problem of credit card fraud exists, that is by far and away a problem with internet transactions using credit cards. Also, in a face to face credit card transaction the merchant can require photo ID and compare signatures if they want, affording another level of protection for themselves.
But as far as electronic currency and face to face transaction, if I was at the grocery store for example with a basket full of food, that would not be an inconsiderable amount for the merchant to potentially lose and I most certainly would not have time to stand around waiting for confirmations, stuff could be melting. BTC and LTC are simply not suitable for this kind of transaction in their present form.
Does your grocery merchant require you to pay with credit card 30-180 days before allowing you to take delivery of the food? It the utility of virtual currency exceeds the rate of fraud it will be adopted. Fraud doesn't have to be zero. Actually trying to achieve that goal is likely futile and that system will lose out to one which is "good enough".
But you are right, it comes down to how often double spends cost them money. But human beings while generally not very smart, tend to be very clever, and if they can figure out how to get away with double spend scams even on an irregular basis they will.
If humans can figure out how to use stolen, skimmed credit cards even on an irregular basis they will. If humans can figure out how to lie about making a purchase (so called "friendly fraud) they will. The reality is that they do both of these, everyday. However the utility is worth more than the inevitable credit card losses and so merchants continue to use them.
Just as an aside, have you ever tried to reverse a credit card transaction? First the bank will demand that you work it out with the merchant, which while fair enough, doesn't always work out. If you go back to the bank and say that didn't work they make it a pain in the arse for you to get your money back. You can sometimes do it, but it isn't remotely easy. Depending on how exactly the transaction went down, the merchant can minimize the likelihood of having it reversed.
I have reversed plenty and it wasn't even remotely that hard. Called the bank told them I tried resolving it with the merchant and the merchant wouldn't. Bank get me conditional credit the same day and halted any finance charges (there were none but if there were they stop once dispute opens). The bank mailed me a document, I signed it and mailed it back and had finalized reversal in about a week. My understanding is that on smaller amounts the banks don't even require signature on chargebacks.
Maybe the real problem with this thread is that I'm dreaming to even imagine that a decentralized pseudo-anonymous electronic currency would ever be adopted for the kinds of circumstances I am talking about. Maybe we are doomed to an electronic currency issued by something more like the world bank or goldman sachs.
No I think crypto-currencies can be used everywhere. It can replace propreitary systems in emerging markets like mpesa, it can be used face to face, it can be used online, it can be used as large value settlements between large organizations. It simply requires some out of the box thinking.