I have been in contact with some people in Phoenix who would like to set up a local currency in Phoenix, AZ and create a fork of Bitcoin to support it.
What should we do on how the currency is set up... 21m coins, block time, reward per block and all that goes into it.
Geting it started- editing the code, and launch?
Getting more supports?
Local Business Suport?
The benefit of using Bitcoin itself is that the entire ecosystem already exists. There is a variety of clients including lite clients, there are exchanges and a large marketplace of goods and services where bitcoins are accepted, etc.
If the reason you want a local currency is to encourage businesses and consumers to buy local, then there are a number of ways Bitcoin can work for that.
One way I'ld like to see tried is to use a bunch of Casascius physical coins or Bitcoin Giftcards:
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https://www.giftcoin.net/cardMerchants can offer their 5% discount or whatever for payments using these, just if it were a local-only currency where there is a discount offered.
The problem is, these weren't meant to circulate as coin or similar offline trading like this. In using them in this manner, that may introduce a security vulnerability -- like maybe some special xray scan of the coin yields the private key printed on the label under the hologram? If there were tens of thousands of dollars worth of coins circulating, this type of incident becomes not entirely unlikely.
Instead, what about simply taking advantage of the blockchain. Forget about physical coins and use the normal Bitcoin.org client and mobile apps. Coins purchased from the community money system's cashier would have the opposite of taint -- they would be special bitcoins. So if the exchange rate were $5 for instance, $5 buy the consumer one bitcoin issued from the cashier's known bitcoin address. When used to purchase locally, the merchant accepts the coin at a premium, say 5% over spot because it can be proven the coins came from the cashier. So the consumer gets $5.25 worth of goods when purchasing using the bitcoins bought from the community money cashier. If the merchant uses those coins to purchase outside the community or uses an exchange for the coins (e.g., at Mt. Gox), then that's possible but the merchant gets just spot value (e.g., $5) worth for the bitcoin. If instead the merchant spends the coins locally with other merchants, the coin has a pedigree back to the community money cashier and thus still are worth 5% over spot, and thus giving the first customer that 5% premium didn't cost the merchant anything when using the proceeds for local purchases as well.
The problem with all that is that Bitcoins are useful outside of the community so the coins will become impure. As transactions mix bitcoins originating from those that didn't descend from the community money cashier, how might that be handled? I suppose the premium offered could be proportional (e.g.., if only 60% of funds on the coin descended from the original cashier, the a 60% X 5% premium = only a 3% premium for the bitcoin payment).
That would probably confuse and frustrate the locals more than anything though, so I don't know -- maybe this approach wouldn't work whatsoever.
Really, though, this is forcing bitcoin technology to solve a problem that has already been solved:
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http://project.cyclos.org/mobile-banking -
http://sourceforge.net/projects/cyclos/files/Cyclos3/3.6.1/