>I wish there were a middle ground - institutionally backed bitcoin.

You could realistically do something almost as good as that without any reliance on either bitcoin or trusted computing, if you have a central authority. It actually seems pretty simple: You create a website where people can put in a credit card numbers and exchange money for secret (1000+ bit) numbers. The server keeps track of how much money is associated with each number. If you have a secret number, you can then go back and trade it back for money, or you can (anonymously) trade it for a different secret number -- which permanently invalidates the old one and assigns its value to the new one.

This way when you want to spend money, you just disclose a secret number worth the value of the transaction in question to the payee, who immediately exchanges it for a new number that the payer doesn't know, and is thereby the only one who can subsequently trade it back in for government currency. (Of course, in the common case they just re-spend it in the same way as digital cash rather than redeeming it for government currency.) Make it so that you can specify values (i.e. trade in a $5 number for a $4.50 number and a $.50 number) and you create a situation where anyone can sell anything and receive a number as payment, and then buy something else and spend the number as currency, all while neither of the other parties or the payment processor have any idea who you are.

Add to this the availability of VPN accounts that assign all users to a single public IP, so that users can route their SSL-encrypted transactions through an IP shared by thousands of others who do the same and thereby prevent the transaction processing server from associating transactions with IP addresses, and you have digital anonymous cash.

The main disadvantage is that the secret numbers are exactly like cash, i.e. if someone gets hold of them then they've stolen your money, it's gone, and there is nothing you can do. But that's how cash works. And I kind of wish someone would implement something like this -- I mean think about all the money you could make just by holding the currency people pay you for the numbers in low risk securities between when someone pays for one and when (if ever) it eventually gets redeemed for government currency.

UKash works like that. I don't know implementation details, but you get a number that has some sum of money associated with it and you give that number to the other party and they give you back a new number with change.

While not exactly the same. Bitbills attempts something like what you are describing for bitcoin - http://bitbills.com/

That's a damn good idea. And it wouldn't take a mint to implement it. You could implement and back it with a basket of digital currencies like bitcoin, liberty reserve and anything else - LD or WoW gold if you're feeling frisky. While there's a drawback in relying on a centralized entity to process it, the fact that it can be traded peer to peer w/o any accounts, fees or auditing makes up for that fact. In a way, Bitcoin is headed in the long run for more centralization either way; whether because the block chain is already too long for newbies to download, and they have to rely on third party wallets, or because ultimately we'll find ourselves in a situation where 51% of the coins and possibly 51% of the processing power is in the hands of some entity. A floating basket of virtual currencies that operated the way you're talking about would mitigate the risk of one party ever controlling it, especially if the data as to what was held in reserves, volume, etc. were made public on an ongoing basis.

+1. Not just something to think about; I feel this was a Satoshi-worthy comment.

Yeah, someone is going to figure out how to give themselves 20000 billion by working around the hardware and Mintchip will die real quick.