Money consists of central bank money, or currency and deposits at the central bank, and private money. Bitcoin would replace central bank money. It does not, however, replace private money.

If I paint your fence and you give me an IOU, we just created money - real services were rendered and a nominal claim was accepted in return. Similarly, Bitcoins are as (if not more) theoretically fungible as Treasuries. Banks finance themselves in the wholesale markets collateralised by Treasuries. A repurchase agreement using Bitcoins is not beyond practical contemplation.

Note that fractional reserve banking originated on the gold standard.

"Cash", or paper money, started out as IOU's for gold, and issuing extra expecting most people to not collect more than you could pay was always a possibility.

> Loaning out bitcoins you don't have is going to be pretty hard.

> Bitcoins are closer to cash than it may seem at first glance and just like cash you can't really fake having it.

Really? Banks do the same thing with cash. It's called "fractional reserve banking", and unless you want to outlaw it (and have more lobbying power than all of Wall Street) it's not going away just because you've substituted paper money for a digital equivalent.

If you want to keep cash under your mattress, you are free to do so. Bitcoins offer no massive advantage here. If you want to have the bitcoin equivalent (a digital wallet), go for your life. But normal people will want the 1% interest the banks pay, and the security of not having their life savings stolen if some bot cracks their computer.

There's only 3 differences between bitcoins, and paper money - they are easier to send, much easier to steal (since crackers can do it), and don't lose value to inflation (which isn't really a new thing - it's just a return to the "gold standard").

People aren't going to stop using banks any time soon. I don't even see which way bitcoins will shift the balance - a few cipherpunks will build their own vaults, and a few grannies will no longer bury their savings under their tulips.

now what we need is a bit-tally-stick to handle IOU's in bitcoin the way that split tally sticks were used to handle IOU's in medieval times. In this way I could loan out the same money I have several times, with the assumption that I get it back before I have to pay it out really.

This may sound a bit far-fetched but there were cases in the Middle Ages of artisans doing exactly that. In fact sometimes they'd even issue their own token-based currency and settle the accounts with other artisans after market day.....