On the public vs. internal ledger pitfall

Technical Discussion
#1

Hi,
as I’m reading this letter

written by Professor Jorge Stolfi, answering to
the U.S. Securities and Exchange Commission about Bitcoin,
I’ve been caught by this paragraph explaining a
doubly virtual coin scenario, and exactly:

[…if a legal bitcoin economy does develop, there will be
"bitcoin banks" that (like present-day banks) will create “doubly
virtual” bitcoins whose ownership is not recorded in the blockchain,
but only in their internal ledgers. People are likely to accept those
bank-created bitcoins as equivalent to the “real virtual” bitcoins,
just as today most people see no difference of value between dollars
in cash and dollars in bank accounts. Paying and sending those bank
bitcoins will be much faster (seconds instead of many minutes) and
much more efficient (fractions of penny per transaction) than using
the bitcoin network. Thus bank-created bitcoins (which are not subject
to the 21 million cap) would very likely replace the "real virtual"
bitcoins.]

Then, if in my mind I transpose this concept to NEM/Mijin,
I figure Mijin as the above bank-created internal ledger
and NEM as the above public ledger, and, following
Stolfi thesis, infer that NEM could be replaced by Mijin.

The question, to the NEM concept founders is:
can you comment on this public vs private ledger contention
raised by Stolfi?

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#2

I see it differently. I think the problem he is discussing already exists and Mijin is the answer.

Think of exchanges as they exist today. Those are basically Bitcoin banks. Mt. Gox operated on a fractional reserve and got caught in the act. The same story has been repeated over and over.

Now think about mijin. All exchanges today use private databases because they are cheap and scale. But mijin also scales and is affordable by big exchanges. Now they can record thousands of tx/s on an open and auditable ledger. Even though your “bitcoins” are on that exchanges “private chain” and really they have them, you can still see exactly what is going on and know that the private chain should always match their cold storage and hot wallets added together. Clear and transparent “Bitcoin banks” but no fractional reserve. Now, which Bitcoin bank would you rather use? One that is fully transparent and auditable, or one that is closed and secretive? The choice is clear to me.

Furthermore, mijin chains can be anchored to the public chain for literally just a few dollars a day letting all people audit the private chain know with certainty it is not being tampered with.

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