After reading about the fake Chinese restaurant and now Bu.mp, I'm trying to think of creative ideas for physical spending of Bitcoins -- not from an exchange, but from your own wallet. What would make them as easy to spend as cash? What would be easy for the merchant? Without buying prepaid cards, without necessarily even having a cell phone, without QR codes...without any third parties whatsoever, which is the whole beauty of Bitcoin. There should be some kind of system that makes it really easy.

I have a kind of half-baked idea about this, but I need some help fleshing it out, so please comment on this to help me. Here's what I thought of:

Suppose you kept your wallet on a memory stick, and there was a program that merchants could use, to type in a USD amount, that read the amount and converted it to Bitcoin at the current exchange rate, and then said "Insert memory stick". When the stick was inserted, the program would ask the user to type in a PIN code that was stored in a hashed file on the stick called "pin.dat". If it was accepted, the program would then load a key file that would decrypt the wallet.dat on the stick, transfer the correct amount, encrypt it again, and print a receipt for the transaction.

The downside to this is that it would require you to walk around with the most recent copy of your wallet in a relatively weak encryption format. Otherwise, it's very physical and could be streamlined to be really fast. What do you think?