|In regards to the bit coin if all transactions are made net to net where are taxes collected from if there is no earth address involved other than a ship to.|
A bitcoin holder is responsible for adhering to the tax laws of his country and the country where he is located. The regulations vary widely. An introduction:
Tax compliance en.bitcoin.it
Suppose you go to a store that requires physical currency and does not recognize the bit which is on your computer as currency then what?
Then acquire a bitcoin debit card, fill it with bitcoin and pay with dollars. Here is a list:
How To Get A Bitcoin Debit Card weusecoins.com
At most places where you currently use a Visa, Mastercard, Amex debit or credit card you can alternatively use a bitcoin debit card.
Currency belonging to Nations represents a Country so you exchange one currency for another tho the exchange rate differs
I can underline "the exchange rate differs". The bitcoin exchange rate fluctuates wildly.
However by means of bail outs bonds and what have you nation is the asset base of the currency but what is the base of the bit?
The "base of the bit" is the computation time required to "find" a bitcoin. The bitcoin system is set up such that each coin must fit a certain formula. It is easy to describe what the target is but it takes time to compute a way to get there. Millions of computers worldwide are churning numbers to find bitcoins and other coins. The total power consumption of this computation process exceeds the power consumption of smaller countries. Your own bitcoin possession is "etched in stone" in the blockchain / public ledger. Everybody is able to verify that a certain subset of all bitcoins is linked to your public bitcoin address. At the same time this verification does not offer any hint how to hijack your coins. Also there is no connection between your public bitcoin address and your personal identity or your physical location. For changing the assignment of your bitcoins the private part of your bitcoin key is necessary. This private key is kept secretly in the wallet, either electronically or also on paper. The security of your coins is linked to your private key so it should be guarded like the code for a safe.
To me it seems and I could be wrong alternative of gold is tangible but where is the tangible in the bit?
The security of the bitcoin key system has survived the cracking attempts of a generation of mathematicians and hords of programmers and hackers. The only remote chance of a breaking may be given with a new generation of computing devices, quantum computers, but there are already plans how to deal with this challenge once they become feasible.
Let me get back to your perceptive question...
... nation is the asset base of the currency but what is the base of the bit?
... and respond to it from a different angle:
This is a fascinating aspect of bitcoin: it does not belong to any single nation or any private entity and it can not be controlled by any single person, group or nation. It is a distributed system. If it is suppressed in one place it can still be used in other places. Just as the original internet was designed to create a communication system which is able to withstand attacks so is bitcoin creating a currency able to withstand attacks. The blockchain creates a total transparency of all transactions in the system in a way which has never been available before. This has the potential to transcend traditional nations and create a new worldwide economy. Cyprus, Venezuela and other places are proofs how bitcoin enables citizens to survive the financial repression of an authoritarian government or of a collapsing economy.