I was thinking that it might be a good idea to put some natural limits on the rate of account creation. With rate limiting, it is still possible to cheat, but it makes it very difficult to cheat x1000. The downside is the world-wide adoption of the system will take longer.
A possible mechanism would be for each new account to be ‘born’ within a specific circle. This account would then be permanently (symbolically only) linked to it’s parent circle so that anyone can see which circle created the account. The trusting of groups/individuals would be unchanged, except that the parent circle will by default accept the created accounts money (this trust continues to be revocable).
A natural limit on the number of accounts that can be created could be set. Perhaps 1 per week. This would be on a use it or lose it basis.
Additionally, Circles might have to be of a certain size to enable account creation (12+) Big enough that trust is high, small enough that everyone can know everyone else in the circle really well. Perhaps as a circle grows, the rate at which new accounts can be created tapers off, leaving the responsibility of account creation to small-medium tightly-knit circles.
Circles that abused the account creation process would be fairly easy to spot, and no one would trust them.
This leaves the problem of account creation where there is no local circle. Here you would get together a quorum of (say 12= ~3 family groups) people and create a circle with the initial group of people. These members accounts would record their ‘parent’ as the newly created circle. A small fee (ETH/BTC) for creating this group might be charged, with the proceeds going towards backing the Circles currency. Either this circle could be active immediately or it might be set to pending.
The circle creation process could rate limited based upon the value of the currency vs SDR or a basket of cryptocurrencies (so if the currency has reasonable value, new groups can be added). Existing circles could have a certain number of votes to influence the order in which pending circles are activated.
I would say it would be much easier to spot a fake circle than a fake individual, as you could ask to meet the members of the circle.