In the end issuing fiat IOUs is a regulated activity in most countries probably (as this is quite close to operating a bank) and has VERY high fines and risks involved if you try to do this illegally. There are by the way less than 250 countries recognized by the UN...
Bitcoin is not (yet?) illegal; issuing fiat IOUs, no matter if backed by BTC or not, most definitely is - and it has been already for at least decades.
Can you give us some information to back this up?
I'm aware there are some risks. Isnt this what Ripple is based on?
What about store coupons? Can I be arrested for using them?
Check out DIRECTIVE 2009/110/EC of the EU for example (which then gets legislated locally into all EU member states):
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:267:0007:0017:EN:PDFhttp://ec.europa.eu/internal_market/payments/emoney/For store coupons it depends on if they are electronic or not I guess, talk to a lawyer about that. I guess there's a difference between emitting something that can be redeemed as cash (e.g. "give me this coupon and I give you a 100 EUR note") vs. redeeming in goods only (e.g. "give me this coupon and I sell you electronics for up to 100 EUR in my own prices").
How will you ensure (btw: will you even need to insure?) that there is only 1 account per person? As I understand it, this is implicit, because your ratings are so precious.
There is absolutely no need to ensure that ppl only have one account. Let them have hundreds each, nothing lost. Ratings are ALWAYS automatically generated.
The only way to fake high ratings in DEX is to actually pay the money to do so, which of course makes them legit ratings afterall.
The thing is that I can take a 100 EUR note in my left hand and 1 BTC in my right hand, exchange their contents 100 times and now I did 100 trades with 10k EUR in volume that were executed properly and are rateable...
Instead of left hand and right hand take "newly generated account" instead. Do you see the problem now? Also complex background algorithms are not really useful, IP addresses are not identifiers at all and if someone deals locally a certain locality of IP addresses is also to be expected. Same source also just means to create a new account on one side for each trade. They might raise the bar for simple attacks, but that only means you need to scam for higher amounts in the end.
How much collateral do I issue and who holds it when doing a trade and how does this influence the fact that I say "I am user X, I will buy 100 USD bonds from vendor X" and then do any step necessary to do so successfully, then redeem these bonds again after some time and repeat? The requirement for the vendor account holding ~1 BTC which I get back anyways upon redemption (that I can guarantee as I am both parties)?
You lost me here. Could you explain this part better?
You said
Can users select their dealer (aka. vendor)? If yes, then it is easy to fake ratings by selling to yourself.
False, collateral must be issued.
Who holds this collateral, who is the one putting it up (only vendor, only buyer, both, none) and how does any collateral prevent me from selling to myself to raise my rating, as I can redeem it afterwards anyways? All the system sees is a completely new account popping up, negotiating a trade with my existing vendor account, both do all and any steps necessary to issue bonds and after some time these bonds get redeemed. If there is still some collateral kept after this, why would someone use this system and actually who holds that collateral (as I am both buyer and seller it needs to be someone else on the network?).
Well, try to implement this system or any other rating system similar to it, make it really anonymous and I'll post a detailled guide on how to push ratings, fake accounts and scam people for fiat, BTC or both with ease... no matter which kind of rating, escrow, market tiers or other layer you add.
Some people just want to watch the world burn.
I, as an anarchist, prefer peace and prosperity for all. But if you insist on doing so, then I doubt you'll sleep well at night knowing that you actually helped the powers that be destroy bitcoin.
Who says this destroys Bitcoin? You do, not I! I would rather argue that creating system that is advertised like this:
You on the other hand assume that gateways (IOU issuers, bond creators...) in your scenario are going to be running illegally ("These collateralized fiat IOUs would certainly be regulated if they were regulateable.").
Illegal in which country? This is just like bitcoin.
In times like ours, only the illegal can be honest.
and publishing guidelines from the beginning on on how to avoid police raids because you're doing something illegal knowingly will hurt Bitcoin far more than the occassional bank bust because exchanges did not follow AML and KYC guidelines...
Also maybe relevant:
http://www.cs.uni.edu/~wallingf/blog/archives/monthly/2010-12.html#e2010-12-01T15_45_40.htm, but that's another issue that doesn't lie within your proposal.
Anyways - prove me wrong, actually build that distributed exchange system number 4 (next to Bitcoin-OTC WOT, localbitcoins and (soon?) OpenCoin Ripple) and let's see how it works out!
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