[SOLD] 100 BTC for $1365 USD paid by bank wire to US account

[Trader Steve]

 The idea that an exchange needs to handle your money in the first place is what I'm effectively questioning.

+1  Yes, centralized exchanges are vulnerable to attack and anything that can be done to reduce this centralization would be great. Interested to see what you come up with.

[Fjordbit]

I've thought about possibilities in this arena as well. Essentially, having a website where you can put in bid and ask orders, and it will match you up when someone fills the order. Then the cash side will mail the money/bankwire/etc the money and the bitcoin side will sent the coins by escrow.

There are two things that an exchange facilitates here, though. The first is casual anonymity. Mt Gox may be able to identify you to the government because of their AML process, but this process requires the cash receiver to reveal some information about where they are. This is less than ideal.

The second is applying trust by proxy. In my system, you need to trust that the bitcoin seller honestly reports receiving the cash. Other mechanisms outside of cash by mail have the same AML issues as centralization. Even outside of that, you need to trust that the bid/ask wasn't just fishing, or applied on a lark, or that it won't be withheld when the price changes overnight. When you have an exchange you don't have to trust any of these things because the bitcoins are in the same place at the same time. I can see why you would want to incorporate Ripple because it also applies trust by proxy. Frankly I've never found the Ripple system to be that practical, but maybe I need to see it in action to get it.