Centrally Planned = Centrally Destroyed
Mt. Gox and friends are killing Bitcoin. While such centralized exchanges have been very good to people like me who have bots, they inherently concentrate the market into hubs that can be effectively targeted by Homeland Security and others. One of the great strengths of Bitcoin is that it evades interference from entities which draw their power from centralization. The United States government relies on this form of power to influence the world. Through internationally organized frameworks of law and finance, this institution has manipulated the course of history for almost the last century. Bitcoin has survived and flourished thus far because of its insusceptibility to centrally planned offensives. The US government cannot operate/manipulate in this framework because it's outside the scope of its dominion.
We've seen what kinds of manipulation can already take place in these exchanges. When a few Tinklevoss-like characters with enough capital decide to participate in this economy, they hold the power to artificially influence the price of Bitcoin. This is entirely because of the way the Bitcoin exchange environment is organized. While the currency itself is decentralized, the means for acquiring it and trading it are consolidated into a few nodes.
This is a fundamental flaw in the Bitcoin exchange system. There needs to be a way to transfer this exchanging power over to the people. This capacity is already built into Bitcoin itself with the wallet framework and the ability for individuals to effectively act as their own bank, but it is entirely confined to the transfer of Bitcoin, not Fiat. Because the majority of crypto procuring is in exchange for fiat, we inherently establish bottlenecks. We are still playing in their backyard, so they ultimately retain the power to kick us out and tell us to go home (or to jail).
{proposed solution}: We Build An Elaborate Tree-House In Their Backyard
Because we rely on a small number of money transfer services which have at most a few bank accounts associated to them (Dwolla etc…), we provide targets for authorities to go after. With Bitcoin, the target is an internationally diffuse mesh of computers which maintain an abstract concept. This is what makes it impenetrable to governments and all those who want to maintain the status quo. Fiat money, being tied to banks and the physical realm, requires that someone actually interfaces between the banking system and the Bitcoin world. Up until the present moment, this has been a small handful of companies like Dwolla.
We can't go forward applying individualistic capitalist ideals, like having a handful of companies act as an intermediary between fiat and Bitcoin, and expect them to work in a decentralized economy. This idea may be unnecessarily bold, and even stupid (this is why I'm posting here. I want to see what the community thinks), but it could be good food for better thoughts. So I hope everyone brought along their appetites…
We apply the concepts which are fundamental to decentralized services like Bitcoin and Tor, and establish a web of bank accounts which are linked together in a cryptographically secure blockchain which will also orchestrate the movement of funds from account to account. This would require ordinary people opening up checking accounts (these do not fall under Federal Reserve Board Regulation D, as far as I can tell), and subscribing to the network. This subscription would allow the network to process inter-bank transfers. There would have to be two distinct pools; the reserve pool, and the payout pool. The reserve pool would shuffle funds around and act as the digital bank vault, and the payout pool would be the transfers that are sent to individuals who want to cash out Bitcoins into their own private accounts.
The people who have to initially open the checking accounts hold a huge responsibility, and at the same time, a huge risk. They could be assholes and withdraw money from the network node they opened (the network would have to immediately sense this and shuffle the money to other nodes). At the same time, they are the ones which will have to face the firing squad if and when it comes to that. This network would have to act similarly to the Tor network in that it would operate underground (in other words, it would be invisible due to cryptographic protocols). Instead of having 10 bank accounts which are bright red targets to authorities, we have a mesh of inconspicuous accounts with only a few thousand dollars in them. On their own they might be weak, but strung together into a network of millions of dollars worth of assets, they become part of a powerful engine for moving around Fiat. In addition, the ability to trade Bitcoin for Fiat becomes much more fluid.
Authorities might compromise a node or two, but it's not as if we don't deal with this problem anyway. They might be able to kick a few of us out of their yard, but they'll have to spend an enormous amount of effort to tear down that tree-house. I want to make their job as difficult as humanly possible.
There are obviously big flaws in this conception. How could we trust the openers of the accounts to not withdraw from them? Are there bank API's available for these accounts to be linked with for automated transfers? How would we organize the subscription service to this network? All of these wrinkles would need to be thoroughly ironed out for this to work, but if it were to be possible, I think this could be incredibly powerful. I'm interested to see what you guys think. Please let me know why you think this wouldn't work, apart from the points I've already raised.
