Hi OP,
Interesting post, i agree with most of what you are saying and have been thinking the same myself for a long time however i don't like your proposed solution. If i understand you correctly, your proposed exchange would only utilize Bitcoin as a payment network (holding users money in $ until the customer purchases something at which point the $ is converted to BTC for payment purposes and sent to its destination, probably to be converted back to $ at the other end of the transaction).
I believe Bitcoin has to be used as both a payment network and as a currency because one can't function without the other. It is the value of the currency that gives miners incentive to secure/run the decentralised payment network. No currency, no network.
After thinking long and hard about why the average joe isn't falling over themselves to acquire bitcoin therefor pushing the price up legitimately due to demand, and why the price continues to steadily fall even when adoption numbers increase and general good news keeps flooding in I've come to the conclusion that price volatility is the cause of both.
People are rightly sceptical of 'internet money' that fluctuates in value so wildly so aren't jumping in as should be expected by now, imagine being paid your usual salary in bitcoin only to find the next day your earnings won't even buy a loaf of bread, extreme example i know but you get my point. Average joe thinks "i'll just stick with what i know".
As to the reason why bitcoin is experiencing such price volatility i believe it is due to using old 19th/20th century bid-ask exchange systems that were DESIGNED to generate volatility and be open to manipulation in the way that they operate.
Currently BTC price on major exchanges is in the $230 - $240 range. However i value my BTC at a far higher figure as do many others, but if one single person sold a BTC for $100 within the bid-ask exchange system, that would then automatically value my and all others BTC at $100. Albeit only for a short time but still.
This is a flawed and unfair way of determining the value of something in my opinion, we are using 19th/20th century bid-ask exchange systems to determine the value of a 21st century financial asset. Who said we had to use the bid-ask exchange system to determine the price? MTGox because they were the first bitcoin exchange and copied the existing financial trading markets... we all know how well that one worked out and we all know how existing financial markets can be manipulated by those with enough money/power/connections.
So maybe there is another way to determine the true real time (fiat) value of a bitcoin which will decrease overall volatility and enable the fiat price to be set in a fair and stable manner where EVERYONE can dictate the price of a bitcoin without even having to own or sell one., similar to how the gold spot price is set twice a day.
Fix the volatility issues = fix the adoption issues
Fix the adoption issues = fix the the current price issues (which in my opinion will increase due to increased adoption (law of demand and supply)
Fix the price issues = fix the miners not currently making any profit issues
Everything is connected, but people need to change the way the price is set in order for everything else to fall into place, I do have a potentially very simple solution that might make bid-ask exchanges systems obsolete, but right now i just don't have the energy to implement it.
Regards,
J
I agree, my solution is not ideal as it defeats the purpose of btc as a currency as you explained . But i just suggested that as i really don't see how people will use it as a currency when it is so volatile.
It's very interesting what you said about bid/ask but how would the btc value work out if this system was obsolete?
I'm also curious to know about your simple solution (roughly)