First off, I want to say that I am not an economist so I don't know if what I am going to suggest is viable, but hopefully it will get some discussion started to improve the marketplace for the better.
The big problem as I see it is the extreme volatility of the exchange rate due to it being a very thinly traded market. This volatility is a major problem in conducting business with the currency, as it may lose a significant portion of it's value soon after you buy it. At the moment we have a handful of "reliable" exchanges where the rate is determined in an irrational and speculative way that is open to manipulation by those with excessive purchasing power. This irrational price in fiat currency then becomes the standard "value" many of us attribute to a bitcoin, and make poor buy/sell decisions based on this uncertain information.
Do you think it would change people's behavior for the better if they were guaranteed to be able to sell back any bitcoin they buy for the same price they paid? This ensures that they do not lose any fiat value from the irrational swings in the floating market, giving people a safety net in case the floating price of coin tanks. I think this would cause a paradigm shift in the minds of many. So how to achieve this? Here are my thoughts...
We could conceivably create a not-for-profit exchange that would set a fixed price per bitcoin, well above the floating market rate. This exchange would sell 1 bitcoin at a static price in fiat currency, lets say an arbitrary $3, and charge a small fixed fee to cover expenses. Now, any users who buy bitcoin from this exchange for $3 are guaranteed to be able to sell the coin back to the exchanger for $3 in the future, no more and no less than the exact price they paid for the coin. To do this, the exchange would keep in reserve 100% of all funds. Essentially, we need to create a exchange reserve.
Users of the exchange would only be able to sell as many bitcoins for $3 as they have purchased from the service. So if I have bought 10 coins for $3 each, I am guaranteed to be able to sell 10 back again for $3, by means of issuing guarantee-credits along with the bitcoin. If you want to buy bitcoin to exchange for goods/services, you could also transfer these $3-guarantee-credits along with your purchased bitcoin to the business that you are buying goods/services from so that they could then be guaranteed to sell them for $3. This process could be automated by creating a merchant API.
Price stability AND a merchant API ensures no loss in value, and makes bitcoin much more attractive for new business to adopt.
Once you have exhausted your guaranteed-credits balance, you would not be able to sell any more coins for the fixed price until you buy some more coin from the exchange. If you already have coin, you can simply deposit it with the exchange, and when you want to send coin to a business using the API you would have to pay the difference between market-value and the fixed price to obtain guarantee-credits.
Users are of course free to sell any purchased coins for more if they become more valuable on another exchange. This guarantees people are able to take any appreciation value, but guaranteed not to LOSE any. The static price would obviously be reviewed upwards if the floating value of a bitcoin exceeds the price charged by the not-for-profit exchange.
Any thoughts?
