There are two problems with that I can think of:
1. Bank transfers can be reversed in some circumstances (account was stolen etc). Some days after Bob gets the money and releases the bitcoins, the bank may reverse the transaction.
2. I'd be worried that the bank may freeze my account if I receive cash transfers from someone who turns out to be a criminal or the bank freaks out for some reason.
I would much prefer a centralized exchange.
This concept could work if A and B meet up and payment is made in cash. This concept could also work for trading between cryptocurrencies (btc <--> ltc etc)
I think these are serious issues which need to be considered
This is the 3rd time these points have been raised - you seem to have addressed literally every other post specifically apart from these ones.These maybe hard questions to answer, but if #2 in particular starts happening for users of your system, you will become a VERY unpopular person, VERY quickly. Having a primary fiat bank account closed or locked is far more damaging and off putting for the novice user (who you've said this system would be for) than losing some fiat or some BTC.
Thanks for bringing that up again and sorry for the late reply!
1:
I mentioned in the paper that you may only use bank transfers which are irreversible (SEPA in europe, no Paypal). See
Money hardness:
https://en.bitcoin.it/wiki/Payment_methodsI will also add another idea I need to work out more in detail before discussing it which could help to solve that issue.
Will add it to the paper soon...
2:
There will be a kind of FAQ page where users get the most important side effects described.
If you do 1000 trades a month with 50 000 USD every bank will raise "money laundering" alarm.
So if you trade a lot dont use your primary account, create maybe a few accounts. That will not help to hide it to the government/tax authority as in most countries the banks deliver information there so the tax authority will ask questions for the sources of the money.
If you are in contact with a problematic peer you could also get problems. If the other get an investiagtion from tax authority they may link to you and you are the next if you are in the same country.
Also as you mentioned if a criminal send you money, you could get confrontated with problems.
But those issues are the same with Ebay or other online services where you can make financial tx with private persons.
So there will be some remaining risks. As well there are risks with centralized exchanges (I am still waiting for some money of a locked down exchange).
There is no perfect Silver Bullet. Life is risk.
It will be just a solution which fits better to the idea of BTC.
The whole concept will be in line with the legal framework (at least in civilized countries).
To make a financial transaction between 2 private persons without any other person in between is legal everywhere if it does not violate certain limitations (frequency, volume, criminal involements).
That would be the same if you do a traditional trade privately. You need to take care to not overstretch the limits.
If you buy a bike from a drug dealer you could get problems. If you buy 100 bikes a months you could get problems (looks like a business). If you buy from 100 different persons stuff that could cause problems (looks like you are a professional trader)....
Yes it will be more comfortable to use centralized exchanges. But services like Bitcoin.de or localBitcoin have also quite a large user base, so comfort is not the only thing. And for countries like China that comfort is not available anymore.
A crypto-crypto exchange will be possible as well, but there are already some solutions out there (Ripple, NXT,...). That was the easier problem to solve...