With the technology we have today, it's conceivable that this could be made so easy for merchants that we see a permanent switch from setting prices in dollars to setting them based on such indexes.
What would the unit of exchange be for these "Index Prices"? Interesting idea, trying to imagine the logistics.
So, if we can fix the problem with people doing the buying and selling backing out of commitments, then we could look at volatility of the payment method.
Reasons for transaction failure matter. I was quoting a transaction that was cancelled in part
because of a fear that the unit of exchange for the transaction, one that he would be holding at the end, would be worth less than it was at moment of sale.
I'm not pointing to all failed transactions in general as a failure of bitcoin; only that this particular transaction (and many others, from anecdotes and the existence of web software to instantly update BTC prices to USD), bitcoin's volatility is an extremely important barrier to move it into the world of "currency". Now, it's a fancy commodity easily moved about the net semi-anonymously. Not much more.
I am not following the volatility argument: if my transaction is settled (confirmed) after one hour, as a buyer, I can buy back the same amount of coins I just sent for payment for the same amount in dollars.
The seller also can sell the coins to get the same amount of dollars, presumably on the same forex.
If volatility is extreme enough that it requires transfer into, a goods/service exchange, and then transfer out of BTC for every transaction ASAP, doesn't that speak volumes about how useless (and costly, remember fees) it is as a "currency"? How could this be less complicated and less expensive than using paypal, not to mention faster?
One of the hallmarks of the adoption of a useful currency is that people don't worry about its value at $5, $10, $100 investments (USD used for comparison). You ever left $100 in an interest-free bank account, and worried terribly about inflation/deflation? No, because it's immediate use as exchange isn't particularly vulnerable to crazy, nation-wide price changes across the board (i.e. serious currency value changes). Not true with BTC so far.