You need to adjust the price just like you need to ajust prices for any currency. It's just that the value of 1 bitcoin changes faster than other currencies, as it's now being adopted at a quick rate.
BTC as a proxy for USD is still useful IMO, it gives us a way to avoid Paypal and other online processors. But for it to be a USD replacement, it needs to first settle down and stabilize.
How do you buy and cash out your BTC? You still have to make all those real money transactions, just with the exchange rather than directly with the merchant. Seems a bit pointless to me.
Although, a BTC exchange + BTC merchant together have to only beat out on Paypal's charges. BTC seems to be stable enough that Paypal's 2.9% charge per transaction makes BTC a useful competitor.
That said, now you have to trust both the BTC exchange and Merchant. But that is a bit easier if you can put up with the downsides to BTC (no chargebacks, etc. etc.)
You also don't have to trust any exchange, you can walk to your local coffee shop and trade for cash off the books with anybody from localbitcoins.com
In another common scenario where a Senator named Lieberman makes a press release accusing Wikileaks of criminal activity, and other payment processors simply refuse to conduct transactions for you, Bitcoin also comes out ahead.
Bitcoins offer no consumer protection right now. Once exchanged, the other party holds the money.
Bitcoins right now puts the consumer / supplier relationship upside down. The supplier is already right... not the customer. I wonder if any customers will prefer to paying BTC over Paypal, especially after they've been defrauded a few times.
I agree that the value of bitcoins changes faster than other currencies. However, the fact remains that the prices for all currencies change. Domain names are the exception, but inflation adjusts prices upwards of almost all commodities.
"BTC as a proxy for USD is still useful IMO, it gives us a way to avoid Paypal and other online processors. But for it to be a USD replacement, it needs to first settle down and stabilize."
I disagree with your definition of "proxy". Bitcoin fits the definition of currency, not "proxy-currency" in my opinion. It's true that the currency will benefit when it's value will stabilize, as the currency is currently being adopted.
Bitcoin is currently changing at a rate of 50% per month.
Volatility is a bad thing for currency. Bitcoin has too much of it right now.
And sorry, as long as BTC keeps changing by 50%+ per month, it will only be a proxy currency. If BTC is to become a true currency, it will need to settle down to ~3% / year volatility, like the other major currencies of the world.
For a merchant to offer something at a particular BTC price, that merchant would have to update its prices at least daily, if not more so. This to avoid losing money or overcharging himself out of the market, depending on the direction of the currency. It's just not practical at this point.
And, it's a catch-22: As long as it's a speculative investment, it's likely to remain volatile. And, as long as it remains volatile, it's likely to remain a speculative investment vs. a "true" currency.
While I think that a good deal of the BTC volatility is due to human expectations, it just bothers me when people try and use older macro ideas when explaining Bitcoin.
Scribophile cannot sell services based on BTC at the moment, because the BTC market keeps swinging by 50% or more each month. It is impossible to peg the price of anything to BTC right now.
The issue is not that the currency has volatility, but that they refuse to peg the value. Scribophile is facing menu costs, but the menu costs are of their own creation. Simply allowing their prices to fluctuate with value would solve the problem. My point was that technology can make volatility a much smaller issue than it was in the past, hence why using old currency paradigms hinders thoughtful examination of the costs and benefits of a currency like bitcoin.
Setting a target price in USD is the obvious answer, but then bitcoin becomes merely a way of exchanging dollars, not a currency in its own right.
My main point was just that for a traditional controlled currency, volatility would be bad, but for bitcoins, which rely on supply and demand to set the price (this includes speculative demand), volatility is not necessarily a bad thing.
Depends how you look at it. From BTC point of view it is the USD that's highly unstable and dropping in value... It's all relative.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
Across all of our goods, the total change (ie: CPI) between January 2013 and Febuary 2013 changed from 230.280USD to 232.166USD. A difference of 0.8%
In the same period, BTC changed from 13.51 to 20.41, a difference of 51.1%