I want to suggest a different (and heretical?) point of view.... what
we are observing with the Foundation is actually a structural flaw of
the Bitcoin technology itself. The novel parts of Bitcoin (blockchain,
computational lotteries) may be the right answer, but *Money* or
*Payments* is the wrong question. The significance of this statement,
for those who wish to build a better steering organization, is that it
won't be enough just to maintain the source-code if you want to enjoy
the social benefits of a robust, decentralized, self-regulating free
economy - instead you'll have to substantially change its scope and
goals.

My argument is the following: decentralized *Money* is insufficient to
enable what we want, which is decentralized *Exchange*. Here is a
simple illustration: if you want to buy something from a Bitcoin
merchant, you have to FIRST send them your bitcoins, and THEN they
will send you what you ordered - if they're honest. But if they send
you a lemon, what's your recourse? Perhaps you make an alternate
arrangement where FIRST they send your item, and THEN you send
payment. Now the buyer can pretend he didn't get the item and not pay
- what's the seller's recourse? In the Bitcoin community it's common
to use a weak form of escrow, for example Bitmit.net and the silk road
- however this only moves the dilemma to a central party who can't
solve it either. An online escrow agent cannot tell the difference
between a lying buyer and a lying seller!

This is a fundamental problem. Yet it's ignored in most economic
theory, which was written without the internet in mind. Money is a
technology - ask any economist what problem Money solves, and they'll
say something like "in the beginning there was barter, but barter is
inefficient because of double-coincidence-of-wants, so money is
introduced as a medium of exchange, etc.". But this is bogus. On the
internet, *barter* is UNREALIZABLE, not just inefficient. Even if two
strangers have the opportunity to trade, it would be unwise for them
to do so because of a lack of trustworthiness.

There are only two approaches to addressing this, and both are
troubling. The first is reputation aggregation systems, like on
Bitmit, Silkroad and bitcoin-otc; the second is government regulation.
The reputation systems are troubling because a) so far all
implementations are *centralized* and b) public ones are vulnerable to
sybil attacks. No one seems to rely on these systems for very much.
The second mechanism is pervasive. Anyone who uses Bitcoin to pay a
commercial business, e.g., Bitpay or MtGox etc., has more than just
reputation to fall back on - their trustworthiness is increased by the
environment of *commercial regulation*... if Bitpay steals your money,
you can *sue* them, just as you can any business.

This is the hidden assumption underlying the "barter" story of money.
Police power is the difference between an environment where two
strangers can exchange goods in mutual agreement, and an environment
where one stranger beats up the other and takes his lunch money.
Governments put a lot of effort into promoting "consumer trust" by
maintaining regulate markets, enforcing business contracts, and the
like. This regulation is expensive, and if a government wants to
demand you use traceable and taxable currency in exchange for this
public service, then they'll be able to do so. So the Bitcoin story is
incomplete, like a table with two legs... *secure/anonymous payments*
are not enough to break way from reliance on powerful states and enjoy
*secure/anonymous economic exchange*.

I think the solution may be as simple as implementing a better
decentralized reputation system within the blockchain itself. However
this is nontrivial. We don't understand Bitcoin's limits that well yet
- no alternate applications besides digital gold (e.g., namecoin,
bitmessage, etc) have gotten very far or withstood any sort of
adversity the way Bitcoin has. When I've told this idea to Bitcoin
folk, a common response is that this simply isn't part of Bitcoin's
scope - but what I'm trying to argue is that it *should* be. Bitcoin's
scope is too limited if we want to enjoy any long term social benefit
from it.

tl;dr: Until the Bitcoin community broadens it's scope from just
*payments* to *exchange,* it will be implicitly reliant on state
regulation of commerce and will therefore continue to make concessions
to government control out of weakness. Going from *payments* to
*exchange* means at a minimum including something like a
reputation/insurance system within the blockchain itself.

--
Andrew Miller