I think this has become a cycle. There are many who are getting into Bitcoin because it can suddenly surge in value making its volatility so high which in turn make it more attractive to investing type of people. Volatility is a part of the many reasons why Bitcoin caught the attention of the many and can be the same reason why many merchants are not yet accepting Bitcoin as one of the modes of payment.
Yep, true. Definitively a dilemma. The idea I outlined above ("merchants backing Bitcoin") would provide a solution, but it would need massive adoption until it has the desired effect on volatility. So it's a chicken-and-egg problem and I'm still thinking about ways to solve it
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I have been saying this many times that there should be a way for merchants to get protected from its volatility so we can all promote Bitcoin to them. Correct me if am wrong but there seems to be ways now for merchants to accept Bitcoin and not to worry more on its volatility.
For now, the basic "volatility protection system" are obviously Bitpay-like payment processors, but they're centralized and not very "bitcoinic" (ideologically-wise).
Another way I have read somewhere is a contract-for-difference which the merchant could enter with another party, for example, a Bitcoin trader. The merchant would pay the speculator an "interest" rate, while the Bitcoin trader would guarantee a minimum exchange rate to the merchant. Essentially that would be pretty similar to Bitshares' BitUSD. To do this "decentrally" on a blockchain (without a "centralized" provider like a bank) however needs a pretty powerful smart contract language like Ethereum's, and the interest rate would probably be pretty high because the trader would have to offer a high collateral in the case a crash happens. So BitPay-like centralized services very likely would be less expensive.