Well, there is a partly alternative working system- Namecoin, although it can't deal with key distribution. If you're referring to X.509 you're actually referring to DNS. The DNS is controlled by the Internet corporation which defines who can issues certificates and domain names. So perhaps we can start with the acknowledgement of how the Internet actually works. X509 is an encoding standard. The Internet's root is controlled by a vast system of corporations and governments, and some opensource contributions (and very occasionally an Internet activist, see http://en.wikipedia.org/wiki/David_Chaum#cite_note-Cha81-20). How much do you users of the Internet (and Bitcoin) have to say about its inner workings? Is Bitcoin democratic/decentralized/anarchistic/...? And if so how does that relate to the development process? There is a mythology that Bitcoin follows the opensource model. Well, for example Linux ultimately depends on the discussion of one person (BDFL).

I think you're using the wrong terminology. What is a "payment" and what is a "merchant"? These concepts don't exist in Bitcoin. Bitcoin knows about keys, nodes and transactions. So you're imposing your own world view (literally) onto the system, without even the suggestion of an argument. The first thing would be to realize that Bitcoin is not just about cryptography and software, but economics, law, politics, etc. But you're basically stating apriori you don't want to deal with any of these complex problems. For example the whole notion of privacy is completely interlinked with law. Law of nation states operate on the principle that you can identify people (and indeed staying completely private is illegal in any country).