% arbitrage between gox and bitstamp is proportional to percieved % odds of mtgox defaulting

No it isn't, its a voluntary market which other exchanges can participate in to improve their liquidity and competitiveness. 

It promotes decentralisation by making new, competing exchanges viable without having to have large customer bases
No you wouldn't, exchanges would be free to participate or not.
Try selling >1000 bitcoins on any market other than MtGox without crashing the price 10%.

Price stability is a separate issue.

Problem:
The main problem with exchange decentralisation is lack of liquidity

The way to achieve liquidity is having centralised exchanges but this means that there are only a few points of failure (eg. mtgox getting their US account seized)

This creates a catch 22 situation in which you can't have decentralisation and liquidity at once

Solution:
An offshore exchange in a favourable and independent jurisdiction which is endorsed and run by the bitcoin foundation or other trusted people in the community which:
 - Is only accessible by other subscribing exchanges
 - Charges zero fees, but meets running costs via annual subscriptions met by member exchanges
 - Require all subscribing exchanges to post a float of both bitcoins and USD/other currencies which removes all counterparty risk of member exchanges.  This will mean that all positions taken by member exchanges are covered by their float of bitcoins and currency in the central exchange, and if they have insufficient float they will no longer be able to trade in the central exchange.  They can periodically deposit and withdraw bitcoins/USD to maintain their float as required.

Potential problems:
 - The float system means that in the case of systemic runs on bitcoins/USD, floats will be exhausted (depending on their size) and exclusion of member exchanges will occur reducing liquidity on these exchanges
 - Finding a trusted jurisdiction to run it in who will not close the accounts if they come under pressure from the US/other govts

rwtDsa43iSg9LW4YhAnzBWvWNE8sg1nEzh

Ripple sounds like a great idea in theory, however knowing my friends and the relationships people have with their internet friends, I know that I wouldn't get involved in this sort of dealing.  People are unreliable, sometimes I have been broke as shit and unable to pay money I really should pay people.   Not because I'm not honest, not because I'm not their friend, but because I'm broke and a bit useless. If this sort of thing can disrupt a whole "ripple" of credit then the whole idea is doomed.  I love bitcoin because it takes ALL of the human element out of the currency.  I do not trust the stock market, I do not trust big business, and I do not trust the government to help me or to protect me from businesses out to scam me. I trust SHA256 encryption and I trust that bitcoin holders will protect their currency aggressively should any outsiders try to affect its value.

you don't have forum muppets saying "THIS IS ALL A CAREFULLY ORCHESTRATED PART OF PIRATE040'S ELABORATE PLAN, WATCH OUT FOLKS" every time the price goes up or down 50 cents

fortunately all these dipshits lost all their coins in the september blowout and have now turned their focus back to viewing tranny porn in their mum's basements

My concern is that if the volume of bitcoin being used for illegitimate things is significant compared to legitimate uses, we are more likely to see aggressive government regulation which will slow the spread of the currency.  If the balance is tipped towards legitimate uses (like wordpress etc) before regulation occurs it will be much more difficult for government to justify regulation, and much easier for the community to argue against government intervention.

A suggestion to improve acceptance from EFF/wikipedia/whoever..

The bitcoin foundation should establish individual donation addresses, each associated with a large organisation people are interested in donating bitcoins to, eg:

Wikipedia 17qq5A3XKfrxpJRSC5LH6APjvTDb9hTms
EFF 3e4frt588gdwo844t93hg8943h9348hg984g8
etc..

Donations are made by bitcoin holders to these addresses with a date of return if the organisation persists in not accepting bitcoin.  If they do decide to accept bitcoin, the bitcoin foundation hands over the wallet.dat file, and the organisation gets to keep the bitcoins.

If they do not accept bitcoins by a certain date, all donations are returned to the original addresses from which they were donated.

Having $100k in donations sitting in a wallet file staring at you is much more likely to encourage acceptance than nagging and email bombs I think.. kind of like positive blackmail

yup...

hehe

sent!

great post, thanks!

5 posts is pretty reasonable..

Hi, my name's rowyourboat.  I am here on a friday night despite having a sweet party to go to because bitcoin excites me more than even hot girls atm!