But I noticed a fundamental problem. In economics, its called the velocity of currency. It is a basic principle that describes the impact of currency on an economy. Essentially, with fractional banking (where banks are required to keep on reserve a fraction of assets to ensure they can redeem), currency cycles through the economy between financial institutions and users until all of it is "consumed" by the fractions.
Set the "reserve rate" at 5%.
$1 million enters the economy.
In cycle 1, I buy a machine tool for 1M. The seller puts the money in the bank. The bank loans out $1 million - 5%=950K
In cycle 2, someone else buys a machine tool for 950K. The bank loans out 902.5K.
So in the end $1 million of currency = $20 million in the bank and $20 million of real goods that were bought and sold.
In Peerflix, there is no "reserve rate". Because PeerBux (which buy movies -- 3 equals a new release) are separate from the $1 transaction fee. Most users have a queue of movies they wish to buy and Peerbux are transferred instantly upon agreement to "sell" a CD. Therefore, 3 Peerbux injected into the system may cause 100 transfers, are only slowed by the emails looking for seller confirmation, and will only stop if someone is hoarding them (unusual behavior).
But why would people have Peerbux? I received 3 for signing up (the one free movie is given as 3 Peerbux). But new ones cost $9/each ($8 in bulk). So Peerbux = $27/DVD. I can buy almost anything used from Amazon for $16-21. No point in buying Peerbux -- just buy from Amazon, watch, and then sell them. This makes perfect since from an individual perspective but it is disaster from an economic perspective.
Why? Because no one will ever buy my flix, since they're waiting for someone else to buy theirs. We're all waiting for someone else to bring currency into the economy. Which was the whole problem preceding the American revolution with mercantilism.
So how do you resolve this? The proper amount of currency in an economy is a tricky question, and has to do with how you fight inflation. Since Peerflix controls prices, inflation isn't an issue. However, user participation will suffer if good new movies aren't available, which must be purchased with the proceeds of the Peerbux. Also there is no trade out of the economy (movies can be brought in at any time) which prevents arbitrage. One solution would be to bundle Peerbux with the trade credits. But that would drive the price of trade credits up, creating problems with the low price that is Peerflix's main selling point. You could give them away for free, but that could cause loss of consumer confidence.
The best solution had actually been executed when I checked their site today. They should be priced at slightly (5%-10%) less than their true value. This encourages people to buy a movie via Peerflix rather than from Amazon. What you lose on the 5%, you gain back in the transaction fees (at least $2 for each transaction -- probably far more). The new price? $5/each or $3.30 in bulk. Which may be even too low. Now users have little motivation to find a high-demand movie at a good price.