So, we could use this for #[2] merchants to sell 'excess' BTC for fiat using a reputation based system, putting a BTC exchange on every street corner?

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There's no such thing as "excess" BTC.

Those merchants better start convincing their suppliers to accept BTC and/or pay their employees in BTC.

This is how you start Bitcoin circular economy, not by selling back your BTC for fiat.

Let's finish once and for all with fiat.

That's why I air quoted it.

Merchants need to make their own decisions.