Say I sell you a house and allow you to finance it with a mortgage denominated in Bitcoins. The house would normally sell for $250,000, so as of yesterday, I wo

Say I sell you a house and allow you to finance it with a mortgage denominated in Bitcoins. The house would normally sell for $250,000, so as of yesterday, I would have accepted 1,000 bitcoins for it. Let's then say that over the course of the next year the price tumbles to $5 per bitcoin. You can now go out and spend $5,000 to pay off the mortgage entirely. However, if I shorted bitcoins by buying put options(the right to sell them at a certain price at some point in the future) which enabled me to sell 1,000 bitcoins at $230, I would effectively insure that I will only ever lose a maximum amount of $20,000 because of the volatility as opposed to the $245,000 I would lose if I was not able to hedge my position. Similarly, if I had a price for something i wanted to sell truly denominated in bitcoins, (i.e. not dynamically changing to always reflect a constant price in USD or some other currency), there would be a similar risk, particularly if I'm keeping my earnings in the form of bitcoins instead of immediately selling them. You can start to see why options are a very important step in something becoming a true currency. It allows you to safely deal with it somewhat more independently of volatility.