Bitcoin Forum

controversial subject line, sure, but what about it?

if it is just a carrier of sorts, which has all the advantages of bitcoin but never makes people deal with a currency called "bitcoin", then it seems like something that wins out, where bitcoin will be rather stillborn compared to our grand plans for it.

Ripple+Fiat doesn't have all the advantages of Bitcoin. It probably doesn't even have most of them. Ripple+Bitcoin might be a powerful combination though.

If something came up which is superior to Bitcoin hands-down, it could "destroy" Bitcoin and it would be perfectly fine.

Bitcoin and Ripple are different things. Bitcoin is P2P cash, and Ripple is P2P banking.

Ripple depends on reputation-based user profiles. No real identities required for now though. But it can't offer the discretion and privacy of Bitcoin.

Ripple might be a setback though for those who hoped that in the future each and every single transaction would be with Bitcoins. Trusted business-to-business relationships may be the main application for Ripple, as they do not require the near-anonymity of Bitcoin and all the overhead that comes with it.

Ripple has the same hurdle as does Bitcoin:  PayPay, VIScAm, Mastercrap, JP Morgue, Western ULose, etc.


https://i.imgur.com/hvGro.png

In a way you could say that simply holding cash is a loan you have given to the world.

As for traditional banking loans I don't think Ripple can replace that, those things are based on police kicking you out of your house if you don't pay.
Trusting family and friends is not really foolproof, I have seen many family members rip each other off and its not pretty.

Ripple is extra risky because a chain of people owe each other money; if any one of the people in that chain or net doesn't pay up then the next link may have no money to pay with or may decide not to as well.

Loans, stocks and contracts are based on police and courts. Honestly I think people should rent or fully buy with savings instead of continuing our failing credit-card-economy.

Tell me; why all this debt slavery and personal bankruptcy when you could rent the first years and then buy, effectively ending with the same final price as a loan would have cost you? Lets do away with the old system.

As someone getting to test Ripple, its interesting to watch the hysteria about it.  It is a Bitcoin Complement.  With all the concerns about trust it's time has come.

I got also the test account and tried to read the protocol specifications etc, but currently it is pretty difficult for me to understand the protocol. It is very interesting though.

I will call it "The Bitcoin Killer" just to troll the bitcoin fanatics.

I definitely don't see it as a threat to Bitcoin, and I see it as a complement that, if it works, will reinforce Bitcoin.

The biggest fundamental difference I see is that Bitcoin is a platform that issues "Bitcoins" and keeps track of them, and Ripple is a platform that lets the participants issue IOU's and keeps track of them.

A ripple IOU is only as valuable as you deem it to be, and how the law deems it as well.  Here's a problem the way I see it: Ripple will have chargebacks enforced by law, regardless of whether the technical design allows for them!

Ripple will have interesting security and legal implications all its own that differ vastly from Bitcoin.  With Bitcoin, if someone hacks your computer and steals your bitcoins, the consequences are limited to a) your coins are gone, b) the thief gets away with coins in numbers no greater than what you originally had, and c) the coins are now arguably tainted to the extent they can be traced back to the theft.  No laws can change any of that.

With Ripple, imagine someone hacks your computer and uses your private keys to create an IOU to them for a million dollars.  A lot of big questions remain to be settled.  A Ripple IOU for an amount like that is totally dependent on its legal collectibility, and in the US (and probably most other jurisdictions), you can't create a legally binding debt on someone else's behalf just by forging their signature, even if your forgery is convincing.  A dispute over collectibility would boil down to whether the digital signature was judged to be genuine - and not in a mathematical sense, but whether it accurately represents a commitment intentionally made by the key's owner.  If the mathematical validity can be set aside by a judge, it longer has any value and there is no point in depending on it.

The problem gets even more complicated: if it's for a million dollars, it's easy to point out that that must "obviously" be bogus, but what if it's fraud for a much smaller amount and comes with a much less ridiculous and more believable story?  What if it crosses international borders?  What if the participants are subject to conflicting laws, where one party's jurisdiction recognizes a debt and the other's doesn't?  What happens when uncollectible debt is traded from participant to participant, numerous "links" deep?  At some point, what's the value of Ripple's decentralization in the first place if its proper functioning is so dependent on socially-based agreements?

All it takes is a few high profile incidents where people repudiate large Ripple debts because they were "hacked", and suddenly the whole thing is threatened by the premise that any obligation you buy might be bogus because somebody along the way can claim the original obligation doesn't exist because they were hacked.

This again...?

https://bitcointalk.org/index.php?topic=128413.0

and many other topics...

I don't see Ripple IOU's as debt. I see Ripple IOU's as the price of a friendship or if you like the price of trust you have in some other person. If business relations are concerned I see Ripple IOU's as the price of a business reputation!

Do you really think the ability to interface with legal system for enforcement is important to a borderless technology like Ripple or Bitcoin?

There plenty of theoretical work describing how reputation systems are a more reliable way of enforcing good behaviour than legal system and the recent drama with blockchain.info provided a glimpse of how this would work.

It's a waste of effort to worry about legal enforcement because all of that work is pointless as soon as two people transact who are located in incompatible jurisdictions. At that point you need some alternative to legal enforcement anyway so you might as well just use those methods from the beginning.

Yes for Ripple.  No for Bitcoin.

Yes for dollars.  No for oil.

Yes for euros.  No for gold.

What do all the yes's have in common?  They are all based on promises, upon which the promiser can default.
What do all the no's have in common?  They are what they are, no more, no less.


I'm looking forward to seeing it be practical.  But it won't be very revolutionary if it is good for nothing more than a bunch of coworkers settling up on who pays for lunch.  It may as well be a facebook app.


That's true only up to a certain dollar amount.  When the transactions get big enough, the parties start to have the resources to invoke the law and to pursue things across borders.  Other developed countries have laws enforcing contracts and property rights too - they're just too expensive for you and me to invoke from home.  A reputation in a "system" is only so valuable and a large percentage of the population is willing to totally trash their reputations - look at how many people have crappy credit in real life, let alone how much worse it gets if people can start over with a new "profile" any time they want like they can online.  One certainly isn't enough for a major transaction like real estate or an overseas shipment of several shipping containers of goods, but sure, it's good enough for lunch money.

It's just as easy to promise, and then fail to deliver, oil as it is for dollars.

"Promises to deliver oil" would, of course, go in the yes column, away from the "oil" itself.

The oil will not renege on delivering heat when submitted with oxygen into a chemical reaction.  And if I control a bitcoin and have its private key to myself, I will always have one bitcoin, regardless of what anyone else does or doesn't do.

Is there more information other than the wiki page on how it works?

I picture it working like this:

I go to my chinese restaurant who accepts ripple. My bill is $50. Instead of paying the restaurant directly, I pay off one of his ripple debts by giving one of his employees a $50 hard drive. The restaurant gets $50 USD settled of its obligation to the employee, I get $50 of food, and the employee gets a $50 hard drive.

Yes?

Reminds me how bitcoin started with the first to buy pizza with bitcoins agreeing upon paying 10,000...

Hahaha

http://i39.photobucket.com/albums/e199/Rory341/winrarisyou.jpg

Seriously, you made my day.

All the old stuff about the old Ripple thing all took the idealistic stance that you would issue credit to your neighbors/friends out of nothing, basically giving them a line of credit.

But surely you could equally well only issue credit in an amount equal to actual "deposits"?

Afterall, banks tend to have two types of credits they give you, the easiest to get is your account balance, which you get by making deposits and they grant in amoujnt equal to your deposits. Getting an actual "line of credit" is harder.

So here is how I see it non-idealistically working, taking that hard drive at the restaurant case for example:

1) The restaurant deposits with/in you a meal worth one hard drive, so you issue them credit equal to one hard drive.

2) The restaurant gives the employee one hard drive, so the employee issues them credit equal to one meal.

I am not sure why you give the hard drive to the employee, it seems to me you'd give it to the restaurant, and any deal they make with the employee is out of scope. So lets try again:

1) The employee deposits the meal with/in you, so you issue the employee the hard drive (deposit the hard drive with the employee).

2) The employee buys the meal from the restaurant with their wages.

That maybe works.

The important thing is, you don't issue credit until you receive a deposit, in this case a meal, and the employee does not issue credit to you until you deposit the hard drive.

This way it works like the credits known as "bank account balances"; the credit represents a deposit you already received.

The old Ripple system's documentation/propaganda/literature  jumped right over that stage, directly to "lines of credit", in which you issue credit before receiving the corresponding deposit, which is, of course, risky.

There is risk the other way around though too: the restaurant takes the risk that after depositing the meal in your stomach you will not see fit to assign them any credit in the Ripple system...

So its still the same old same old "who sends first" thing...

TL;DR: Want me to grant you $10 credit? Easy peasy: just send me $10 and once I have it secure in hand, I will grant you $10 credit...

-MarkM-

I can see this working in a B2B context, as an alternate way of resolving the trade credit they are already extending each other.

If all the businesses in a town use each other's services on net 30 terms with each other they could use Ripple to exchange the credit directly and save the step of actually transferring dollars unnecessarily.

I just wonder what happens when Acme owes Bobtech, but Bobtech sells that debt to Corpco, and then Corpco can't collect on it because Acme can't afford to pay.  What's Corpco's recourse?

How are fees dealt with in ripple?
It seems like payment providers will love this, as the single transaction is repeated many times as it ripples through. I pay my friend with paypal, my friend then pays his friend with dwolla, who then pays his friend with a wire transfer - n times.
For large amounts multiple credit lines will have to be used to make up the final amount. The fees would grow exponentially.
And who ultimately actually pays these fees? The initial seller? Do these fees ripple through too?

If only there was a way of doing this without fees (or chargebacks)

Interesting. I guess I have no idea what it will be.

My point what I think would be powerful: I owe you $50 and you owe John $100. if you are on the ripple network, you have to accept me giving John $50 worth of USD/Gas/bitcoins/hard drives/sex, etc. My receipt from John is payment for our debt. Now, I owe you $0 and you owe John $50. 

Believe me, you are able to create the SEX currency on Ripple ;D

You have to login on ripple and pay before or after the actual "exchange" is made?  ;D

Corpco has the recourse of any creditor--put a lien on property, sue, etc.  Corpco could not have been paid with Acme IOUs by Bobtech if Corpco did not trust Acme for that amount.  Maybe Bobtech had some insider information on Acme and knew it wouldn't be able to pay its debts when it offered to pay Corpco.  When you accept an IOU from somebody, you are taking on that credit relationship.  If you're not sure about the debtor, don't issue the credit, or make sure you get a discount according to risk.

How does Corpco establish itself to a court as a creditor in the first place?  It is not as though they hold some sort of contract on which Acme has defaulted.

Certainly, Corpco would start its pleadings off by alleging that Acme owes a debt that has been assigned to it by Bobtech.  But what if Acme denies the debt exists or challenges the validity of the alleged assignment to Corpco?  The law doesn't recognize the "Ripple block chain" as any sort of binding instrument that would overcome any challenge of this sort.

Assuming future scandals are in the cards - where people repudiate Ripple debts on the premise they were hacked and the IOUs are forged and therefore aren't valid (you know this will happen at least as often as paypal "my account was hacked" chargebacks), no court is going to blindly swallow the presumption that "the ripple network says so, so it must be so!".

It would be different if Acme's debt to Bobtech took the form of some sort of written agreement, after which Bobtech executed some sort of written assignment to sell the debt to Corpco, the same way debt collectors buy consumer debt.  Courts recognize agreements like this when written properly.  But then, there's hardly any benefit to the decentralized part of Ripple anymore, it's no longer revolutionary.  Unlike Bitcoin, enforcement this sort of debt swapping arrangement is completely at the mercy of the existing legal framework, and may as well be a facebook app just like the one that lets you find a friend of a friend to take over your cell phone contract.

Ripple payments can be thought of as exchanges of IOUs. For example, say I owe you $100, Jack owes me $50, and you need to pay Jack $50. With a ripple payment, you can pay Jack $50 through me and the result is that instead of me owing you $100, I now owe you $50. Jack considers you to have paid him $50 because you made him owe me $50 less (which is just as good). This one transaction accomplishes the payment.

The sender loses the $50 he sent, the receiver gains the $50 he receives, and all intermediary parties are either neutral to the transaction or benefit from it.

There is no growth to the fee because there is only one transaction and each point it ripples through benefits the parties, or at least they are neutral to it. Otherwise, they wouldn't (or at least, shouldn't) have permitted it.

Is there any place to read about the technicallities of Ripple?

Im specially curious about how they avoid double spending if it is a trully p2p network.

Grossly oversimplified: To perform a transaction, you announce it. Assuming there's no reason the transaction can't apply, every honest node (that is applying transactions) applies it. (If there's some reason the transaction might not apply, then we don't care what happens to it. But there is a mechanism to prevent divergence, of course.) Now, none of those nodes can accept the conflicting transaction because the node cannot construct a valid acknowledgement of a transaction that conflicts with a transaction they've already acknowledged. (Yes, the devil is in the details. I said this was grossly oversimplfied.)

I don't think it's nearly attractive or destructive enough for that.

If it were a horse:

http://blog.estella-nyc.com/wp-content/uploads/horse.jpg

If Acme is a defunct company, then there is no recourse. Acme is punished by not being able to deal in ripple. Bobtech is punished by being a bad lender.

But how did it get to that point? If Acme sells pizzas for $10, you can buy a pizza by paying Corpco, but at what price would Corpco charge for a $10 Acme Pizza?

If you were expecting to need to redeem your IOUs with the original issuer at some point, you'd probably want to make sure that they'd take them from you.  That might entail forming a contract, creating an account with that business, etc.  If you were expecting that you'd be able to spend them with someone else then you might not worry about it.  IOUs, like gift certificates, might come with terms and if you blindly accept IOUs from entities you don't have agreements with, at full face value then you're taking some risk.  I don't see many businesses being able to get away with issuing IOUs.  I might accept a Citibank (or other too-big-to-fail bank) IOU from you at its full face value, as I would a cashiers check because I have an account with them and they've told me that they'll buy it back from me at any time.  You put your money on deposit with a trusted financial institution, they give you IOUs for it, you can trade those IOUs freely outside of their system and anyone with an account at that institution can redeem the IOUs at any time.  Anyone without an account at that institution can still safely hold and trade the IOUs--they could even sell them for cash on an IOU exchange.. they just might not be able to redeem them directly with Citibank.


Unless Corpco had an agreement with Acme to redeem the IOUs, Corpco might be out of luck.  Acme might openly state that they do not buy IOUs from anyone but their regular vendors.  Corpco agreed with Bobtech that Acme IOUs would satisfy its debt and Bobtech paid the Acme IOUs.  What Corpco does with them after that is up to Corpco.  Maybe Corpco can find someone who Acme does have an agreement with to buy the IOUs.  I think the IOU system is valuable among social groups where personal relationships mean something, and with highly trusted, insured financial institutions who are in the business of managing money/IOUs.  I don't think you'd ever want to take IOUs from random small businesses, maybe not even big businesses like Google unless you knew you could spend them right away.


Sure, this is a pretty big risk.. even Citibank could have their Ripple account hacked and issue some guy a billion dollars worth of IOUs, all of which he spends before they can revoke it.  Citibank can either pay up and honor the IOUs or not and forfeit their reputation, leaving the bag with everyone who was unfortunate enough to accept their IOUs.  IOUs are not cash.  If you're not comfortable with the risk, get USD or Bitcoin or get a big discount to compensate for it.


Ideally, you'd have a contract with everyone you trust.  With social groups, the terms are probably implicit, verbal at best.  With businesses, they may have terms or a public statement ensuring that their IOUs are redeemable and tradeable, like any usual gift certificate.  Don't make assumptions though--they may not be worried about not being invited to your Thanksgiving dinner next year.  If you want complete protection, you may have to seek regulation.  Ripple is still a powerful system--just don't take IOUs from strangers, and look both ways before crossing.

In a system like Ripple there are several ways you can deal with such a risk. One of the best IMO is in addition to absolute IOU limit to introduce relative IOU limits between persons/entities in a given group. Thus, it'll be meaningless to hack individual accounts because to increase the individual IOU 'credit line' you have to hack every individual account within that group.

I believe you are 100% right, and I believe that this negates about 98% of the "revolutionary" value of the Ripple concept.

Acme, Bobtech, and Corpco eliminate all of that complication today just by dealing with an evil bank.  You know, banks are actually quite nice to business customers who have lots of money.  They don't make their richest customers wait in line for a teller, they assign a "personal banker" who will come to you, whose full-time job it is is to be nothing but the "personal banker" of a handful of big clients and their job is to make you happy, to bring you things on a silver platter if you ask.  And these banks come with one neat benefit - they're too big to fail - the banks can't lose your money, because the Federal Reserve will just add any losses to the public tab.  With service like that, anyone in their right mind would be nuts to turn their business banking over to some beta software written by a startup and designed around friends of friends issuing lunch debt.  The banks won't even put in the effort to laugh.  At least Bitcoin is something the smartest of them already take seriously.

Keep in mind, I'm responding within the context of the subject line of the OP, which is: "is ripple a trojan horse that will destroy bitcoin?"... my essential point is, "of course not!  look at how complicated it has to get - legally - for it to have any value beyond settling up lunch, a complication that simply doesn't exist with bitcoin."

I really am eager for Ripple to be released and for me to be shown that I've jumped to conclusions.  This happens with Bitcoin every day as the "hah- that will never work" crowd gets converted, one by one, so I'm not closed minded to the possibility.

ripple apparently has its own virtual currency.

Ripple is a terrible idea and you know it. You can quit trying to troll now.

sir, you ask too much.

Apologies in advance, I've rewritten this post three times now trying to shorten it.  Sadly, each attempt has caused it to grow by at least a paragraph.  Just be thankful that I cut out the detour through the historic origins of debt and money.

Bitcoin and ripple are both attempts to make new electronic systems that more closely approach the abstract ideal of "money", but they do so in totally different ways.

Certain things have properties that make them more or less useful as money, but in the abstract sense, money is a means of splitting a barter transaction into two parts that can happen at different times, in different places, and between different people.

Essentially, if you buy a product or service from someone, you are getting wealth from them, and in return you give them money, which is (again, in the abstract sense) an IOU for wealth of similar value in the future.  They can then take that IOU and give it to someone else in exchange for a product or service.  In effect, they are performing a barter where they exchange one thing of value for another thing of value, with the money just as an intermediate step.  In the time that they are holding the money, they have given, but not yet received; they are owed a debt, not by one particular person, but by society in general.

Ripple is an attempt to transfer this abstract debt relationship into the electronic world, making something closer to the abstract ideal of "money" than the ledger and paper/coin system we use now.  The ripple system just helps turn your personal IOU that you give as payment into a general IOU, which is the same job that money does in a transaction.  In the end, both systems require a functional society willing and able to pay back those IOUs, and both systems can be open ended and (more or less) eternal.

All money, including bitcoin, ripple, dollars and even gold, are based on debt.  Holding gold means (more or less) that you have done something worth that gold's value, and you hope that in the future you'll be able to exchange that gold for something of similar value.  Dollars and ripple are the same, with a couple of subtle differences.  In dollars, certain players can create new debt (new dollars) at will, limited only by the willingness of people to accept them.  When you get a bank loan (or a credit card or whatever) that bank has created new dollars out of thin air by magic, limited only by their assessment of your ability to repay.  In ripple, everyone is a bank, and everyone can create money through magic, just by finding someone willing to accept it.

Gold and bitcoin, though based on debt/hope just dollars and ripple, have the advantage that no one can conjure them at will.  Gold and bitcoin are both past-looking, where holding gold or bitcoin is prima facie evidence that a party has already in the past done something of value for society.  Dollars and ripple are more forward looking, where one party has received something of value, and the other party is hoping that they will do something of similar value in the future to redeem that particular debt.

The forward looking version of money didn't grow up by accident.  It is a good system, and it works.  It has produced the amazing world we all live in today.  But it has also brought us horrifying tragedy, with new horrors brewing on the not-so-distant horizon.  I think that we are perched on a turning point in world history.  We will pick either the advantages and disadvantages of future-oriented systems like dollars and ripple, or we will pick the advantages and disadvantages of past-oriented systems like gold and bitcoin.  It isn't a one-sided choice, we are both gaining and losing either way.

But I suspect that the brewing storm will steer the next few centuries towards bitcoin (or something like it).

I'm not sure the distinction you are trying to make holds up to scrutiny.

"one party has received something of value, and the other party is hoping that they will do something of similar value in the future" describes any currency transaction. The customer who pays for a meal with currency has received something of value, and the restaurant owner hopes to receive a product or services of similar value in the future. It doesn't matter whether the customer pays with gold, dollars, bitcoins, or ripple. How the customer originally received the currency isn't particularly relevant to the present transaction because what's being traded for is future production. If for some reason that future production never happens it won't matter what form of currency was used.

For currencies based on a commodity or a central issuer, if they are functioning as currencies, any given unit of currency will change hands so many times during its life that how it was originally introduced into commerce is basically irrelevant. You can ignore the very first use of a particular unit of currency because it's drastically outweighed by all the re-uses of that same currency unit. That's not to say it's not important how new units of a currency are introduced -- scarcity is a significant factor in determining a currency's value and if new units can be introduced easily, the currency will be a lousy store of value. But it doesn't meaningfully affect the operation or meaning of the currency.

For the US dollar, all the physical currency in existence equals about 1/12,000th of the total value of all dollar transactions in a single year.

The distinction is subtle.  Debt and credit (savings) are different sides of the same coin, but which side you think is the head, and which is the tail, changes who you are.

With gold and bitcoin, it is:  give -> money -> receive
With dollars and ripple, it is: receive -> money -> give

They are really both part of a tangled knot of cycles and epicycles, but with any cycle, you have to pick a point to be the beginning/end, and that choice, as arbitrary as it seems, makes a world of difference in how you understand the cycle.

Time only flows in one direction, future consumption comes from current production, and current production comes from past investment.  These are essentially definitions of the words; it can be no other way.  But for a long time now, we've been willing to pretend that we can consume today and invest tomorrow.  And the difference is a just a matter of how we choose to see it, at first, but when we start to really believe it, we are no longer the same people.

Very well said, kjj. I agree with most of the points you make. However, instead of past-looking and forward looking time vector of monetary systems, I prefer to use trust and distrust based money. If you have gold, silver, or bitcoin you have the ultimate proof that you have already done something useful in the past. This is why there is no need for trust/hope since you already have the proof in place. While money based on debt, like current fiat and ripple, they are based entirely on trust/hope that you will do something useful in future.

The problem with trust based money is that very often this trust is abused. Very complicated systems are used to backup such a trust with something material like real estate. Very often the price of the collateral is changing and needs to be marked to market, inflicting further changes to the reasonable level of trust.

Distrust based money is almost perfect, but almost... The problem is that they are just too expensive to maintain and use every day. They are relatively expensive to trust based monetary systems in a normal economy.

I don't think we are on the verge of making a choice between trust or distrust based money. This is a simple question of efficiency! Economy doesn't care about principles but efficiency. A well balanced monetary system will make use of both trust and distrust based money and will be based on a dynamic trade off. For every day use people will use trust based money since they are cheaper to use and from time to time outstanding credit balances will have to be cleared through distrust based money like gold, silver, or bitcoin that are firmly anchored in the real or digital world.

I agree with this under a physical metal standard...but Bitcoin is the game-changer.  It's a final means of payment but, unlike metals, it has virtually zero carrying costs.  We have never had a hard asset like this in all of human history.

If Ripple had been introduced before Bitcoin, it would have been very appealing as an alternative, evolutionary upgrade to an existing debt-based economy.  Kinda like moving to a nicer house, but still within a bad neighborhood.

But once you taste a debt-free system where you own your money 100%, and no one can take it from you, or cause it to devalue or default...you don't wanna go back to that bad neighborhood.  I never want my savings or buying power to disintegrate due to a default chain originating in the flutter of a butterfly's wings somewhere in Greece.  Bitcoin is like moving to Beverly Hills, but without the costs formerly associated with living there.

So my guess is that Ripple will be used for short-term and small transactions...but cautious/wise people will periodically move their Ripple credit into hard assets like Bitcoin.  The real test of a trust-based system comes when a crisis of confidence hits.  If there's no backstop such as the one which central banks provided in 2008, you could potentially see a rapid contraction of credit down to zero and complete collapse of the entire system as everyone tries to exchange their credit for something tangible.

And so, wrt. the title of this thread, I've come to the conclusion that Ripple cannot destroy Bitcoin anymore than USD has been able to destroy gold.  Even in a hypothetical future where a large portion of commerce could be performed by exchanging Ripple credits, there will always be a need for a final means of payment, an extinguisher of debt, a hard asset with no counterparty risk.

Bitcoin is actually very expensive to run and maintain. You'll see that once bitcoin gets widely adopted and blockchain bloated to unforeseen limits. Even now you have to offer something like Electrum bitcoin client and server to decrease this cost! And that basically means you are introducing certain lever of trust making the tradeoff I've mentioned above!

You are quite right! But why do you fail to recognize that the dollar successfully managed to destroy gold as money for 40 years? Bitcoin doesn't have a 6000 year of history as money like gold. What will happen to bitcoin if it doesn't get widely adopted as money for the next 40 years?

My point is that trust based money ultimately fail if there are no built in mechanisms to check them against reality. However, they are very efficient in a normal economy and can exist for a very large periods of time practically destroying the use of other monetary values!

USD survives because it is backed by the US government and its nuke. Ripple is backed by what? Who and how to bailout when there is a crash?

Ripple is backed by something much stronger than the US government. It is backed by trust between people! The larger gets Ripple network the stronger it gets. Printing money is not really a bailout. It is just postponing the inevitable by making consequences even worse with the single and only hope that time will cover blatantly criminal acts in the financial sector. Point is, nobody needs such 'bailouts' except criminals that are bailed out!

So many people trusted Pirate and invested millions of USD and what happened? Bitcoin has survived the pirate scam because it is trust-free. If it happened on Ripple, the system may have collapsed due to credit contraction. Ripple will also facilitate incompetent people to over-issue credit and end up in bankruptcy.

Ripple is not about trust in a single person or entity. You should read something more about Ripple before starting an argument in this forum.

Sure. The good news is that only the incompetent people and those that overestimate their judgment skills and trust them will pay the price without affecting the rest of Ripple network.

Trust is a very important aspect in every business relation. Trust makes your business more competitive. On the contrary, the lack of trust is very expensive for both sides in a business relation.

I wish I could read more but on ripple.com what I see is only "401 Authorization Required"

At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept. It could be a perfect system for Pirate scheme scam.

Exactly. There is nothing wrong with that. Everybody can be a bank! Until now you can go to a bank and deposit your money. The bank issues IOU stating they owe you money. From now on everybody can do this and bear the consequences if they fail or profit from the success if trust gets bigger!

It could prevent scams & schemes. Who would loan BTC to someone who only has outstanding debt? Who would loan money to someone who's only credit is that from Pirate? Such a system could prevent a pyramid foundation.

So it is about trust in a single person or entity. I'd deposit my money to a bank with 0.1% p.a., rather than to pirate with 7% per week, because I trust the bank more.

Pirate seemed to be trustworthy because he always repaid as promised (before he ran away). That's why more people joined the scheme, and people invested more. If it happened on Ripple, the system would just show he repaid as promised and make him look more trustworthy. He could also loan and repay his sock puppets to build up trust (I bet he actually did this).

It's all about trust and greed, no matter it is run on Ripple or not.

The only reason he may not want to use Ripple is the transparency of the system. However, this could be evaded by using sock puppets.

Agree.  And I agree strongly if I make myself consider it.

In reality, it is likely that various things will crop up over the years which have some advantages and disadvantages to Bitcoin proper.  Similarly, it is likely that Bitcoin will be used in ways which are considered positives and others which will be considered negatives to each one of us.  My main hope is that Bitcoin and future related technologies tend toward forming symbiotic relationships with one another rather than that they are seen as adversaries by default.  And, or course, that these symboitic relationships further what I consider to be positives in our societies.

The mistake people made (other than the fact that it was obviously a Ponzi scheme) was primarily in increasing the amount of trust incorrectly. That is, it was an algorithmic failure in the amount of trust extended.

Pirate clearly had a strong incentive to run off as soon as he was holding the maximum amount of other people's money. There had to come a point where payouts exceeded pay ins, and at that point he has a strong incentive to run off with everyone's money.

However, it might make sense to risk $1 on someone who appears to have been stable for a long time. It's possible that they'll collapse while they owe you $1, but since they've been stable for a long time, your exposure window is short, and you're only risking $1, then what the heck. Now, suppose by a series of transactions in which you only had $1 at risk at any one time, you made a profit of $3. Now, you can risk $4 with this guy. If he defaults, you'll lose $4, but since you've already made $3, that's still only a $1 net loss to you.

In this case, not only are you making money, but they guy you trust is making money too. So he doesn't have such a strong incentive to run off with your money because then he'll have to abandon the valuable trust network he has accumulated. If the network is worth more than he owes, he has no incentive to default at all. In contrast, Pirate was sustaining only losses from day one. There was no evidence he ever made any profit, and so nothing of value for him to have to walk away from. He lost nothing by defaulting.

In other words, the problem may just be using the right algorithm to decide how much trust to extend such that the maximum loss in the event of betrayal has a small bound and people generally have a greater incentive to honor their commitments than to default.

However, I don't think people will transact in this way any time soon, largely because it's complex and people are risk averse. Maybe I'm wrong, but I don't see this as a significant application in the short to medium term.

I've not studied Ripple...it's on my list of things to do.  But, if what you say is true it does not strike me as particularly promising, or at least not very scalable.

It seems to me that one of Bitcoin's strengths is that it completely eliminates 'trust between people' as a construct upon which it as built.  Also, I observe that with few exceptions, the (multitude of) failures that Bitcoin has experienced are a direct result of trying to map the 'trust' we've become habituated to in other forms of currency to Bitcoin.

When I look deeply into Ripple I hope to find a fairly tight and default 'web of trust' structure as the basis for it's design.  That will give me some hope that it can be at least a valuable augmentation of (potentially) trust-less solutions such as Bitcoin and gold.

Sounds like a problem that could be easily solved with the right software.

Wow, great discussion! It's definitely helped to advance my own understanding of the nature of money. A few thoughts:

I think that first sentence is probably right, but I'm not sure about the second.  I think Bitcoin has the potential to shift the "balance" you're referring to very much back towards non-trust-based money.  ("Distrust-based" seemed a little harsh.  :)) Traditional non-trust-based money (i.e. physical commodities) are difficult and expensive to transact with, particularly across distance.  Commodity I.O.U.'s (or fiat I.O.U.'s)  are easier. The downside of using I.O.U.'s as money is that that they're less fungible (the identity of the issuer matters) and they're riskier (which would tend to make them less "acceptable").  Governments have been able to offset both of those disadvantages by creating central banks and giving them a monopoly on the power of money creation.  FRN's are extremely fungible.  And because of implicit and explicit government guarantees, no one worries about the solvency of the bank where they "deposit" (i.e., lend) their money.  But that intervention (like most government interventions) carried a high price tag.  The balance we're talking about was artificially and dramatically shifted in favor of trust-based money.  But trust-based money is inherently risky, and governments didn't eliminate that risk. To the contrary, they grew it and made it systemic (a fact that's begun to become clear in recent years).  

Really? I haven't read up too much on this topic (and I lack the technical expertise to really understand it), but the wiki on "Scalability" suggests that at least some people believe that transaction fees will stay modest.  https://en.bitcoin.it/wiki/Scalability
But as a general matter, you're probably right that a system that's not reliant on trust requires more resources than one that is.  But having to rely on trust is a cost of its own.  Again, it's a question of where the balance will fall.  And again, my guess is that Bitcoin (or something like it) will move us back in the direction of non-trust-based money.

Fair enough. But a few points to keep in mind. 1) The fiat dollar didn't win that fight on the basis of its own merit.  It had more than a little help from the coercive power of the state.  I don't think Ripple can expect similar assistance. 2) Gold may have been largely destroyed as a direct medium of exchange, but it's certainly survived as a store of value.  If Bitcoin can just achieve a similar feat (i.e., a market cap of $8 trillion or so), I'll be satisfied.  ;D  3) Bitcoin is a much better money than gold in many ways, including ways that make it more resilient to attempts by governments to confiscate it or suppress its use.

Not in Ripple!

The trust in context of Ripple is kind of by-product http://en.wikipedia.org/wiki/By-product (http://en.wikipedia.org/wiki/By-product). It is derived virtually at no cost from much more important to human beings informal (non business) relations.

On newspaper I always read stories like "someone borrows millions of dollars from colleagues/friends/family and run off/go bankrupt/commit suicide/get arrested for scam. Usually the excuse is a wife with cancer/a good investment opportunity/etc. That's how the human beings informal relations being exploited.

Never lend money you can't afford losing with ease. That's how my informal relations have never being exploited!

I don't look at ripple credit as lending money. I look at at it as the price of a friendship or the price of a business reputation. Defaulting party will always lose more in absolute terms than the creditor.

A few more thoughts on commodity money versus debt-based money.

1. As kjj points out, all money is in a sense debt, i.e. a general purpose IOU.  But the difference between commodity money and debt-based money is that the latter is essentially an IOU for another IOU. Maybe it's just me, but that sounds ... potentially problematic, no?

https://www.youtube.com/watch?v=7GSXbgfKFWg

2. There are differences in the way that commodity money and debt-based money are created.  In short, commodity money is relatively difficult to create while debt-based money is relatively easy to create.  For example, it's easier to issue a new IOU for an ounce of gold than it is to actually dig up a new ounce of gold.  And with Bitcoin, once the 21 million limit is reached, it will be mathematically impossible to create new coins.

3. There are also differences in the way that commodity money and debt-based money are destroyed.  In short, commodity money is relatively difficult to destroy while debt-based money is relatively easy to destroy.  For example, when bank loans are repaid, the checkbook money that corresponded to those loans is destroyed. Bitcoins are never destroyed (although they can be lost).

4. I suppose this is pretty obvious, but it occurs to me that while you can have a money supply that consists entirely of commodity money, you can't have a money supply that is entirely debt-based.  Even in our (extremely-dysfunctional) legacy monetary system, we have a monetary base that functions somewhat like a commodity.  It's just a ridiculously terrible one because, among other reasons, new base money is constantly being "loaned" into existence.

In reality the volume of credit card economy is gigantic. We've got to admit that the majority of the earth population are sheeple, not liberals. ::)

#1 you are correct that all money represents debt. as you stated correctly money is used to split a barter transaction into two parts, and before completing the two parts of the barter transaction you have money on your hands which represents value but is not value itself.

this is in fact the point which many people on this forum get it wrong when they talk about "commodity" based money such as gold or oil. there is a difference between oil and gold in that oil is something you use and gold is mostly representing value but has almost no value on it's own. ok gold is very good electricity conductor and so forth, but it's price is high mostly due to speculation not it's intrinsic value.

#2 your distinction between forward/backward money is irelevant. whatever is used as money: sea shells, stones, gold, tokens, electronic transaction account money, etc., is as good as anything else as long as it is accepted in places where you wan't to spend it.

but... and this is important

#3 you stated correctly that two parts of the barter transaction may be split in time, which means that the money will be in your possession for some time, possibly long time and in this case money serves as a store of value for this time period.

some forms of money are better at storing value than others. if no one can inflate money supply by arbitrarily creating more money than this certainly helps preserving the value. gold and bitcoin fall into this category.

but... and this is most important

#4 money supply issue is just one half of the problem when money is used as store of value. the other half is commodity supply. if commodity is scarce then it's price denominated in money will rise. oil prices will rise for example as we consume more oil than we can produce etc.

so regardless of what type of money one uses to store value it will not protect you against future price increase of scarce commodities.

most people just assume other people will produce commodities in the future in sufficient quantities so that the only problem they need to solve when attempting to store value for future consumption is assuring no one can inflate the money supply. hence they buy gold or bitcoin.

but the real problem imho taking into account that supply of commodities especially food and energy can fall short of demand hence the price increase even in non inflationary money.

this is why so called "doomsday prepers" store food rather than gold.

You don't really understand what money is? You don't really understand what are the consequences for the economy of the very fact of "having money". Saying that forward/backward money is irrelevant is equal to saying that there is no difference between postponed consumption and postponed austerity!? Postponed consumption is capital. Postponed austerity is just more debt to be paid by the future generations!

Gold and bitcoin are not debt. No one has the obligation to repay you anything for your bitcoin/gold.

by that note no one has obligation to repay me anything for my 1 USD. and I do own 1 USD by the way :)

it used to be that US was obligated to repay gold for my USD holdings but that obligation ended on Aug 15th 1971.(http://en.wikipedia.org/wiki/Bretton_Woods_system)

so I could argue USD is not debt either.

USD is issued=created and then openly traded. people assign value to it based on the fact it was worth something up to this point in time. on itself USD has no intrinsic value other than physical USD coins/notes may have some value in them based on the fact they are created from some material, of course electronic USD has absolutely no intrinsic value at all.

same is true for bitcoin. even though I have to leave my 6.7GH/s mining rig running for 24h incurring a €13 electricity bill to earn 1 BTC by mining with a mining pool.
there is nothing that anyone promised to pay me for that 1 BTC. this 1 BTC has no intrinsic value and I can trade it or spend it with other people who in principle assign arbitrary value to it. as long as we agree on the price of course this defines "value" of 1 BTC.

interestingly almost all of this is true for gold as well. currently an oz of gold trades for about $1600. Even though gold is a metal and has some intrinsic value, most of the gold price is due to the speculation as 50% of the gold is not used as metal but rather is stored in bank vaults as "investment". the other 50% of gold use is mostly for jewellery which means again it's price is judged by tradition and aesthetics, not by it's metalic utility properties. and you could argue gold jewellery is again an investment.

other "common" metals such as silver (trades for about $30 per oz.), copper (for $0.23/oz) aluminium, nickel, zinc and lead (for $0.06/oz), tin for ($0.6/oz) trade for a lot less.  steel is about $0.014 / oz. = $500 / t
only really rare metals such as platinum ($1600/oz.) rhodioum, palladium, ruthenium and irridium trade for ammounts which approach $1000/oz.

rarity is not the sole cause of the high price of gold as for example world production of mercury is about half of world production of gold however mercury trades for about $10 / oz.

so: and here is my point:
1. as long as gold or any other material is used mostly as investment than it's price no longer reflects some intrinsic value of that material but is rather subject to market speculation. it is not inconceivable that gold would loose 90% of it's value and trade for say $160 / oz. at some point in time. so it is no safe haven.

2. bitcoin suffers in principle from the same problem. currently trades for $27 oops let me correct that $26, but could drop to $2.6 (note that I use bitcoin prices in $ for simplicity but I could have used any other price such as bitcoin price in oz of gold for example)

3. USD and other currencies issued by governments suffer the same problem as well and more because holders worry that currency issuers may issue additional currency thus diluting existing holdings

it is for this reason that people may want to convert some of their capital into currency which cannot be inflated away.

but this has nothing to do whether or not $ is debt.

bump for controversy