What ripple trust actually do?

[speeder]

I am yet to understand what the "trust" do.

CAn someone explain please?

[herzmeister]

In the original idea of Ripple (from 2004), trust is all that existed actually (i.e. there was no XRP, there was no Bitcoin).

Imagine a barter ring where everyone would start at zero. When all we can exchange is goods and services, somebody has to start, somebody has eventually grant trust to somebody in order to keep this economy going in the first place.

So you want me to mow your lawn. I'll do it, but for the moment I don't have an immediate redemption from you, so I have to trust that you would return the favor in the future. I express this by granting you trust in Ripple. This is how value is created in this system in the first place.

[speeder]

I don't get it.

Can someone provide a technical explanation? (I am a programmer...)

[shamaniotastook]

I don't get it.

Can someone provide a technical explanation? (I am a programmer...)

There is nothing technically noteworthy or novel, whatsoever. what they are pushing is the digital equivalent of snake-oil, as compared to Bitcoin. Where Bitcoin has a proof-of-work to create coins, ripple everyone just creates whatever currency they wish in the form of IOUs...no program creates the coins, the owners just 'created' all this 'currency' out of thin air and promise to distribute by committee...

[moocowpong1]

I am yet to understand what the "trust" do.

CAn someone explain please?

"Trusting" an entity in Ripple is saying that you treat their word as a substitute for money. If you want to send me $1000 USD, Ripple has no way to do that, because Ripple cannot handle actual dollars, it can only handle promises (and XRP). But if I have a Bitstamp account, a promise from Bitstamp to pay me $1000 USD on demand is worth about $1000. If you send me $1000 of Bitstamp USD IOU's, I'll happily take them as payment, because I can convert them into cash without too much trouble. I can also hold onto them and send them to somebody else who wants them as payment. However, if you tried to pay me with pirateat40 USD IOU's, I wouldn't be interested in them, and wouldn't accept them as payment, because I don't think I can ever turn them into real money.

Trust is the way Ripple distinguishes between those. Ripple will only ever give you IOU's from entities you extend trust to. In practice, you should probably limit your trust either to amounts you wouldn't mind seeing disappear or to established businesses with a proven record for handling money. With a healthy Ripple network, you should only need to extend trust to one major gateway you have an account with. You'll still be able to send payments through Ripple to users of any other major gateway.

One thing to be careful with in using trust on Ripple. If you trust IOU's from two accounts in the same currency, Ripple may use your account to exchange IOU's. If you treat both of them as worth their face value, you shouldn't mind – it'll exchange one IOU for an equally good one. Perhaps you trust your friend Amy for 5 BTC and have a balance of 100 BTC with Bitstamp. Amy can pay anybody who accepts Bitstamp BTC by rippling through you, and it will replace 5 of your Bitstamp IOU's with Amy IOU's, which you probably can't pay anybody but Amy with. You're opening a line of credit to Amy, and Ripple lets Amy use this credit directly by spending your money. This could be inconvenient if it isn't what you're expecting, so be very careful about who you trust, particularly when trusting multiple people with the same currency.

[Beepbop]

moocowpong1's explanation is right on the money. Complicated circles of credit can be formed, but you would never be forced to hold IOUs from anyone you don't trust, so the only way to lose money in IOUs is if your friend or trusted gateway violates that trust. And the buck stops with you too - if one of your contacts violates your trust in him, you can't really pass that default on to your other contacts; if this happens, defaults will ripple through the system and might cause it to collapse. So don't extend more trust (credit) than you're able to lose, and don't issue more IOUs than you're able to redeem at face value.

shamaniotastook's post would make sense if you were supposed to transfer the world economy into XRP as the only currency, but XRP is only supposed to be a conversion currency and something that pays for Ripple transactions. You're welcome to speculate in XRP, but XRPs won't be worth anything unless people use Ripple for IOUs. The XRP market should really only be a sideshow for advanced users, gateways and payment processors, but I think we might a speculative bubble in XRP unless the Ripple founders try to use sound "monetary policy".