Is Ripple a Bitcoin Killer or Complementer? Founder of Mt Gox will launch Ripple

[JoelKatz]

Functionally, there is little difference between an IOU from a reputable institution and money. If you have $100 in your bank account, what you have is a $100 IOU from a bank. That's how people have dollars.

It's important to add that the FDIC is what makes this really possible.  People would discount a bank deposit to a much greater degree than they do today were it not for the existence of the FDIC.  Washington Mutual was a reputable institution...until it wasn't.

I agree. The ideal organization to hold your funds would either be a regulated financial institution that is insured by a government or a private organization with other assets that provides a provable 100% reserve that is insured by a private insurance company. Otherwise, you don't want to use dollars as a store of value. Arguably, you don't want to anyway because of inflation. For transactions, it doesn't matter so much because the window in which you are vulnerable is so small, and even a risk of default much higher than would actually arise, say .5%, is tolerable. (People pay 2% to take credit cards.)

[n8rwJeTt8TrrLKPa55eU]

And yet what Ripple is asking every average Joe to do, is to price risk efficiently with the people they know. Joe may know that his sister Susan is trustworthy, and is thus willing to extend credit on Ripple... but how much credit? Is he not likely to extend far too much, or too little? Why should we expect him to be able to price risk efficiently?

In Ripple's favor: your own family and close work colleagues are probably the people best positioned to judge how much of a flake (or not) you might be.  Certainly, they'd be more likely to be realistic wrt. your repayment prospects as opposed the typical loan officers at banks living in a universe of bailouts and asymmetric risk/reward compensation packages (see: housing bubble).

Against Ripple: as someone else mentioned, money and friends/family don't mix well.  It's not clear that it's a good social idea to encourage friends and family to borrow money from each other, as opposed to 3rd parties where emotions are not involved.  Getting credit requests could become similar to getting friend requests on Facebook, potentially annoying and/or awkward.  People whom you haven't heard from in a long time or whom you don't trust, and now you have to explicitly explain to them why you don't want to extend them credit.

[JoelKatz]

Against Ripple: as someone else mentioned, money and friends/family don't mix well.  It's not clear that it's a good social idea to encourage friends and family to borrow money from each other, as opposed to 3rd parties where emotions are not involved.  Getting credit requests could become similar to getting friend requests on Facebook, potentially annoying and/or awkward.  People whom you haven't heard from in a long time or whom you don't trust, and now you have to explicitly explain to them why you don't want to extend them credit.

If people are going to use a social credit model, then social expectations and customs will have to evolve that we don't currently have. Personally, I think that's one of the best things about Ripple, but it works well without it. Short term, I think payments, particularly cross-currency, will be the bigger use case. But I truly believe that social credit is a long-term killer app in the crypto-currency world.

Say I extend you $50 in credit. If you use that credit up, you no longer have access to my credit network but I still have access to yours. And any time I use your credit network, that $50 balance will decrease. So long as at least one of us transacts regularly and the other has a reasonable network of connections, the balance will fluctuate. So unless someone abandons the Ripple network entirely, abandons their account, or abandons the currency, there should be no urge to settle small balances. You can just set their credit limit to zero and you will prohibit transactions that increase the balance and favor those that decrease it.

[n8rwJeTt8TrrLKPa55eU]

Against Ripple: as someone else mentioned, money and friends/family don't mix well.  It's not clear that it's a good social idea to encourage friends and family to borrow money from each other, as opposed to 3rd parties where emotions are not involved.  Getting credit requests could become similar to getting friend requests on Facebook, potentially annoying and/or awkward.  People whom you haven't heard from in a long time or whom you don't trust, and now you have to explicitly explain to them why you don't want to extend them credit.

If people are going to use a social credit model, then social expectations and customs will have to evolve that we don't currently have. Personally, I think that's one of the best things about Ripple, but it works well without it. Short term, I think payments, particularly cross-currency, will be the bigger use case. But I truly believe that social credit is a long-term killer app in the crypto-currency world.

Say I extend you $50 in credit. If you use that credit up, you no longer have access to my credit network but I still have access to yours. And any time I use your credit network, that $50 balance will decrease. So long as at least one of us transacts regularly and the other has a reasonable network of connections, the balance will fluctuate. So unless someone abandons the Ripple network entirely, abandons their account, or abandons the currency, there should be no urge to settle small balances. You can just set their credit limit to zero and you will prohibit transactions that increase the balance and favor those that decrease it.

I'm open minded, I know that everything I said is just a half-arsed guess given that your app is a brand new paradigm and unreleased.  The skeptical glass-half-empty viewpoint I have at the moment comes from the unfulfilled promise and corruption of social apps introduced the past decade, thus the fear that facilitating and explicitly recording personal credit relationships might be dangerous both to privacy and to friend/family stability.  Stuff like Facebook, which could've been a fantastically great service in theory (and kinda was, in the early days), has unfortunately devolved into a hideous mess that discourages use and often drives people apart.  Hopefully you guys will have a great privacy model where individuals have fine-grained control of what other people can see, and where it will be difficult for people to spam others with awkward/unsolicited requests.  And certainly, if your service helps mitigate some of Bitcoin's unsolved problems (e.g. excessively centralized currency exchangers), I think myself and everyone here will be extremely happy.  I sincerely wish you the best of luck with your efforts.

[molecular]

The core of Ripple is somewhat analogous to a bank account. When you have dollars, or any other normal currency, someone owes them to you. If you say "I have $5,000 in the bank", what you mean is that your bank owes you $5,000. Now, imagine if instead of having a regular bank account, you had something more analogous to a Bitcoin transaction output, and the bank agreed to pay the money to any customer of theirs that could prove they owned that transaction output. Now, you can transact in dollars just like you do in Bitcoins. You can send that balance to someone, split it up, join it, whatever. And that output has value because any customer of that bank can redeem it for cash.

(Don't get me wrong, afaik ripple is a very promising idea. I'm just not sure of the appli/implications yet.)

Does this mean before accepting $100 in "value" from someone (basically that would be debt of some "bank"), I'd have to evaluate the amount of trust I have into the entity that initially issued the $100? That seems indeed to be a destructor of fungibility.

[Rassah]

What about the issue that brought down bank in 2008, where they all trusted the guy they were dealing with, but had no idea that guy was trusting someone untrustworthy (the insurance company that turned out not to have the money to cover CDSs in this case)? Can't the same issue happen here, where someone may trust a friend for $100, but that friend trusts someone else he really shouldn't, and when that someone else defaults on their debt, he takes down the friend and all his contacts as well?

[TTBit]

What about the issue that brought down bank in 2008, where they all trusted the guy they were dealing with, but had no idea that guy was trusting someone untrustworthy (the insurance company that turned out not to have the money to cover CDSs in this case)? Can't the same issue happen here, where someone may trust a friend for $100, but that friend trusts someone else he really shouldn't, and when that someone else defaults on their debt, he takes down the friend and all his contacts as well?

Ripple could be the solution to this problem. As it stands now, when you loan someone $100, you don't know who his creditors are. But with ripple, a 'taint analysis' shows that this guy's credit is all with someone named 'pirate' who owes a bunch of people money. From this point, you can make a better decision on credit and interest rates. You may extend credit, but charge a higher interest rate. This will force him to pay you before others.

This is price discovery. As a bonus, the person requesting credit may discover his problems before its too late. He can now mark his debt to market, rather than mark it to some imaginary number.

Excited to see the project.

[MPOE-PR]

What about the issue that brought down bank in 2008, where they all trusted the guy they were dealing with, but had no idea that guy was trusting someone untrustworthy (the insurance company that turned out not to have the money to cover CDSs in this case)? Can't the same issue happen here, where someone may trust a friend for $100, but that friend trusts someone else he really shouldn't, and when that someone else defaults on their debt, he takes down the friend and all his contacts as well?

Pirate 101.

[cbeast]

We work hard. We follow the rules. We feel we are responsible citizens. Should we also feel entitled to more debt than others less responsible? It makes sense to think so. Ripple seems to follow this conclusion. Fraudsters count on this fallacy. Past performance does not predict guarantee future results.

[finway]

Another alt-chain with some social-credit-network built on it, and this alt-chain has no miners ? Interesting.
IMO, the credit part is too complex(human,you know), and can't be designed centrally, but only designed by the market.
And the money part(alt-chain) is nothing new.
Bitcoin is not going to replace the financial system(ripple is trying to), it frees the financial system.
Good luck.

[miscreanity]

Concerning the family and friends issue over social pressure to potentially allow extensive delinquency, a simple solution would be to require a definite time for satisfaction of the debt. That way it's the Ripple system, not the person, putting a black mark on the debtor's credit/WoT rating. Having the ability to roll the debt or opt out may still be important, though.

[herzmeister]

I don't think I can answer that question. On another note, what do you think of our logo?

OMG it's the 666. 
No one buys or sells without the money of the beast! 

[Stephen Gornick]

OMG it's the 666. 
No one buys or sells without the money of the beast! 

Wow, never noticed that.  Ya, some people are going to get a lot of mileage out of that.

[paulie_w]

joel, are you guys taking beta-testers anytime soon?

[JoelKatz]

joel, are you guys taking beta-testers anytime soon?

That's not up to me. All I can suggest is that you send an email and include some information about why we'd want you to beta test.

[lebing]

Front page is getting clearer, I like what I see so far!!

https://ripple.com/

[scomil]

tl;dr

I must admit, I haven't read the entire thread, so I don't know if the following is new information.

I have watched all of Paul Grignons Money as Debt series and stumbled upon a video that could explain Ripple in detail. If BitCoins are to be the "perpetuals" within the Ripple system, I take my hat off to everyone involved for providing the world with a better monetary system. Watch the following video to understand what Ripple is most likely trying to build on the back of BitCoins:

https://www.youtube.com/watch?v=dkXclJr1Z4U

[paulie_w]

terrible animations, but whoa.

[Boussac]

For example, say I have $10,000 in deposits, all of which I've loaned out. I have a $3,000 reserve. Now, I get $8,000 called in, which I can't pay. What I do is I issue $8,000 in interest-bearing notes at double the prevailing interest rates and use them to pay back my customers. My customers will be happy because they can sell these notes for more than the $8,000 they're asking for. As the loans get paid off, and using my reserve, I can pay off the notes. Nobody gets hurt but me.

Sorry, but your customers won't be happy because, as soon as you are bankrupt,  your notes are worth nothing, regardless of the interest rate you attach to it.
They wouldn't be able to sell them to anyone.
It would be so easy, in the event of a bankruptcy, to be able to issue more debt. In real life, it does not work that way. Only a central bank can do that ;o))

[JoelKatz]

For example, say I have $10,000 in deposits, all of which I've loaned out. I have a $3,000 reserve. Now, I get $8,000 called in, which I can't pay. What I do is I issue $8,000 in interest-bearing notes at double the prevailing interest rates and use them to pay back my customers. My customers will be happy because they can sell these notes for more than the $8,000 they're asking for. As the loans get paid off, and using my reserve, I can pay off the notes. Nobody gets hurt but me.

Sorry, but your customers won't be happy because, as soon as you are bankrupt,  your notes are worth nothing, regardless of the interest rate you attach to it.
They wouldn't be able to sell them to anyone.
It would be so easy, in the event of a bankruptcy, to be able to issue more debt. In real life, it does not work that way. Only a central bank can do that ;o))

I was addressing *only* the issue of a run on a bank, not a bankruptcy. Runs are a solved problem, bad loans are not.