is ripple a trojan horse that will destroy bitcoin?

[kjj]

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.

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.

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.

[becoin]

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).

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.

[n8rwJeTt8TrrLKPa55eU]

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 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.

[becoin]

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.

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!

I've come to the conclusion that Ripple cannot destroy Bitcoin anymore than USD has been able to destroy gold.

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!

[jl2012]

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.

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!

I've come to the conclusion that Ripple cannot destroy Bitcoin anymore than USD has been able to destroy gold.

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?

[becoin]

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!

[jl2012]

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 criminal 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.

[becoin]

So many people trusted Pirate and invested millions of USD and what happened?

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.

Ripple will also facilitate incompetent people to over-issue credit and end up in bankruptcy.

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.

[jl2012]

So many people trusted Pirate and invested millions of USD and what happened?

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.

Ripple will also facilitate incompetent people to over-issue credit and end up in bankruptcy.

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.

[becoin]

At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept.

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!

[TTBit]

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.

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.

[jl2012]

At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept.

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!

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.

[paraipan]

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.

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.

[jl2012]

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.

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.

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.

[tvbcof]

...

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

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.

[JoelKatz]

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).

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.

[tvbcof]

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!  ...

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.

[justusranvier]

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.

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

[Roger_Murdock]

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

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 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).  

Bitcoin is actually very expensive to run and maintain. You'll see that once bitcoin gets widely adopted and blockchain bloated to unforeseen limits.

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.

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?

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.    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.

[becoin]

But having to rely on trust is a cost of its own.

Not in Ripple!

The trust in context of Ripple is kind of 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.