ripple: let's test it!

[jtimon]

There should be an option to add an interest rate on the IOUs.

We will support interest through contracts, but IMO, it's not necessary and doesn't work well. If a $10 IOU from me is worth $9, then we can just trade the $10 IOU for $9 and there's no need for interest because it's an even exchange.

You have to know the time horizon to value an asset that pays interest. For example, if one person owes you $10 at 10% and another person owes you $10 at 15%, which asset is worth more?

Why should the system care about that? Isn't this for individual users to decide?

Well, you might think it's the one at 15%, but if they pay you back tomorrow, the interest rate is irrelevant. So you must know the time horizon to value an asset with interest. But if you do know the time horizon, the interest is not needed. If I'm going to loan you $100 at 10% and I know the time horizon is a year, we can just make the IOU for $110. There's no need for interest.

This is a bit oversimplified, but hopefully the basic idea comes across.

But what if the interest bearing assets are going to be traded.
Say I buy from you 100 joelUSD at 5% interest for 100 timestampUSD.
Then, when I have 105 joelUSD after a year, I want to trade exactly 50 joelUSD for 50 timestampUSD.
How do I set the price to that offer if the interest is accounted for outside the chain?
I don't know when the order is going to be filled.
The way you want to implement, I wouldn't have 105 joelUSD after 1 year, but 100 joelUSD. Somewhere outside the chain you've promised to give me 105 joelUSD_2 in exchange for them.
But it doesn't solve the exact price for orders problem, maybe contracts do?

The problem is more clear for demurrage (negative interest). You told me how do you think I should manage a FRC gateway.
Users are supposed to perfectly arbitrage the demurrage. But then again, how users are supposed to trade FRC for BTC at exactly 0.0003 with a single order if the price of timonFRC in relation to real FRC is constantly being arbitraged?
Is this what you are supposed to be made with contracts? Is there a description of a time-changing orders using contracts somewhere?

If the Chiemgauer, Sol Violette or another demurrage local currency is to be issued within Ripple in addition to paper, it would be the same problem.

I'm starting to think that the rejection of implementing interest on Ripple is based on purely ideological grounds rather than technical reasons.
Just like for you deflation is not a problem because it is not even possible. If I remember correctly, according to you predictable deflation is impossible because economic actors have perfect knowledge and are perfect arbiters. Therefore time is not a variable to take into account in economics because every actor accounts for it instantly every second.
The same flawed reasoning you use for deflation, you use for interests. Somehow you're able to reconcile that with the so called "time preference" for capital-money in your head.

Maybe it's just about complying with the law. Since Ripple is not open source yet, you have effectively control over the network and opencoin is technically an unregistered money transmitter right now.
Allowing interest rates would also make you an unregistered credit institution. Is that it?
Maybe you don't want Ripple to compete with prosper for p2p lending?

Mhmm, the ideological explanation seems simpler to me. Even if it's hard for me to understand how an intelligent person like you can be so blinded to deflation and interests, basically to any time component in economics, but you've proved it to me several times on the old (and now buried) deflation thread. I guess you find beauty in the simplicity of your timeless economic universe, even if it doesn't fit well with reality.

[1715344436]

1715344436

[JoelKatz]

Why should the system care about that? Isn't this for individual users to decide?

Whoever decides it, it has to be decidable. If you don't know the time horizon, you can't value assets that have interest. If you have assets you can't value, you can't rationally trade them.

I'm starting to think that the rejection of implementing interest on Ripple is based on purely ideological grounds rather than technical reasons.

It's purely because you cannot value such an asset. Ripple is based on being able to value assets so that they can be traded. We'll do it in contracts, but I don't see how it can be part of the normal exchange system because you cannot value it.

Just like for you deflation is not a problem because it is not even possible. If I remember correctly, according to you predictable deflation is impossible because economic actors have perfect knowledge and are perfect arbiters. Therefore time is not a variable to take into account in economics because every actor accounts for it instantly every second.
The same flawed reasoning you use for deflation, you use for interests. Somehow you're able to reconcile that with the so called "time preference" for capital-money in your head.

I can mock you as easily as you can mock me.

Maybe it's just about complying with the law. Since Ripple is not open source yet, you have effectively control over the network and opencoin is technically an unregistered money transmitter right now.
Allowing interest rates would also make you an unregistered credit institution. Is that it?
Maybe you don't want Ripple to compete with prosper for p2p lending?

You can make up every conspiracy theory you want. The lack of evidence just makes the conspiracy all the more evil. But I don't make an argument I don't believe.

Mhmm, the ideological explanation seems simpler to me. Even if it's hard for me to understand how an intelligent person like you can be so blinded to deflation and interests, basically to any time component in economics, but you've proved it to me several times on the old (and now buried) deflation thread. I guess you find beauty in the simplicity of your timeless economic universe, even if it doesn't fit well with reality.

Your universe doesn't fit well with reality either. You want demurrage so that people can't sit on a pile of money at no cost. However, you also want currency freedom so people can choose a currency without demurrage if they wish to.

[jtimon]

You can make up every conspiracy theory you want. The lack of evidence just makes the conspiracy all the more evil. But I don't make an argument I don't believe.

Ok, sorry about that. Just allowed my imagination to fly because I lack a better explanation.
It's not you didn't gave it, it's just it doesn't make much sense to me.

Just like for you deflation is not a problem because it is not even possible. If I remember correctly, according to you predictable deflation is impossible because economic actors have perfect knowledge and are perfect arbiters. Therefore time is not a variable to take into account in economics because every actor accounts for it instantly every second.
The same flawed reasoning you use for deflation, you use for interests. Somehow you're able to reconcile that with the so called "time preference" for capital-money in your head.

I can mock you as easily as you can mock me.

Again, sorry about the tone, but I honestly think that there's a connection here. The same thing that prevents you from understanding deflation as a barrier to investment (in a monetary monopoly context), is preventing you from understanding why interest is necessary within the system.
Please, forgive my rudeness and let's just find out if I'm right or wrong on this connection.

Mhmm, the ideological explanation seems simpler to me. Even if it's
hard for me to understand how an intelligent person like you can be so
blinded to deflation and interests, basically to any time component in
economics, but you've proved it to me several times on the old (and
now buried) deflation thread. I guess you find beauty in the
simplicity of your timeless economic universe, even if it doesn't fit
well with reality.

Your universe doesn't fit well with reality either. You want demurrage so that people can't sit on a pile of money at no cost. However, you also want currency freedom so people can choose a currency without demurrage if they wish to.

I repeat, I'M FOR A FREE MONETARY MARKET. It is you who said that people should be able to sit on cash at no cost.
I reject the idea that money has to be necessarily designed that way. I just want demurrage cash for capital yields to be able to drop to zero like they naturally should and I believe that can happen in a free monetary market with capital-monies alongside demurrage ones.
If people want to sit on xrp or btc and believe that they're holding a so called "store of value" instead of just a symbol of value designed for exchange, that's their problem.
When many people "save" by hoarding at the same time they will feel rich. When they all want to redeem the "value" at the same time they will find out that was just an illusion.
Cash is a consented bubble, if people want to sit on bubbles I cannot stop them.
I don't want to prohibit btc or xrp. Do you want to prohibit frc, chiemgauer, sol violette and the rest of demurrage currencies?

Why should the system care about that? Isn't this for individual users to decide?

Whoever decides it, it has to be decidable. If you don't know the time horizon, you can't value assets that have interest. If you have assets you can't value, you can't rationally trade them.

That's my point. Users should decide it. Users should define the time horizon.
Are you saying that people can't rationally trade freicoin because they don't know the time horizon, because they don't know when they're going to spend them?
Well, the market has decided to value frc currently at approximately 0.0003 btc each. Is that irrational?
Maybe. Why the Ripple system should care? Should the system also prevent users from trading xrp "too high" or "too low" just because it's not rational to you?
Value is not absolute. Things don't have value: people value things. That's not from Gesell, it's from Menger who came before him.

I'm starting to think that the rejection of implementing interest on Ripple is based on purely ideological grounds rather than technical reasons.

It's purely because you cannot value such an asset. Ripple is based on being able to value assets so that they can be traded. We'll do it in contracts, but I don't see how it can be part of the normal exchange system because you cannot value it.

The system shouldn't value anything, it should leave that to users.
For the "normal exchange system" I don't really see the problem. I set an order which says 3000 frc for 1 btc, what's the problem?
For trust lines is different. Then don't allow trust lines for interest bearing IOUs, they can be simulated with regular market offers anyway.
The path finding is out of the chain, each node can do it differently, maybe setting the time horizon to infinite, maybe to 1 month, that's for the users to decide.
If it is too much work, just ignore completely interest bearing assets when path finding. When you open source the software I'm sure people will develop alternative path-finding algorithms regardless of the system having interest bearing assets or not.

Now, on the "we'll do it with contracts" part. Do you have more details on that?
Is it something like the price-changing order I mentioned?
How will I trade FRC for BTC at exactly 0.0003 price with your proposal for demurrage gateways and contracts?

I still see it as a more complex solution, but at least that would solve the problem to some extend (although the IOUs would still have an expiry and would be non-fungible).

[JoelKatz]

How will I trade FRC for BTC at exactly 0.0003 price with your proposal for demurrage gateways and contracts?

Unless you're talking about some insane rate, demurrage can be ignored over the lifetime of a single trade offer.

[jtimon]

How will I trade FRC for BTC at exactly 0.0003 price with your proposal for demurrage gateways and contracts?

Unless you're talking about some insane rate, demurrage can be ignored over the lifetime of a single trade offer.

Let's make the extreme example with reasonable rate.
Say I want to buy 1,000,000 FRC for 3000 BTC.
So I see timonFRC which represent FRC at refHeight 1000.
But that was a week ago, so 1008 blocks after, to purchase 1 M frc I will have to purchase I will need to purchase more than 1 M timonFRC for 100 BTC
After adjusting that, the order remains in the book for a month and then someone fills it.
I, holding the BTC until the order fulfillment will pay for one month demurrage on 1 M frc.
I haven't bothered to do the math because I think I already know what you will tell me: don't have an open order for a month.
I still don't understand what you mean when you say "we'll make it with contracts".
I can't find anything related to interests in the contracts wiki page. Maybe something perfectly equivalent functionally to what I want can be achieved solely with contracts, it's just that I don't see it.
I think transitive (ripple) trades can get really complex when time is involved, and I'm not talking about path finding, just each party getting exactly what they wanted to pre-sign.
I offer my help for designing this, or at least review. I'm just getting nervous because I have the impression that you're underestimating the problem by overestimating the related but separate of path finding with interest.
I'm not asking you to solve that problem. Don't ripple interest bearing assets by default and you don't have to.
But you can have easily have interest bearing assets that could be rippled in the future without further modifications.
Maybe you can do this with contracts, I just want to understand how.

[JoelKatz]

But you can have easily have interest bearing assets that could be rippled in the future without further modifications.
Maybe you can do this with contracts, I just want to understand how.

It's not possible in principle unless you have a time horizon set on every interest bearing asset. It is a necessary system invariant that if you want to ripple through someone, you give them something they value equally to (or greater than) what you take from them. This is not possible to enforce for interest bearing assets without a time horizon set on every asset.

Say you have an asset that you value today at 10 USD and it has an 8% interest rate. And say I want to ripple through you and take in exchange another asset that you value today at 10 USD that has an 8% interest rate. Is that fair? Well, it depends on the time horizons. Worse, a longer time horizon is good if the interest rate is good but bad if the interest rate is bad. So you need every user to set a target interest rate and a time horizon for every asset.

So it can't work unless you know the time horizon and, worse, also the baseline interest rate. But if you know the time horizon, the interest can just be added to the balance at issue time. Then it all "just works" because you know the present value of every asset.

[smoothie]

Trick #1: get financial institutions to be gateways for ripple system.

Trick #2: get people to accept your IOUs as actual underlying asset.

Trick #3: get people not to scam one another.

Don't worry it isn't too far fetched on top of being centralized and can be shut down by regulators.

Great system...

[virtualfaqs]

But you can have easily have interest bearing assets that could be rippled in the future without further modifications.
Maybe you can do this with contracts, I just want to understand how.

It's not possible in principle unless you have a time horizon set on every interest bearing asset. It is a necessary system invariant that if you want to ripple through someone, you give them something they value equally to (or greater than) what you take from them. This is not possible to enforce for interest bearing assets without a time horizon set on every asset.

Say you have an asset that you value today at 10 USD and it has an 8% interest rate. And say I want to ripple through you and take in exchange another asset that you value today at 10 USD that has an 8% interest rate. Is that fair? Well, it depends on the time horizons. Worse, a longer time horizon is good if the interest rate is good but bad if the interest rate is bad. So you need every user to set a target interest rate and a time horizon for every asset.

So it can't work unless you know the time horizon and, worse, also the baseline interest rate. But if you know the time horizon, the interest can just be added to the balance at issue time. Then it all "just works" because you know the present value of every asset.

Why is a time horizon required? Every single gateway deposit is 0% interest loan. Just have the 8% just keep adding up forever. What's the problem? Ripple never requires anyone to pay back an IOU by a certain time anyways. So if they can never pay off their IOUs, they "declare bankruptcy." The bankruptee opens a new Ripple account and everyone moves on. Isn't that how Ripple works?

[JoelKatz]

Say you have an asset that you value today at 10 USD and it has an 8% interest rate. And say I want to ripple through you and take in exchange another asset that you value today at 10 USD that has an 8% interest rate. Is that fair? Well, it depends on the time horizons.

Why is a time horizon required? Every single gateway deposit is 0% interest loan. Just have the 8% just keep adding up forever. What's the problem? Ripple never requires anyone to pay back an IOU by a certain time anyways. So if they can never pay off their IOUs, they "declare bankruptcy." The bankruptee opens a new Ripple account and everyone moves on. Isn't that how Ripple works?

See the part you quoted above. A Ripple invariant is that someone else's transaction can do something to you so long as you have agreed that it is fair. There is no way to tell if something is fair to you unless we know how you value assets, and if those assets have interest rates associated with them, their value cannot be determined without knowing the time horizon.

If someone owes you $10 and is paying you 6% interest and someone offers to owe you $9 at 18% interest (assuming you trust both of them), is that a fair trade? Which is worth more? Well, it depends on the time horizons.

[jtimon]

Joel, my scheme only needs a time horizon for the payer in the ripple
transaction, everyone else have pre-signed their orders. Forget about
time horizons for a moment. More important, forget about trust lines
for a moment because that's what is confusing you. Trust lines are
very complex in the shadow, they're like saying "I trade 1:1 with this
limits any of these assets: bitstampUSD, aliceUSD, bobUSD...".
That implies a lot.

Of course trust lines get nasty when you also involve time. In that
case, I agree with you, just don't do it. It would be too complex and
I don't think people would use it like that.

I must remind you that I would remove the trust-lines rippling completely
from the core. They can be simulated at the client level keeping the
core simpler with only regular trade orders. So forget for a moment
there are something else than multi-currrecy regular orders at all.

A Ripple invariant is that someone else's transaction can do something
to you so long as you have agreed that it is fair. There is no way to
tell if something is fair to you unless we know how you value assets,
and if those assets have interest rates associated with them, their
value cannot be determined without knowing the time horizon.

Trade orders are always fair for the user who submit them. Can we
agree on that?

Let's make an example of a ripple transaction involving interests:

1) Alice owns 100 bitstampUSD.

2) Bob wants to sell 20000 bitstampFRC for bitstampUSD at 0.02 usd per
   frc. BitstampFRC have 5% demurrage like FRC.

3) Carol wants a FRC loan at 1% interest so she issues carolFRC1 at 1%
   interest. She sets an order buying 20000 bitstampFRC for 20000
   carolFRC1. She probably wants the order to execute all or nothing.
   She wants to pay some hosting for her web project.

5) At the community time bank, Carol has earned 10 localHRS accounted
   within Ripple. She also sets an offer to buy the 20000 carolFRC1
   for the 10 localHRS she has.

5) David sells beers at his pub for 0.2 localHRS

6) Alice visits David and Carol's and asks David, "I want 50 beers, do
   you accept bitstampUSD?"

David: No, but I accept Ripple, we can try. You probably don't have them,
but try to pay me 10 localHRS.
Alice: Great, it worked!

After the trade:

- Alice is drunk.
- Bob has the 100 bitstampUSD he wanted.
- Carol has the 20000 bitstampFRC she needed. She was lucky and didn't
  had to pay any interest because she was able to sell the HRS for her
  interest bearing debt in the same transaction, but if it would have
  been in different transactions (maybe several of them) Carol would
  have had to pay some interest.
- David received 10 localHRS.
- Nobody set a "time horizon" but it's all fair for everyone.

If Alice had several payment paths using bitstampUSD, bitstampFRC and
investmentFundUSD she would had needed a time horizon. That's why I
suggest the infinite as a sane default. That way Alice would try to
pay with bistampFRC first, then bistampUSD and only then
investmentFundUSD.

Interest bearing assets could be "custom currencies". Now let's put
the trust-line rippling back in. If "custom currencies" can only be
rippled within regular trade orders, everything is fine. Just no
"trust line rippling" for custom currencies.

Well the only question should be whether the demurrage from Bob's
offer is paid from the order itself or from Bob's bitstampFRC
outstanding reserves and automatically cancel the offer when there's
not enough reserves. You could allow both modes.

Does this make more sense to you?

[JoelKatz]

Trade orders are always fair for the user who submit them. Can we
agree on that?

Essentially, what you're saying is that it all works great as long as nothing ripples. And that's basically what I've said, we can implement it with contracts, but it's not going to work with the ripple-based payment system. Rippling can only work if the system can determine the value of something to someone without needing them to specify an exchange rate or time horizon. You can't expect the average person to manually maintain an exchange rate or time horizon nor can the system force a person to accept an exchange rate or time horizon they haven't agreed to. They have to specify an asset value though -- a new account considers all assets worthless and won't give any asset any value until a user specifically assigns it one. If an asset can work with just a value, it can fit into the ripple-based payment system. If not, not.

[jtimon]

Trade orders are always fair for the user who submit them. Can we
agree on that?

Essentially, what you're saying is that it all works great as long as nothing ripples.

Well, we may have different definitions about what "ripple transactions" are.
See my example above? I've been calling that a ripple transaction for years.
Now let me extend it.
Instead of Alice paying, Alice trust Zeus for USD and Zeus pays through her. With the regular "trust line rippling".
Everything keeps working.
The only thing you cannot do is trust lines with these custom assets.
Because trust lines really imply a bunch of trade orders.

And that's basically what I've said, we can implement it with contracts, but it's not going to work with the ripple-based payment system.

Again, can you explain me a little more about this. Since our analysis seems so different I'm not even sure what exactly you want to implement with contracts when you say "we will make it with contracts".
Will, for example, the above example be possible with what you want to implement for contracts?
How would it work for that example?
Is there anything in the wiki about "contracts for interests"?

Rippling can only work if the system can determine the value of something to someone without needing them to specify an exchange rate or time horizon.

Well, when Alice trusts Zeus for USD, she's also specifying an exchange rate between her IOUs and Zeus's: 1:1.
Ripple cannot work without users explicitly or implicitly specifying exchange rates.

You can't expect the average person to manually maintain an exchange rate or time horizon nor can the system force a person to accept an exchange rate or time horizon they haven't agreed to. They have to specify an asset value though -- a new account considers all assets worthless and won't give any asset any value until a user specifically assigns it one. If an asset can work with just a value, it can fit into the ripple-based payment system. If not, not.

I cannot expect the average person to set exchange rates? I thought that was market were about...
Even if they only say "I trust X for Y usd" without understanding what's happening they're setting a 1:1 exchange rates between all his USD ripple neighbors.
What's wrong with my example? Is it really very fantastic that Bob chose a USD/FRC rate, and Alice a FRC/HRS rate?
"Average users" chose BTC/USD and BTC/XRP rates all the time, I still don't know what makes it impossible for demurrage FRC IOUs to live in the Ripple network the way I propose it.
And since you haven't explained me your contracts alternative, I see no other way.
 
 

[JoelKatz]

I cannot expect the average person to set exchange rates? I thought that was market were about...
Even if they only say "I trust X for Y usd" without understanding what's happening they're setting a 1:1 exchange rates between all his USD ripple neighbors.
What's wrong with my example? Is it really very fantastic that Bob chose a USD/FRC rate, and Alice a FRC/HRS rate?
"Average users" chose BTC/USD and BTC/XRP rates all the time, I still don't know what makes it impossible for demurrage FRC IOUs to live in the Ripple network the way I propose it.
And since you haven't explained me your contracts alternative, I see no other way.

A 1:1 exchange rate between assets denominated in the same currency is not at all comparable to an exchange rate between different currencies. People have to set values to assets, and it's reasonable to expect they'll select pathways. But the vast majority of people are not going to want to have to maintain exchange rates between currencies.

When you have an asset issued by a gateway, there is a convenience to the asset being tradable on the ripple network and there's a risk to the gateway collapsing. To make trade work, there's a kind of handshake agreement to pretend these effects perfectly cancel out and treat assets issued by reputable gateways as worth face value. This is much like people not weighing silver dimes or trying to count a microscopically light silver dime or a slightly heavy silver dime as worth more or less. The inconvenience simply isn't worth it. This is what makes rippling possible -- people widely considering assets fungible because their value is "close enough" and everyone benefits from the easier mobility.

It can't work across assets denominated in different currencies or with interest rates associated with them unless people manually maintain rates or set time horizons.

[jtimon]

I cannot expect the average person to set exchange rates? I thought that was market were about...
Even if they only say "I trust X for Y usd" without understanding what's happening they're setting a 1:1 exchange rates between all his USD ripple neighbors.
What's wrong with my example? Is it really very fantastic that Bob chose a USD/FRC rate, and Alice a FRC/HRS rate?
"Average users" chose BTC/USD and BTC/XRP rates all the time, I still don't know what makes it impossible for demurrage FRC IOUs to live in the Ripple network the way I propose it.
And since you haven't explained me your contracts alternative, I see no other way.

A 1:1 exchange rate between assets denominated in the same currency is not at all comparable to an exchange rate between different currencies. People have to set values to assets, and it's reasonable to expect they'll select pathways. But the vast majority of people are not going to want to have to maintain exchange rates between currencies.

The point is they have to value interest bearing assets explicitly through explicit trade orders.
I thought this was also true for you're proposed solution where "the users know their time horizon and they're able to value the IOUs" and the interest/demurrage is managed outside the system with custom currencies that expire.
You haven't tell me how or what exactly you'll "do with contracts".
Is my example above possible with your solution and contracts?
I still don't get what's the role of contracts here.

When you have an asset issued by a gateway, there is a convenience to the asset being tradable on the ripple network and there's a risk to the gateway collapsing. To make trade work, there's a kind of handshake agreement to pretend these effects perfectly cancel out and treat assets issued by reputable gateways as worth face value. This is much like people not weighing silver dimes or trying to count a microscopically light silver dime or a slightly heavy silver dime as worth more or less. The inconvenience simply isn't worth it. This is what makes rippling possible -- people widely considering assets fungible because their value is "close enough" and everyone benefits from the easier mobility.

Rippling (or transitive transactions/trades) is possible only with explicit trade orders.
Doesn't the system Ripple through orders already?
Trust lines rippling is just another way to ripple, but not the only one and certainly not the main one. Trust lines may be convenient for users to connect to their ripple neighbors easily, fair enough.
As said many times, these trust lines could be simulated only with regular explicit trade orders.
Since trust lines are more convenient for users, a client could take care of translating trust lines into orders.
You have decided to do it inside the core system, fair enough.
But please, don't tell me that was the only possibility or that regular trade orders cannot be rippled.
With your proposal with custom currencies, demurrage currencies can't be rippled directly neither.
If there's a custom currency that represents FRC at -5% interest and another one representing FRC at 1%, the currencies are different and can't establish trust lines like if they were the same currency, period.
This is equally true for your design and mine.

It can't work across assets denominated in different currencies or with interest rates associated with them unless people manually maintain rates or set time horizons.

Exactly. And I'm telling you a way the system could manage interest bearing assets without users setting time horizons for each trade.
I still don't know what's wrong with my design. And I don't know how my example would work with your design because I'm missing the contracts part.

It feels like you're not even understanding my design, like if you had tried an initial analysis that ended up rejecting, you think my analysis is similar and you insist in trying to explain me why you left that path and why I should also go with your new approach, without even analyzing if my design is similar to your first draft with time horizons (I NEVER considered that) or is a different one.

I spent some time building that example with a couple of interesting use cases and, I might be wrong, but it feels like you didn't read it.
Can you tell me, please, what's wrong with my example?
Can you tell me, please, what's wrong with my analysis?
Can you tell me, please, what you mean by "we will make it with contracts"?

Maybe you want to make some questions about my design because the example is not clear enough.
If you break my design, cool, the sooner the better. But remember that you don't lecture me about basic ripple concepts because I've probably spent more time than you thinking about ripple; and you don't need to explain me how ripple gateways work because I proposed them almost two years ago (I call them "proxy nodes" there).
Please, forget that I'm that stupid gesellian that believes demurrage cash can triumph in a free market and imagine for a moment that my design could work while you read (or re-read if you've done it already) my example of ripple transaction involving demurrage and interest bearing assets.

[Mitzplik]

In actual financial system, interests are not part of the software+hardware systems that process transactions. It is expressed in contracts and terms which are set among human beings. A human being read a contract and take its conditions. Then, this rules are told to the system and the legal aparatum support it.

As far as i understand, ripple is part of the software+hardware system (a possible improvement) that can express the resultant of the wishes of a financial community in a taken moment, automatically searching for the highest level of enthropy for this resultant, exchanging assets with the same value (set by users in orders and trustlines) to reach it. (This process need improvement but is great)

This system can understand some other commands, as it can be read in "contracts" in the wiki, and the features will be created by the demands generated by real situations, with real cash.

One thing about loans in the ripple system is: what if the counterpart defaults? The lender is screwed because "rBvvhDGnjRfsCammErnhfagah" owes him 1000,00 bitstamp dollars, but who is it?. Untill contracts inside ripple are legally accepted (I cant see this happening for loans or interests without a written contract), they must be risk almost-free, like escrowed in some way. Untill there, ripple can be a payment mean for a realworld contract. People can still make contracts like they are today and use ripple to pay them.

[jtimon]

In actual financial system, interests are not part of the software+hardware systems that process transactions. It is expressed in contracts and terms which are set among human beings. A human being read a contract and take its conditions. Then, this rules are told to the system and the legal aparatum support it.

As far as i understand, ripple is part of the software+hardware system (a possible improvement) that can express the resultant of the wishes of a financial community in a taken moment, automatically searching for the highest level of enthropy for this resultant, exchanging assets with the same value (set by users in orders and trustlines) to reach it. (This process need improvement but is great)

This system can understand some other commands, as it can be read in "contracts" in the wiki, and the features will be created by the demands generated by real situations, with real cash.

I've been developing during almost three years an application for important insurance companies and yes, the software accounted interest.
In any case, I'm still waiting to hear how can I trade an amount of interest bearing IOUs for another type of IOUs at an exact price. With contracts or whatever.
The only answer I had is "if interest rates are not insane you just ignore them during the time that the trade order remains opened".
But, sorry, this answer doesn't convince me.

One thing about loans in the ripple system is: what if the counterpart defaults? The lender is screwed because "rBvvhDGnjRfsCammErnhfagah" owes him 1000,00 bitstamp dollars, but who is it?. Untill contracts inside ripple are legally accepted (I cant see this happening for loans or interests without a written contract), they must be risk almost-free, like escrowed in some way. Untill there, ripple can be a payment mean for a realworld contract. People can still make contracts like they are today and use ripple to pay them.

Only bitstamp can owe you bitstampUSD. In your case, the lender is accepting rBvvhDGnjRfsCammErnhfagahUSD IOUs, not bitstampUSD.
You should not lend to that address if you don't know its owner. Normally you will set low limits to people you trust.
If a friend defaults on 10 usd, well, you just don't lend to him again.
Between companies, a legal contract may be required, but those legal contracts can and must live outside the ripple network itself. The legal contract is responsible to link the addresses to real people/companies and describe the legal obligations atached to the Ripple IOUs.
If the parties already use a legally binding digital signature scheme, it is easy to link it with the signatures of the keypairs that the addresses refer to.
In summary, no escrow is needed. If you want legal liabilities, you can have them, but you have to create the legal contracts yourself.
In fact, managing and linking these legal contracts is an interesting business oportunity I proposed at the same time I proposed what are now known as gateways. It is the point 1 "liability servers", just above "proxy nodes", which is how I named gateways.

[Mitzplik]

I've been developing during almost three years an application for important insurance companies and yes, the software accounted interest.
In any case, I'm still waiting to hear how can I trade an amount of interest bearing IOUs for another type of IOUs at an exact price. With contracts or whatever.
The only answer I had is "if interest rates are not insane you just ignore them during the time that the trade order remains opened".
But, sorry, this answer doesn't convince me.

I think you misunderstood. I meant that understanding and agreeing the terms and interests in a loan is a human activity, after that you can put it in an algorithm. My personal financial app does this for me. Thats why contracts are needed, in readable language and human processing.

Only bitstamp can owe you bitstampUSD. In your case, the lender is accepting rBvvhDGnjRfsCammErnhfagahUSD IOUs, not bitstampUSD.

One thing is the currency, other is the loan. Only US government can issue dollars, but you can lend them and owe them. I could perfectly make a contract in which I lend you some Bitstamp backed dollars, do you agree? So, the US gov would owe the value contained in dollar to a bank (who holds them), who would owe them to Bitstamp, who would owe them to me trough a ripple IOU, which I can lend, send, spend or whatever.

If you are talking about an user issuing a direct (no gateway) IOU according to a contract signed in the real world, I think its totally unnecessary and dangerous. Trusting users can be dangerous. You could end up damaged up to the amount trusted.

You should not lend to that address if you don't know its owner.

How would someone do it within ripple network? What if I sell my wallet? The wallet issued an IOU or its owner did? if its the owner, it requires a contract, like you stated down here.

Normally you will set low limits to people you trust. If a friend defaults on 10 usd, well, you just don't lend to him again.

And you don't use interests in a 10 bucks friendly loan, do you?

Between companies, a legal contract may be required, but those legal contracts can and must live outside the ripple network itself. The legal contract is responsible to link the addresses to real people/companies and describe the legal obligations atached to the Ripple IOUs.
If the parties already use a legally binding digital signature scheme, it is easy to link it with the signatures of the keypairs that the addresses refer to.
In summary, no escrow is needed. If you want legal liabilities, you can have them, but you have to create the legal contracts yourself.
In fact, managing and linking these legal contracts is an interesting business oportunity.

It may be possible. This way you don't need a ripple IOU. In the beginning of the loan, you sent the dollars trough a gateway (who changes the balances between the accounts), in maturity you will receive back your gateway dollars plus interests, in a normal "receiving" transaction. Your loan is backed by a contract in the real world.

[SebastianJu]

How can i exchange XRP to BTC? I tried sendint XRP to bitstamp but they sent it back because its not for sending ripple. They told me about the advanced tab in ripple but i cant find out how to exchange xrp to btc in ripple.
Anyone can explain?

[JoelKatz]

How can i exchange XRP to BTC? I tried sendint XRP to bitstamp but they sent it back because its not for sending ripple. They told me about the advanced tab in ripple but i cant find out how to exchange xrp to btc in ripple.
Anyone can explain?

I'm assuming you mean BTC issued by Bitstamp.

The easiest way to do this is as follows:

1) In the Trust tab under Advanced, create a BTC pathway to Bitstamp. Set the limit higher than the amount of BTC you want to hold. (This essentially agrees that people, including you, can pay you BTC by making Bitstamp owe you BTC.)

2) Hit 'Send' and enter in your own Ripple address. Set the currency to BTC and enter the amount of BTC you want to buy.

3) If the transaction is possible, you will be given the option to pay with XRP. If the amount is acceptable, click the green button.

The more complex way to do this is as follows:

1) In Trade tab under Advanced, select BTC/XRP.

2) Click the Change Issuer button next to BTC and select Bitstamp.

3) At the bottom, click 'Order book' to see the offers available.

4) Click 'Buy BTC' and make an offer. If it completes immediately, you're done. Otherwise, it will stay on the order book.

[SebastianJu]

How can i exchange XRP to BTC? I tried sendint XRP to bitstamp but they sent it back because its not for sending ripple. They told me about the advanced tab in ripple but i cant find out how to exchange xrp to btc in ripple.
Anyone can explain?

I'm assuming you mean BTC issued by Bitstamp.

The easiest way to do this is as follows:

1) In the Trust tab under Advanced, create a BTC pathway to Bitstamp. Set the limit higher than the amount of BTC you want to hold. (This essentially agrees that people, including you, can pay you BTC by making Bitstamp owe you BTC.)

2) Hit 'Send' and enter in your own Ripple address. Set the currency to BTC and enter the amount of BTC you want to buy.

3) If the transaction is possible, you will be given the option to pay with XRP. If the amount is acceptable, click the green button.

The more complex way to do this is as follows:

1) In Trade tab under Advanced, select BTC/XRP.

2) Click the Change Issuer button next to BTC and select Bitstamp.

3) At the bottom, click 'Order book' to see the offers available.

4) Click 'Buy BTC' and make an offer. If it completes immediately, you're done. Otherwise, it will stay on the order book.

Both ways seems to not work for me. I copied the address that is in bitstamp where it says deposit ripple. Then in advanced in ripple i go to trust, add and copy the address. Then i chose 10btc. But it tells me "Account does not meet the minimum XRP reserve" even though i have 29999 XRP.
When i go the other route, change issuer, then add the bitstamp address and click submit i only get back to the trade tab. "You must select an issuer..."

So what should i do now? I used the ripple-address i get form bitstamp at ripple deposit. I sent you my ripple address already via pm.
Whats the problem and how to solve?