Ripple - Bullets and Debt Based Currency

[bitaccumulation]

I'm beginning to wrap my head around Ripple a little bit and I have some questions.

1. Let's say I own a gun shop and I want to create IOU's based on the most popular bullet sold in my store.  They send me cash and I issue 9MM's-BITACCUMLATION (or whatever they'll be called).  Every one can pick up their bullets on demand from the store during work hours or have them shipped to their home for the cost of postage and delivery.  Would this be a good application of Ripple and what would be the exact procedure to go about this within the Ripple client?    This same procedure could be repeated with other items like gold, silver, etc. - yes?

2. If I am getting this right Ripple is a transaction ledger for RECEIPTS (IOUs).  Yes?  Receipts or IOU money was necessary in the past because it was a pain in the ass and dangerous to keep large amounts of commodities on your person or in your house so you entrusted it to a bank in return for an IOU.  These IOUS circulated.  This bank would have a big ass safe and lots of security to keep your commodity safe.   However, with the creation of Bitcoin, the commodity and safe come in one package, so technically the need for IOUs and banks becomes unnecessary.  This is one of the best things about Bitcoin.  The removal of needing trusted intermediaries that can rob you blind.  So how exactly does this system compliment Bitcoin?  And how is moving BACK towards a trust based system useful?

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[Praxis]

The problem I have with Ripple is that University-educated people need a long time before they begin to understand how it works. How can it hope to become popular?

[paraipan]

Good questions OP, I'm subscribing with the hope someone more knowledgeable will answer them.

[bitaccumulation]

The problem I have with Ripple is that University-educated people need a long time before they begin to understand how it works. How can it hope to become popular?

This does seem to be an issue.

Lots of hoops to jump through.   You need to get a foreign currency (ripples) to get your account to work.  You need to understand how currency trading works (there is no simply mechanism to buy things).    Not much is intuitive in the interface (although it is pretty slick from my point of view).   Also, they keep using IOUs as their way of explaining things.  They should make a simple analogy (like I did above with the banks issuing notes on hard currency like gold).  Then they should create a simple analogy so people can understand where these ripple things fit into this system other than being a tax.

Maybe it will be a platform that people can build simpler applications on top of it?

That was always a big issue with Bitcoin.   The thing that has made more widespread adoption possible is Coinbase.  People like to be able to do something in the simplest way possible (ie - deposit money like they do in Paypal and be able to buy stuff and Coinbase fulfills that type of role).

These type of things will always start with the more hardcore folk though, which is why they are starting on the Bitcoin forums (I'm assuming).  

I think it could be real useful if there were lots of liquid markets available to trade.  However, having to open an account with an exchange, so that you can then exchange in another interface, is certainly another layer of complication that will never appeal to the average Joe user.

[bitaccumulation]

More on the complication part...

When I wanted to set up an account, I realized I needed XRP in order to do anything.   Naturally I came here to see what I could do and saw they were doing a free giveaway of XRP see: https://bitcointalk.org/index.php?topic=145506.0

I have been a member here since 2011 but always lurked so I didn't have the minimum number of posts, so I emailed one of the OpenCoin people to see if I could get some XRP to start.   He sent me a link to a place where I could buy them.   I went to said link and ended up buying 100,000 for 2.3 BTC thinking that this must be a reasonable deal or the employee of Opencoin would not have sent me there.

Now with my ripple in my account, I began messing around and decided to see if I could buy some ripple directly within the interface (I could).   It was then that I realized that I could buy (instantly) 100,000 XRP for 1 BTC.   Needless to say this did not make me feel very warm and fuzzy about being sent to the place that charged me 2.3 BTC.  

The one good thing that happened so far because of this is that I got up enough posts that I can come out of lurking and start contributing some posts.   I also got to put in my Ripple address for the ripple giveaway.

I would feel better if one of the Open Coin people sent me another 130,000 ripples to make up for getting ripped off by the vendor I was referred to.  That would be cool. rNU4JR8bF4P3LTNHshD8UV6dkkUcvJqxUr

In any event,  this is a lot of work (and a quite a bit of frustration over spending the equivalent $182US more than market for ripple because I trusted the recommendation of an Opencoin employee) to have to go through to just get STARTED in the system.  A lot of work.  Plus I had to open an account at Bitstamp (I forgot that), since they are one of the only hubs right now.

How will this process be made easier in the future?   Maybe at this initial stage having people "beg" for XRP is a decent strategy to get early adopters but what is the long-term strategy?

[ahbritto]

I'm sorry you paid such high premium.

The going rate for BTCXRP on the internal market can be found here: http://bitcoincharts.com/markets/rippleXRP.html

Currently, the only web store I know to buy XRP for bitcoin is xrptrader.com.

Hopefully, your story will encourage competition and better pricing.

[dchapes]

1. Let's say I own a gun shop and I want to create IOU's based on the most popular bullet sold in my store.  They send me cash and I issue 9MM's-BITACCUMLATION (or whatever they'll be called).  Every one can pick up their bullets on demand from the store during work hours or have them shipped to their home for the cost of postage and delivery.

See this post by TTBit where he describes how he is doing something similar with DYM, pre-1965 silver US dimes.

Would this be a good application of Ripple and what would be the exact procedure to go about this within the Ripple client?    This same procedure could be repeated with other items like gold, silver, etc. - yes?

Personally I think the negatives of trying to use one specific type of ammo as currency outweigh any benefit. Rather I'd think you'd just sell all your various types of ammo priced in whatever currencies make sense for you to accept; you'd then use Ripple to allow people to pay you that currency using whatever currencies/credit they have on Ripple (the same way you'd use Paypal as a merchant).

If you did want to do it anyway ...  [The following may seem complicated but if you replace "9MM via Ripple" with "USD via Paypal" it's the same level of complexity for what Paypal lets you do. Ripple lets you do more however and with less fees.] ...

You'd post somewhere (on the store website, here, where ever) what your redemption policy on "9MM" is (as you say above: in store or shipped; probably add that amounts need to be above a minimum and rounded off to whatever the ammo box size is, e.g. multiples of 24 or 50 or whatever, or make the unit "boxes of 9mm" rather than "rounds of 9mm"). This would act kind of like a gift card.

If someone sends you cash or pre-orders in-store a years supply of ammo you could directly send then "9MM" (via Ripple's "Send" interface). However if someone sends you cash they likely want you to send them the ammo and not IOUs; unless they want to trade or resell them or something. Again, this use would be kind of like a gift card.

If you want to directly accept currencies/IOUs traded/used on Ripple you can enter trade offers. For example, on the trading interface type in "9MM/BTC" (you need to type it in because 9MM is not a standard currency type). You select your ripple address as the 9MM issuer and you'd select some gateway as the BTC issuer (e.g. Bitstamp; you could enter multiple offers for multiple BTC issuers, perhaps even yourself) and enter in a SELL order at X rounds priced at Y BTC per round. [Since Y would probably be very small you'd likely flip this around and instead enter a BUY order for BTC/9MM for 1/Y rounds per BTC, the effect is identical; this is why BTC/XRP is used instead of XRP/BTC].

Anyone can now try to redeem/use/pay you "9MM". Lets say they go to your gun store's web page and enter an order form asking for X rounds. You list Ripple as a payment option and if selected you send them to a link (just like paypal works). The link includes your ripple address, an identifier, the amount+currency (X 9MM; but it could be Y USD or whatever). The user then gets the Ripple send interface to send X "9MM". Ripple finds whatever paths are available to the user and either says "no path" or says something like "you could send X 9MM or Y BTC or Z USD or # XRP" the user picks whatever available currency they hold to complete the payment. If they select a non-9MM currency Ripple automatically executes the appropriate trades (perhaps some third party is SELLing 9MM for EUR, this gives the user the ability to pay in EUR). Also note that within a currency Ripple will find paths through extended credit lines without needing trades. E.g. the person can pay in EUR buy redeeming some of their IOUs with the guy trading for 9MM and by owing someone else that had EUR the remainder, the paths can be complicated but the user just sees "pay # EUR ?".

If Joe Schmoe is at the range and "borrows" a box of X rounds from Fred; then Joe could record this debt by sending Fred X "9MM" on Ripple; this would be a 9MM IOU issued by Joe. By themselves they can't do anything with this IOU. However, Joe later trades some of his BTC for your 9MM IOU. Now Fred can send you 9MM to be redeemed for actual ammo (Ripple ripples the payment through Joe basically swapping the Joe-9MM for your 9MM IOUs) thus clearing the Joe's debt.

[dchapes]

2. If I am getting this right Ripple is a transaction ledger for RECEIPTS (IOUs).  Yes?  Receipts or IOU money was necessary in the past because it was a pain in the ass and dangerous to keep large amounts of commodities on your person or in your house so you entrusted it to a bank in return for an IOU.  These IOUS circulated.  This bank would have a big ass safe and lots of security to keep your commodity safe.   However, with the creation of Bitcoin, the commodity and safe come in one package, so technically the need for IOUs and banks becomes unnecessary.  This is one of the best things about Bitcoin.  The removal of needing trusted intermediaries that can rob you blind.  So how exactly does this system compliment Bitcoin?  And how is moving BACK towards a trust based system useful?

I recommend you read Ripple, or Bills of Exchange 2.0. It might enlighten you on why an automated way of handing IOUs and making them usable/tradable/divisable without the issuer's intervention is not a step a backwards but instead cuts out a lot of what banks do for large fees.

[JoelKatz]

However, with the creation of Bitcoin, the commodity and safe come in one package, so technically the need for IOUs and banks becomes unnecessary.  This is one of the best things about Bitcoin.  The removal of needing trusted intermediaries that can rob you blind.  So how exactly does this system compliment Bitcoin?  And how is moving BACK towards a trust based system useful?

Despite the clear advantages of Bitcoin, a small number of people still find it useful and necessary to transact in fiat currencies like dollars and Euros. Rather than seeing Ripple as a step backwards from Bitcoin, I would submit that you should see it as a step between fiat currencies and crypto-currencies -- a world in which they can coexist and seamlessly inter-operate.

Yes, transacting in fiat currencies will mean counter-party risk. But Ripple does many things to mitigate this risk. For example, issuers cannot freeze or modify balances. An issuer that refuses to redeem balances for one party can't stop them from exchanging their balance for a balance at another issuer. If an issuer refuses to redeem balances or delays them, the instantaneous value of their balances will show in the exchange, driving their customers away. And, of course, each user gets to choose their own issuers with numerous features to keep payments seamless and avoid default chains. (Payment chains exist only for the instant a payment is made.)

Ripple complements Bitcoin in many ways. For one thing, Ripple is becoming a convenient way to buy and sell Bitcoins. In addition, every merchant that accepts Ripple will be one more place you can buy things with Bitcoins. Ripple also offers a faster way to move Bitcoin balances between people and takes transactions off the blockchain.

[chriswen]

Okay so ripple is good because there are barely any transaction fees.  It also allows you to issue your own currency which is the second plus.

[bitaccumulation]

See this post by TTBit where he describes how he is doing something similar with DYM, pre-1965 silver US dimes.

Very cool, thanks for linking to that.

[Peter Lambert]

I'm beginning to wrap my head around Ripple a little bit and I have some questions.

1. Let's say I own a gun shop and I want to create IOU's based on the most popular bullet sold in my store.  They send me cash and I issue 9MM's-BITACCUMLATION (or whatever they'll be called).  Every one can pick up their bullets on demand from the store during work hours or have them shipped to their home for the cost of postage and delivery.  Would this be a good application of Ripple and what would be the exact procedure to go about this within the Ripple client?    This same procedure could be repeated with other items like gold, silver, etc. - yes?

2. If I am getting this right Ripple is a transaction ledger for RECEIPTS (IOUs).  Yes?  Receipts or IOU money was necessary in the past because it was a pain in the ass and dangerous to keep large amounts of commodities on your person or in your house so you entrusted it to a bank in return for an IOU.  These IOUS circulated.  This bank would have a big ass safe and lots of security to keep your commodity safe.   However, with the creation of Bitcoin, the commodity and safe come in one package, so technically the need for IOUs and banks becomes unnecessary.  This is one of the best things about Bitcoin.  The removal of needing trusted intermediaries that can rob you blind.  So how exactly does this system compliment Bitcoin?  And how is moving BACK towards a trust based system useful?

Say you owe me 0.01 btc. With the way btc prices are going, that could be for something like a coffee or whatever. You send me the btc, it has to sit in my bitcoin wallet for about 100 days before I can send it along without a transaction fee. If, instead, you send me that btc through Ripple, then I can send it along to its next home immediately.

There are still times when it makes more sense to use bitcoins, but ripple adds more flexibility to the whole system

[bitaccumulation]

Yes, transacting in fiat currencies will mean counter-party risk. But Ripple does many things to mitigate this risk. For example, issuers cannot freeze or modify balances. An issuer that refuses to redeem balances for one party can't stop them from exchanging their balance for a balance at another issuer. If an issuer refuses to redeem balances or delays them, the instantaneous value of their balances will show in the exchange, driving their customers away. And, of course, each user gets to choose their own issuers with numerous features to keep payments seamless and avoid default chains. (Payment chains exist only for the instant a payment is made.)

This confuses me if the guy issuing DYMs refuses to send me my dimes on demand, how do I exchange those DYMs to another issuer.  Someone has to lose out on that transaction no?

And when you say "if an issuer refuses to redeem balances or delays them, the instantaneous value of their balances will show in the exchange."  I'm not sure what this means.  Can you give me an example?  I know you are saying it will be clear to everyone that someone is defaulting, I'm just not sure how that happens or what you mean by "their balances." (or where that can be found).

[JoelKatz]

This confuses me if the guy issuing DYMs refuses to send me my dimes on demand, how do I exchange those DYMs to another issuer.  Someone has to lose out on that transaction no?

Nobody has to lose out. You trade those DYMs on the Ripple network for, say, USD from an issuer that is redeeming for you. Those DYMs either go to someone who owes something to the issuer they can cancel them against or someone who the issuer is still redeeming for. If the issuer just decides they won't redeem for you because there are too many vowels in your last name, you can just change issuers and/or currencies. So long as the balance itself retains value, you can trade it to someone who values it.

For most issuers, you can transact using their balances without having any formal relationship with them. You can just trade those balances for balances in other currencies or from other issuers when you wish to cash out. You can do this entirely implicitly. In the Ripple client, I can tell it to pay 5 Bitcoins to my Bitstamp account and if I hold sufficient DYMs, I'll get the option to pay with them. I can buy those DYMs for USD and hold them and never have any relationship with the guy who backs the DYMs. He doesn't even have to do business in my country. The fact that he generally reliably redeems for others is enough to give his balances value to me.

And when you say "if an issuer refuses to redeem balances or delays them, the instantaneous value of their balances will show in the exchange."  I'm not sure what this means.  Can you give me an example?  I know you are saying it will be clear to everyone that someone is defaulting, I'm just not sure how that happens or what you mean by "their balances." (or where that can be found).

Right now, you can take USD from Bitstamp and freely interconvert it to USD from WeExchange on the Ripple network. The same is true for BTC. This is because a number of people hold balances from one issuer but are equally happy to hold a balance at the other issuer. This is because both issuers are reliable and trustworthy and it's more convenient for everyone to value them the same even if they could justify microscopic differences in value. (There are also people intentionally providing liquidity.)

Now, say an exchange were to stop redeeming Bitcoins for some reason. Maybe it's due to a technical problem. Maybe it's because they're broke. Whatever. Suddenly, people would prefer to have Bitcoins issued by WeExchange or Bitstamp rather than them. This will cause a cascade of network effects, all of which will be entirely visible. That is, the fact that an issuer's balances retain near enough to face value that people don't try to discount them acts as a market indicator that they are reliably redeeming generally. Any hiccups in their redemption that significantly affect people's ability to redeem will be visible and will hurt the gateway's bottom line. Nobody's going to send 5 Bitcoins to an issuer whose "5 BTC" balance isn't worth really, really close to 5 Bitcoins when they can instead send them to an issuer whose balances are valued at face value.

If a gateway wants to stay in business, they will need to make it a business objective to have their balances valued at face value by the market. Otherwise, they will not see any inflow.

People worry about PayPal freezing their balances or reversing payments. This is because PayPal can get away with doing this without it hurting them. But how much do you worry that PayPal will close their business entirely? They can't do this without losing all the value they've built as a business. So it's a much smaller risk, though it creates about the same harm to each customer. Ripple gateways can't really target individual customers, because those customers can just trade away their balances.

[bitaccumulation]

On the issue of exchanges and transactions...

How will this work in the current US legal framework?

Doesn't transacting in various currencies invoke Fincen and Securities and Exchange regulations?

I understand some of the exchanges might be licensed but once you are transacting inside of Ripple, could violations be occurring that could cause this concept not to work due to regulatory pressures or has this been thought out and accounted for?

[chriswen]

On the issue of exchanges and transactions...

How will this work in the current US legal framework?

Doesn't transacting in various currencies invoke Fincen and Securities and Exchange regulations?

I understand some of the exchanges might be licensed but once you are transacting inside of Ripple, could violations be occurring that could cause this concept not to work due to regulatory pressures or has this been thought out and accounted for?

Transacting inside Ripple should be okay.  Money isn't actually moving.  IOUs are moving.  BUT gateways need to follow correct rules and anti-laundering stuff.

[bitaccumulation]

Transacting inside Ripple should be okay.  Money isn't actually moving.  IOUs are moving.  BUT gateways need to follow correct rules and anti-laundering stuff.

IOUs are securities no?  There are three broad categories of securities - debt, equity and derivative.

I'm not a lawyer and not up on all the legal ramifications, but I am hoping the OpenCoin and its people have some answers to these type of concerns.  A regulatory attack would put a pretty big damper on a project like this.

[bitaccumulation]

Say you owe me 0.01 btc. With the way btc prices are going, that could be for something like a coffee or whatever. You send me the btc, it has to sit in my bitcoin wallet for about 100 days before I can send it along without a transaction fee. If, instead, you send me that btc through Ripple, then I can send it along to its next home immediately.

The problem with this is that there is a fee for this in Ripple if you are using exchange IOUs (which is what most people will be using).

[JoelKatz]

Say you owe me 0.01 btc. With the way btc prices are going, that could be for something like a coffee or whatever. You send me the btc, it has to sit in my bitcoin wallet for about 100 days before I can send it along without a transaction fee. If, instead, you send me that btc through Ripple, then I can send it along to its next home immediately.

The problem with this is that there is a fee for this in Ripple if you are using exchange IOUs (which is what most people will be using).

For small transactions, the Ripple transfer fee will be lower, because it's a percentage. For large transactions, the Bitcoin fee will be lower, because it's a fixed amount (or zero if you're patient).

[Neverest]

Say you owe me 0.01 btc. With the way btc prices are going, that could be for something like a coffee or whatever. You send me the btc, it has to sit in my bitcoin wallet for about 100 days before I can send it along without a transaction fee. If, instead, you send me that btc through Ripple, then I can send it along to its next home immediately.

The problem with this is that there is a fee for this in Ripple if you are using exchange IOUs (which is what most people will be using).

For small transactions, the Ripple transfer fee will be lower, because it's a percentage. For large transactions, the Bitcoin fee will be lower, because it's a fixed amount (or zero if you're patient).

How much Ripples / XRP's are needed for an account to do things? A minimum of 200 (?) is needed to start, but what is the use and value of having many more ripples? How many do you 'spend'(?) per transaction and where do they go? And yes, I also do have a university degree