Ripple or Bitcoin

[JoelKatz]

Yes. So it requires a gateway to honor the IOUs of another gateway, thank you. Got it.

Yes. This is one case where it might make sense for a gateway to extend trust to another gateway. And people evaluating the reliability of such a gateway should take into account the additional risk they're incurring. The gateway has to choose between keeping the profits in this path for itself while taking the risk or allowing market makers to take the risk, but also the profit. We don't know if anyone will actually adopt this business model. Personally, I think very small gateways may adopt this business model (because it's their only choice) and larger gateways may adopt it temporarily, until market makers come around.

[1714285147]

1714285147

[timeofmind]

Yes. So it requires a gateway to honor the IOUs of another gateway, thank you. Got it.

Yes. This is one case where it might make sense for a gateway to extend trust to another gateway. And people evaluating the reliability of such a gateway should take into account the additional risk they're incurring. The gateway has to choose between keeping the profits in this path for itself while taking the risk or allowing market makers to take the risk, but also the profit. We don't know if anyone will actually adopt this business model.

What if a very large, well-trusted gateway goes bankrupt? Or is shutdown by authorities?

[SamS]

Thank you. The basic thesis and business proposition seems clearer to me now. I don't have huge problems with the payment systems as they exist now -- other than the fee structure and exchange rates of course.

2% for credit cards. 7% for remittances.

They seem to function "reasonably" efficiently -- certainly not instantaneously but within tolerable limits.

I think people have grown to accept as "just the cost of doing business" what they would consider intolerable if they were forced to look at it objectively.

I had a conversation about this with a man who owns a chain of grocery stores. And I asked him to imagine a hypothetical where 1 in 50 of his customers steals their groceries -- just walks out the door with a cart full of groceries without paying. Of course, he said his business couldn't survive with such a high level of theft, his margins were too tight and his costs too high, and that he would make fixing that his number one priority. Meanwhile, he takes credit cards which costs him just over 2% -- slightly more than 1 in 50.

It might be nice to be all things to all people, but establishing a single communications protocol is a large enough goal in its own right to be worthy of respect.

Thank you.

I'm not so sure about the logic here -- which doesn't mean I have it right mind you. Aren't merchants basically buying business they wouldn't otherwise get for 2% plus the risk of charge-backs? Otherwise, they wouldn't accept credit cards right? They pass on the cost to consumers -- who use the 30 day float if they're smart to offset the 2% they subsidize and grab whatever card rewards they can. As a consumer, I'm happy because I get the goods, the float, and the rewards. As a merchant, I'm happy because I get business that I wouldn't otherwise receive. As a processor, I get the fee from the merchant and interest on any unpaid balance from the consumer. If a new system takes away the credit side, then you might actually see business fall. So, how does Ripple deal with this -- something with Gateways or Exchanges? And, having said that, the remittance business is predatory plain and simple -- as are credit card "loans" at 15%.  

FWIW, with respect to grocery stores, I believe the analogy is flawed. Let's say the average sale is $100/customer for 100 customers and there is a 2% fee. That's $200 right? Let's also say the cost of goods sold is $50/customer here -- could be anything. So, the grocer loses the cost of goods sold for 2 customers ($50 x 2 or $100.00). Seems like the grocer should actually prefer to have the theft and pay no CC fees by a 2:1 margin in this example?

[QuantPlus]

Concern #1. Are individuals likely to honor each other's IOUs?

Concern #2. Are gateways likely to honor each other's IOUs?

Concern #3. Is there enough incentive for users to use this system over other services out there that already allow people to exchange fiat for crypto and vise-versa?

Concern #4. Is there enough incentive for companies to want to use this system, rather than just doing this on their own? If you are a company wanting to start a gateway, are your IOUs going to be valuable until you get other gateways honoring them? Are people going to be able to take your IOUs and use them to get other currencies?

The problem with people like you...
Is that you are too lazy to try Ripple.

Open a Ripple account, get enough some XRP to function...
Send 2 BTC to Bitstamp, sell 1 BTC for USD...
Transfer some USD and BTC from Bitstamp to your Ripple account...
Now you have an account with XRP, BTC, and USD.

Start exploring the network... start making transactions.

Ripple is a mind-blowing game-changer...
You can make it as simple or as complicated as you like...
People will be doing unbelievably creative things with Ripple.

Bitcoin infrastructure is incredibly primitive...
Everybody is rolling their own exchanges and services the HARD WAY...
None of it is up to business standards...
Ripple replaces all that creaky infrastructure with something BRILLIANT.

People like TradeFortress and all the Exchanges...
Are gonna be on Ripple in 6 months...
Or they will become irrelevant.

[Red]

We need to make it so the trust is in the protocol itself. This requires public verifiability of transactions.

This is a key feature of Ripple. Transparent relationships between parties, public visibility of trust and balances, and public verifiability of transaction.

It is absolutely everything the traditional banking system isn't. Once the public gets used to transparency in their personal financial dealings they will begin to demand it of banking institutions as well.

[JoelKatz]

What if a very large, well-trusted gateway goes bankrupt? Or is shutdown by authorities?

Money can be lost. The trust extended to a gateway should be rationally balanced against the benefits of that trust.

This has only a minimal affect on people who use gateways to facilitate payments -- only money that's "in transit" is at risk. If you figure a respected gateway has, say, a 5% chance of going bankrupt or being shut down in a year and will be holding 5% of your yearly gross at a time, that's functionally equivalent to a .25% cost. Compared to 2% for credit cards, that's wonderful.

However, it can have a significant affect on people who use gateways as a store of value. For that, you really want gateways that are insured. This is a great application for Bitcoins, IMO.

[SamS]

We need to make it so the trust is in the protocol itself. This requires public verifiability of transactions.

This is a key feature of Ripple. Transparent relationships between parties, public visibility of trust and balances, and public verifiability of transaction.

It is absolutely everything the traditional banking system isn't. Once the public gets used to transparency in their personal financial dealings they will begin to demand it of banking institutions as well.

Why? Who would want all of their financial transactions to be public?

[JoelKatz]

I'm not so sure about the logic here -- which doesn't mean I have it right mind you. Aren't merchants basically buying business they wouldn't otherwise get for 2% plus the risk of charge-backs?

To some extent. If one gas station didn't accept credit cards, they'd lose business to others. But since pretty much every gas station does, it basically just means gas is 2% (or so) more expensive.

As a consumer, I'm happy because I get the goods, the float, and the rewards. As a merchant, I'm happy because I get business that I wouldn't otherwise receive. As a processor, I get the fee from the merchant and interest on any unpaid balance from the consumer. If a new system takes away the credit side, then you might actually see business fall.

I think it's overall a pretty bad deal for consumers. They pretty much accept it because merchants have accepted the 2% as the cost of doing business, so they see all these things as free.

FWIW, with respect to grocery stores, I believe the analogy is flawed. Let's say the average sale is $100/customer for 100 customers and there is a 2% fee. That's $200 right? Let's also say the cost of goods sold is $50/customer here -- could be anything. So, the grocer loses the cost of goods sold for 2 customers ($50 x 2 or $100.00). Seems like the grocer should actually prefer to have the theft and pay no CC fees by a 2:1 margin in this example?

You're right -- it's even worse than my analogy suggests. They lose the sale price, not the cost of goods.

[JoelKatz]

Why? Who would want all of their financial transactions to be public?

That's what they said about Facebook and Twitter. We're open about almost everything else because the benefits outweigh the costs.

Say you need $50 to buy groceries. What do you do today? You put it on a credit card (at 12%?) or, worse, take out a payday loan. But there are almost certainly friends of yours who would gladly lend you the $50 if they knew you needed it.

[merve10495]

People like BitCoin because it is decentralized, that is one of the biggest selling points.
If Ripple is owned by someone I don't understand why there is a point being part of it as it is just an unacceptable version of what ever their countries currency is.
Which is a waste of time and money.
I can't wait for the 'Ripple took my money!' to be posted all over the Bitcoin forum.

[SamS]

What if a very large, well-trusted gateway goes bankrupt? Or is shutdown by authorities?

Money can be lost. The trust extended to a gateway should be rationally balanced against the benefits of that trust.

This has only a minimal affect on people who use gateways to facilitate payments -- only money that's "in transit" is at risk. If you figure a respected gateway has, say, a 5% chance of going bankrupt or being shut down in a year and will be holding 5% of your yearly gross at a time, that's functionally equivalent to a .25% cost. Compared to 2% for credit cards, that's wonderful.

However, it can have a significant affect on people who use gateways as a store of value. For that, you really want gateways that are insured. This is a great application for Bitcoins, IMO.

In the current "real-world" setup, money is either held by a bank and FDIC insured to $250K or advanced by a credit card company. So, there is no "default risk" unless the FDIC goes down. In the Ripple system, neither the store of value nor the transit value is insured. This seems like a real negative currently.

[SamS]

I'm not so sure about the logic here -- which doesn't mean I have it right mind you. Aren't merchants basically buying business they wouldn't otherwise get for 2% plus the risk of charge-backs?

To some extent. If one gas station didn't accept credit cards, they'd lose business to others. But since pretty much every gas station does, it basically just means gas is 2% (or so) more expensive.

As a consumer, I'm happy because I get the goods, the float, and the rewards. As a merchant, I'm happy because I get business that I wouldn't otherwise receive. As a processor, I get the fee from the merchant and interest on any unpaid balance from the consumer. If a new system takes away the credit side, then you might actually see business fall.

I think it's overall a pretty bad deal for consumers. They pretty much accept it because merchants have accepted the 2% as the cost of doing business, so they see all these things as free.

FWIW, with respect to grocery stores, I believe the analogy is flawed. Let's say the average sale is $100/customer for 100 customers and there is a 2% fee. That's $200 right? Let's also say the cost of goods sold is $50/customer here -- could be anything. So, the grocer loses the cost of goods sold for 2 customers ($50 x 2 or $100.00). Seems like the grocer should actually prefer to have the theft and pay no CC fees by a 2:1 margin in this example?

You're right -- it's even worse than my analogy suggests. They lose the sale price, not the cost of goods.

No, that's bad finance. Their financial loss is the COGS. Their opportunity cost -- actually selling the goods -- is the sales price less transaction fees.

[JoelKatz]

In the current "real-world" setup, money is either held by a bank and FDIC insured to $250K or advanced by a credit card company. So, there is no "default risk" unless the FDIC goes down. In the Ripple system, neither the store of value nor the transit value is insured. This seems like a real negative currently.

A .25% default risk (5% risk of the event, 5% of funds at risk) versus a 2% credit card fee, a 6% remittance fee, or a 5% conversion fee looks like a pretty good deal. But I definitely agree -- having insured gateways is even better.

[acceptance2]

Moderators?

How is it this escapes forum policy that applies to all other cryptos?

Why hasn't this topic been moved to Alternate cryptocurrencies?

Is forum policy that flexible?

[SamS]

In the current "real-world" setup, money is either held by a bank and FDIC insured to $250K or advanced by a credit card company. So, there is no "default risk" unless the FDIC goes down. In the Ripple system, neither the store of value nor the transit value is insured. This seems like a real negative currently.

A .25% default risk (5% risk of the event, 5% of funds at risk) versus a 2% credit card fee, a 6% remittance fee, or a 5% conversion fee looks like a pretty good deal. But I definitely agree -- having insured gateways is even better.

I understand your point, but I don't think I really understand the fee structure overall. Won't there be fees associated with storing the value, insuring the storage, converting the currency to/from Fiat, etc... These are all things that are baked into that 2% credit card fee or 5% conversion fee (FX yes?). The remittance fee is a scam -- on this we agree.

[JoelKatz]

I understand your point, but I don't think I really understand the fee structure overall. Won't there be fees associated with storing the value, insuring the storage, converting the currency to/from Fiat, etc... These are all things that are baked into that 2% credit card fee or 5% conversion fee (FX yes?). The remittance fee is a scam -- on this we agree.

These are the things they say are baked into that fee to justify it, but the reality is quite different. The reality is that it's lack of competition, extension of credit, and fraud prevention (due to the fact that you give the credentials away fully to make a payment) that accounts for most of the fee. Still, credit cards are probably not the very best disruption target. The higher the cost, the easier to disrupt.

[SamS]

Why? Who would want all of their financial transactions to be public?

That's what they said about Facebook and Twitter. We're open about almost everything else because the benefits outweigh the costs.

Say you need $50 to buy groceries. What do you do today? You put it on a credit card (at 12%?) or, worse, take out a payday loan. But there are almost certainly friends of yours who would gladly lend you the $50 if they knew you needed it.

  I actually don't use Facebook or Twitter so that argument doesn't resonate with me -- I'm actually a big privacy advocate. Arguendo though, people have a choice as to what they post on Facebook or Twitter. The same cannot be said of a public ledger. While I recognize your likely counter-argument is to then "not use this system" to do business,  I don't really think that's a positive for the proposed system. The problem isn't one of personal transparency. It's one of governmental accountability.

With regard to loans from friends, oddly enough after driving down from the Santa Cruz mountains to get groceries this afternoon I realized I had forgotten my wallet. So, I called a nearby friend and borrowed some cash for groceries. Now if the phone based transaction systems were a bit more prevalent, I could have just used my phone for the purchase, since I didn't forget that, and just avoided any kind of embarrassment and comments about encroaching senility. No loan necessary.

I'm open to the idea that these are personal preferences though rather than definitive arguments. I believe in privacy -- others may not.  

[Stampbit]

Ripple will crash

[SamS]

I understand your point, but I don't think I really understand the fee structure overall. Won't there be fees associated with storing the value, insuring the storage, converting the currency to/from Fiat, etc... These are all things that are baked into that 2% credit card fee or 5% conversion fee (FX yes?). The remittance fee is a scam -- on this we agree.

These are the things they say are baked into that fee to justify it, but the reality is quite different. The reality is that it's lack of competition, extension of credit, and fraud prevention (due to the fact that you give the credentials away fully to make a payment) that accounts for most of the fee. Still, credit cards are probably not the very best disruption target. The higher the cost, the easier to disrupt.

Yes, the remittance business I can see for sure. International wire fees are another area that might be open for review. However, what you make up in transaction fees can be easily lost in the conversion spread so it's not so obvious to me -- especially if your competition is a money center bank moving billions around the globe daily.

I don't see how fraud prevention goes away in this system. It's basically outsourced to the gateways right? Extension of credit is a money spinner for the card companies not a cost center, yes? Lack of competition is likely. Square is certainly beginning to make a miniscule dent and the online wallets that are beginning to appear are likely to take a chunk as well over time.

[SamS]

Moderators?

How is it this escapes forum policy that applies to all other cryptos?

Why hasn't this topic been moved to Alternate cryptocurrencies?

Is forum policy that flexible?

It's been a civil discussion for awhile. I don't mind holding it in alt-crypto though -- and I agree that's where it belongs from my perspective.