I'm going to try to address every single point brought up.
But if i trust any user, even if he is my dad, then I am at risk of belonging to an endless truted pathways network, just by my dad setting a trustline with a friend of him.
In Ripple, you can never get stuck with IOUs that you don't directly trust. Payments are atomic. If you trust issuers A and B, then you can only ever receive IOUs issued by A and B. Just because another user is in the path doesn't mean that you'll end up holding their IOUs if you don't trust them directly.
does the whole crypto-currency idea -- forget Bitcoin and Ripple for a moment -- ultimately resolve back to a decentralized system where large players occupy the Crypto/Fiat interface because there are a) controls on them
Yes, exactly. All the problems come up when you need to deal with fiat. MtGox, BTC-e, BitInstant, etc... If you can conduct your business entirely in Bitcoins for example on Silk Road that solves a lot of problems of trust in entities that deal with fiat.
The word "gateway" in Ripple is totally appropriate. It is a business that acts as Ripple's "gateway" to the fiat world.
other than the transaction fee issue, how is a crypto-currency really all that useful as a payment processing solution? Forget the anonymity idea as any large scale Crypto/Fiat node is going to be regulated...
Because third parties can step in as market makers and allow balances from one gateway to be used as payments to anyone at any other gateway.
Imagine if you could send your US Dollar MtGox balance to a Bitstamp user. One obvious and immediate application would be arbitrage. Very quickly under such a system liquidity for all assets would go up. Bitcoin would immediately benefit.
So ultimately, all ripple is good for is a method to link the exchanges with one another? There seems to be a consensus here that people will only be linked to gateways through IOUs.
In my opinion, yes. Although I can't speak for OpenCoin.
There seems to be a consensus that the only gateways will be managed by reputable organizations, basically operating as exchanges.
In a fashion yes. You should never trust a gateway unless they are licensed, and reputable. Would you put your money into an exchange that was operated anonymously over Tor? I wouldn't!
So ultimately, if all the existing exchanges now, were to link with one another though an agreed upon api in order to allow all the members on every exchange to be able to trade with one another... we would have a ripple alternative?
It would certainly offer part of Ripple's functionality. It would be difficult to convince MtGox to join such a scheme since they are the market leader. And then there's the problem of implementation.
this ripple trust network, relies on trust between the central players. So these gateways/exchanges will have to trust one another, right?
No. A gateway that extends trust to another issuer is exposing themselves to risk. I would not want my money parked at a gateway that was exposed to external risk.
Intra-gateway IOU liquidity is provided by market makers. These are typically bots which post bid and ask walls in the appropriate order books. They take a small fee for converting between IOUs. Since anyone can become a market maker, intense competition drives the fees down to very small values.
Are bitcoin exchanges that trust-worthy now? Do you think Mt. Gox would be willing to trust other newer exchanges? and to accept bid/ask calls from those exchanges, as well as fulfillment from those exchanges? Why would an established player expose itself to this kind of risk?
They wouldn't.
Am I accurate in describing ripple as basically a network to connect all the major exchanges? What motivation is there for these exchanges to want to connect with one another?
Ripple let's smaller exchanges become more competitive. They can compete on things other than market share. For example they might offer better customer service. They can be more local to their customers (i.e. in the same state or legal jurisdiction). Ripple can break the stranglehold that exchange market leaders have.
Of course a gateway is the same as an exchange... What on earth would you use a gateway for other than to exchange your money for another currency?
Gateways can do much more than just convert between currencies. One strong possibility is that gateways will offer their own custom wallet interface so that users dont have to learn the obtuse reference client. A gateway could offer bill payment services, a credit card, subscriptions, and deals with merchants. Ripple would let you use any currency you wanted. So you could use your bitcoins to pay any bill, even if they only take credit cards or checks.
If both the assumption that linking people-to-people would be impractical, as per misterbigg, and the assumption that linking gateway-to-gateway would be too risky, as per Mitzplik, then who links to whom? The entire system would be broken! So which is it?
There are two ways that people can "link" together. One is for an intermediary to self-issue credit and become trusted by others. This is the "community credit" model, and one that I feel is not fully thought out or ready for public use.
The other way that someone can link gateways together is by placing bids and asks in the appropriate order book. They don't self-issue IOUs but instead they trust two separate gateways and make offers to exchange one gateway's IOUs for another. All the risk falls on that person. Someone who uses this liquidity path can never get stuck holding IOUs they dont want because payments are atomic. They either go through at the advertised price, or fail.