Ripple is widely misunderstood.
At large, the Ripple protocol has been designed from its outset to
level the playing field:
Paying without cash and without going through a bank may seem an impossible proposition. Not so, says Ryan Fugger, the architect of Ripple, an open source bank-independent peer-to-peer payment system that is now in Beta release, meaning it's open to play with and test.
The proposal is based on the fact that all payments are made through IOUs. While this is obvious in the case of trust between individuals, it is more obscure when considering cash, which is based on trust in the government, or the bank credit, which we obtain by the bank accepting our IOU - collateral - and providing its own IOU - a positive bank balance - for us to use in payment.
The idea of a direct payment system that complements and may eventually make obsolete both bank and government IOUs is simple but it has world-changing potential. It tends to counteract a huge drain on the economy which is operated by the mechanism of interest. Since some 97 % of our money is created a a loan from a bank, it requires continual interest to be paid to its owner, the bank.
It is a concept with
historical precedent:
People created their own currencies, to substitute for the collapsing money supply. They kept using checks to pay one another, but then, people’s checks began trading within communities. Here’s how Antoin Murphy, one of the few scholars to have studied these strikes, which took place in the 1970s, describes it: “a highly personalized credit system without any definite time horizon for the eventual clearance of debits and credits substituted for the existing institutionalized banking system.”
The country in question was Ireland — today, in deep crisis because of profligate banks.
So why were the Irish of yesteryear able to trade notes with one another, in lieu of credit issued by banks? Well, Ireland was curiously well situated for this kind of resilience. It was an economy full of a very special kind of institution: what I’ve termed in my book, The New Capitalist Manifesto, Value Conversations. Antoin Murphy notes in no uncertain terms that the Irish economy was characterized by intense, frequent, conversational personal contact: tight, dense, solid local knowledge circulating at high velocity within and across communities. Result? Borrowers and lenders could build solid microfoundations of trust. In other words, when you’ve been chatting with Bill every night at the local pub for twenty years, you probably know whether his note is a good bet or not (and further, just how much to discount it to earn a sustainable and fair return, that neither fleeces Bill, nor robs you). Furthermore, if you’re the publican, and you’ve been chatting with me and with Bill, then you’re even better positioned to become a de facto arbitrator of notes — a bank. And that’s exactly the role that pubs began to play.
You might say that a radically decentralized, p2p financial system spontaneously arose. Instead of letting the bankers’ strike collapse their prosperity, people decided, simply, that they could get on with the day-to-day stuff of banking themselves. In slightly more formal terms, I’d suggest that they were able to take on, at least in tiny part, five of Robert Merton and Zvi Bodie’s six standard functions of a financial system: settling payments, providing information, setting incentives, pooling resources, and transferring resources. The bankers thought even one of six might have been impossible. It’s as if the economy settled into a new dynamic equilibrium: one where emergent, unpredicted — and totally unforeseen — behavior unlocked a very different kind of financial system. It wasn’t perfect; yes, foreign currency transactions were problematic, yes, moral hazard was an issue, and perhaps my reading, having not been there myself, is frankly erroneous. It’s not a utopian picture — just a very different one from mega-banking, with a very different feel, purpose, and structure.
Add in global distributed/decentralized ledgers, smart contracts, real-time settlement---and we can already begin to fill in many gaps.
I see tremendous value in the concept of individually issued currencies, and I also do not see that feature as mutually exclusive with mining---if mining tech is adapted to support that use case at a fundamental level. Mastercoin and others are beginning to lead the way. I also see value in rethinking mining itself. Hybrid systems offer a lot of
potential value. Real-time settlement of individually issued currencies is a powerful concept. I do not want my livelihood beholden to a single currency.
Regarding the strategy of Ripple Labs, here is the opinion expressed by the creator of Ripple and its community vision (Ryan Fugger):
I spent years working on growing pre-XRP Ripple in a grassroots fashion, and it was ultimately a barrier that people and small businesses aren't used to being credit intermediaries. I generally prefer the grassroots approach, but it makes sense to me to initially target institutions that are already acting as credit intermediaries, at least for the credit network portion of Ripple.
I think Ripple Labs is taking a pragmatic and effective approach, and
their resultant recent major successes are relevant to the future of all cryptocurrency. As outlined in my response to the linked post, I believe a multi-phase approach will be necessary to drive ubiquitous adoption of cryptocurrencies at global scale.
I do not see Ripple and Bitcoin as mutually exclusive. I see them as complementary. I do not believe the future of cryptocurrencies will be a
zero sum game. In general, I see a future of many competing currencies as the healthiest future that we can hope for. Bitcoin, Litecoin, NXT, DOGE, Ripple, Ethereum, and all the rest can have promising futures together. Multi-currency support in cryptocurrency systems designed for interoperability with other systems (cryptocurrency and beyond) will play an especially important role.
Dismissing Ripple outright is a disservice to the cryptocurrency community at large, so long as it continues to lead to a tendency of dismissing all of the underlying open source tech and concepts delivered. Adapt, fork, and improve if you are uncomfortable with fundamental components of the Ripple Labs implementation or network growth strategy.
Codius, the Ripple Labs smart contract protocol, is being designed decoupled from Ripple. An engineering team of 30+ (and growing) is delivering value that the entirety of the community can benefit from, through both Codius and Ripple.
Investing in Ripple, as with any cryptocurrency, is high risk. I am not advocating you invest in Ripple. Do not invest in any cryptocurrency that you have not taken the time to thoroughly research and understand. At the moment, I am not aware of any cryptocurrency that is able to effectively scale at a technical level to meet global needs. Major technical breakthroughs are still needed to cover those needs, and all coins can innovate to drive those changes. It is a reason why strong developer support is essential. As of 2010
VISA could handle a daily load of between 2,000 - 5,000
transactions per second, with a burst capacity of
24,000. IO, disk space consumption, processing overhead, as well as network communication efficiency are all in need of major innovation.
We have a long way to go, together.
