In my last post, I looked at Ripple, a project to build money out of IOUs in trust networks. Ripple seems to be one of the most innovative ideas about how money could exist in the future: as personal credit between trusted parties, rather than credit created by commercial banks. I recently contacted Ryan Fugger, Ripple’s lead developer, to find out more about the project. I hope you enjoy this interview.
Ripple is a fascinating idea. Could you describe it in a nutshell? What problems is it designed to solve?
Ripple is a system for making value transfers across multiple intermediaries through a financial trust/credit network. There is no need for a central entity to manage the value of any “currency” unit — each participant issues their own currency as obligations or IOUs, denominated in whatever units they wish. It is designed to solve the problem of central bank managers imposing their own value judgements on the economy, while being more scalable than a LETS.
Is it fair to compare Ripple to LETS, or is it trying to do something different?
Ripple was inspired by LETS creator Michael Linton’s philosophy that a dollar is fundamentally just a unit of measurement, and that people should not be prevented from cooperating with each other just because they do not have enough tokens to measure their transactions. LETS attempts to fix this by creating a system where the fact of a transaction occurring causes tokens to be created. However, since the tokens represent collective obligations that can be brought into being by individuals, LETS is vulnerable to abuse by people who take more than they give, devaluing the tokens. Basically LETS only works if all participants trust each other.
My solution to this problem is that participants should issue obligations directly to each other, with no collective intermediary. If you don’t trust someone’s obligations, then you don’t accept them — instead, the system attempts to exchange them via one or more intermediaries into obligations from someone you do trust. If you trust Alice, who trusts Bob, who trusts Carol, then you can accept payments from Carol via Bob and Alice, and end up holding IOUs from Alice. That’s how Ripple routes payments through a trust network.
How far along is the project to build Ripple? What are the main obstacles to building it? What can we expect in the coming year?
There are several aspects to the project. I launched Ripplepay.com as a single-server Ripple system 5 years ago. Right now I’m working on version 2 of that site, including a marketplace where users can discover each other and what they have to offer. I’m also working on software for a distributed Ripple network that can process transactions across multiple independent servers. That’s a more ambitious long-term goal, however.
In the coming year, I hope to release the next version of Ripplepay, and an alpha version of some sort of Ripple server that can be used by others to build their own Ripple services.
Bitcoin is the notorious decentralised currency system of the moment. Is it fair to compare Ripple to Bitcoin? How does it differ?
Both Ripple and Bitcoin solve the problem of centrally-issued tokens forming the basis of our monetary system, but do so differently. Ripple makes it unnecessary to have tokens that every participant accepts as valuable, and Bitcoin issues such tokens in a brilliant decentralized way. Ripple would also be a natural way to set up a banking system around lending Bitcoins, since it is also open and decentralized. Ripple also transfers value in real-time, where Bitcoin can take an hour to securely process payments.
Ripple seems to depend on an extensive network of trust to turn IOUs into money. Critics of the idea point to this as a major challenge. Do you think building such a network is possible?
It is definitely possible — the banking system as we know it is just such a network, but organized top-down in a hierarchical fashion. I have the idea that if such a network were built on personal rather than institutional relationships, it would be stronger and more resistant to domino-effect credit crises. But the idea is quite generic, and could work on any kind of trust network. The idea of building a banking system backed by Bitcoin is another use for Ripple, as is a network to connect existing complementary currencies. Heck, if ordinary banks could be persuaded to adopt something like Ripple then maybe I’d be able to send money from Canada to the USA a lot more easily. Think about it — in this day and age, why shouldn’t I be able to transfer money instantly between any two accounts in the world as easily as I send email?
Mobile devices seem to represent a giant leap in the digitisation of money, since they allow us to record payments at the point of sale without need for cash or a credit card. Do you see Ripple working on mobile devices? If so, how?
I see mobile devices being used to direct Ripple servers to make payments. I don’t see personal Ripple servers that route payments actually running on mobile devices. I think some people are confused by this point. It could be as simple as just browsing to Ripplepay.com on your phone and making a payment, although as ways of automatically recognizing the seller’s payment system identity at the point of sale develop, Ripple can include those as well.
Ripple seems to depend on an underlying currency in which IOUs can be denominated. Some might argue that this makes the system dependent on the existence of an underlying fiat currency as a unit of measure. Do you agree and if so, is this a problem?
You can value your Ripple obligations in fiat currency units, or you can value them in commodity units, or time, or whatever you can invent and get people to accept (like central banks do). I don’t see it as a problem at all.
If Ripple succeeds, ordinary people will have the power to create money as credit within trust networks. Currently, only commercial banks and central banks can create money. Could Ripple be politically controversial, if it leads people to rely less on banks, and more on each other?
I think if Ripple is successful, then it will be somewhat controversial. But because of its cooperative, community-oriented nature, at least as I envision it, I think it is more likely that it will be welcomed as a way to remobilize people economically in these difficult times.
Thanks to Ryan Fugger.
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