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The Ripple Project March 11, 2008

Posted by olvidadorio in Money.
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There’s an interesting project called Ripple (with a running system) that’s creating a protocol for exchanges in arbitrary currencies, focusing on the trust- and social networking aspect of money. It has quite a few impressive features, it’s open-source, decentral etc. The most important point to me is that their protocol does away with the necessity for people to know or trust each other – and nevertheless perform a trusted transaction.

The basic idea is to use paths in a trust-graph to transfer money, where trust is quantified by the level of credit that people grant one another. So if I want to give you 50 GDollars (just as an example) this is not much different from saying that I owe you something – anything worth 50 quid. What makes money special is that I don’t have to work for you directly to repay my debt, I could be working for anybody in the whole society.

In fact, “normally” (before the advent of credit cards) I already worked for a third party, who gave me the money, and who then could be redeeming his “debt” by doing something for you.

All of this works out fine, as long as everybody trusts everybody (basically), or at least society as a whole.

Often, this may be the case. There are however – and have always been – times in which confidence in the collective has wained strongly. Specifically in times of national debt and economic crisis. The phenomenon is mostly called hyperinflation – loss of trust in the currency used.

This is one scenario in which techniques such as Ripple might come into play: Ripple no longer makes it necessary for all the people in one money-system to trust each other, instead one only needs to have sufficiently strong paths of trust and accountability between all participants.

There may be some tricky details remaining; One still should watch out though for bad branches in one’s trust-network. It’s not clear in which manner values (and credit) would be denoted in practice; whether one would use national currency, fully free value-denotations or possibly commodity or metal-based money (eg. based on units of grain, water, oil, gold or silver – or advertisement?).

It’s really nice that this system is more flexible and inclusive than classical community currencies (eg. LETS, see also an comparison). This type of system has also been successfully applied for centuries: there is a less technical – and much older and traditional version of the Ripple idea, called Hawala, which originated in the islamic countries during the middle ages – and is used to this day to transfer debts along a network of trusted middlemen to this day.

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