Ripple Pay - Open Source Cashless Payment System
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.
The original proposal of Ryan Fugger for his trust-based Ripple money system is explained in his paper:
Money as IOUs in Social Trust Networks & A Proposal for a Decentralized Currency Network Protocol (PDF)
There is also a site that explains how it should work but it's a work in progress, and the details that have been developed so far are explained on Ripple.com:
Ripple is a monetary system that makes simple obligations between friends as useful for making payments as regular money.
Normally, if your friend Alice owed you $10, she would have to pay you back before you could make any use of that debt. If you were creative, however, you might be able to pass the debt on to someone else who knew and trusted Alice, in exchange for something you wanted. For example, you might be able to get a book you want from Bob, who also knows Alice, in exchange for letting Alice know that she now owes Bob $10. Instead of money, you used Alice's IOU to pay Bob. Alice acts as an intermediary between you and Bob.
Ripple does the same thing, only it takes the idea one step further. What happens if you want to get a haircut from Carol, who doesn't know Alice at all? Your $10 IOU from Alice isn't useful because Carol being owed money by Alice doesn't mean anything to Carol. But suppose you had a way to find out that Bob, who knows Alice, also knows Carol. You could talk to Bob and arrange for him to take Alice's IOU in exchange for giving his own IOU for $10 to Carol. Since Alice owes him exactly what he owes Carol, Bob is even on the deal. Both Alice and Bob act as intermediaries between you and Carol.
And that's how Ripple works. You create a profile on the system and indicate who you know and how much you trust them by connecting to people by email address and giving them credit limits. Then whenever you want to make a payment to another Ripple user using only friendly obligations, the system finds a chain of intermediaries connecting you to the person you want to pay, and records the payment in each intermediary's account all the way down the chain. You end up owing one of your "neighbours" on the system, and the payment recipient ends up being owed by one of her neighbours.
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Date: Sat, 25 Mar 2006 15:18:12 -0800
From: "Ryan Fugger"
Subject: Ripple project website version - beta
Hi. This email is to invite you to check out the first implementation of the Ripple concept at http://ripplepay.com/. We would like to find at least one community of people interested in using Ripple as a local currency and provide us feedback to help continue developing the website.
We're particularly interested in how to make the purpose of the site clear and the site itself easy to use. We're on a shared server until we need to move to a better dedicated host, so invite people you think might be interested in using the site, but please don't invite the swarms. Thanks.
We will also be implementing a distributed P2P version over the next few months. There is a new draft of the protocol design document at http://ripple.sf.net/. The intention is to eventually integrate the
distributed protocol into the website version so ripplepay users will be part of the greater open Ripple network.
Please let me know if you would like to help with the project. Thanks.
My own explanation, after I have given this some thought, is here:
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Recently, I have participated in the open money discussions in a ning group created for the purpose of preparing for a meeting of LETS and open money aficionados in Mexico. I wasn't at the meeting, but there are interesting discussions about money on the ning group:
Also, Ryan Fugger told me about the google rippleusers group that discusses the implementation of Ripple. As I got into reading posts and discussions on that group's list, I was stimulated to write up my own introductory explanation to Ripple. Here
it is. Any comments and ideas, especially to provide answers to the open questions,
would be very welcome.
The Ripple Project
Developing an open decentralized payment network
Ripple is an account like your bank account or your pay pal account.
The Ripple account is useful because
- it leverages personal trust from friends and family to create credit
- it provides a simple method of payment between Ripple users
Although credit from your friends lets you jump-start the Ripple account by allowing you to go into negative balance, like any other account eventually your Ripple account needs to be balanced, which means you need to put money in to be able to take money out.
To put money in, you either have to get paid through Ripple for something you sold or some service you provided, or you have to convert some of your cash or bank money into Ripple money.
For making payments, Ripple will only be useful if it has wide acceptability.
There are four distinct layers to the Ripple system.
1) The system layer, which is the Ripple program that keeps track of account identities, credits and transactions between accounts and the user interface that allows us to become part of the community and to use Ripple for making and receiving payments.
2) The interpersonal layer, which is an extensive network of friends who grant each other credit as expressed in Ripple currency. Trust between people is converted into liquidity that can be sent here and there to keep track of economic interactions. The network of trust is what provides the route that payments can travel on.
3) The business layer, which connects the Ripple system and our network of friends to the real world, to useful physical products. Businesses that accept payment in Ripple currency are part of that layer.
4) The banking interface, which provides for exchange with the current monetary system. The interface is established by entities like banks or credit unions opening a Ripple account, to provide use of Ripple as an additional service to their customers.
Each one of these four layers has its own problems that need to be solved. Each one needs to be built up to full functionality if Ripple is to be a successful payment system. Although it is conceivable that Ripple could function with only the first three layers, a link in to the "real" money world seems desirable.
The Ripple program
Layer 1 exists and there is a workable implementation of the program running at
Ripple software is open source. The current user interface is browser based and records are kept on the server. Other implementations are possible, such as a network of servers that link between each other to route payments. There could also be a peer-to-peer implementation in the future, which does away with the need for a centralized server, storing records and transactions transparently and redundantly on the users' own computers.
The user interface that allows us to make payments could be brought to mobile phones, extending usability of the system very much.
The transfer method is simple - as simple as ordering a payment from your bank account or through paypal. The mechanism behind the payments is not something the person who uses Ripple needs to know in detail. The Ripple program will look for payment paths and do its job in an unobtrusive way. What's of more immediate concern is how to enter in the Ripple community and to link up with others who are already in it.
The network of friends
It is possible to start forming that network of friends by going to ripplepay.com, registering as a user and offering credit to some of your friends. It would be normal for those friends to offer you credit in turn. By doing that, both of you immediately have the possibility of using Ripple to settle accounts with each other's friends, but of course the real useful part only comes when businesses join up and you can buy things with Ripple instead of spending cash or bank money.
It is important to know that you can't just enter Ripple without also bringing in [at least some of] your friends. For the system to be able to process payments, there need to be paths of trust. Ripple links and extends these paths of trust to make a payment go from one endpoint to the other, always going through an unbroken chain of direct personal links. That is why you need to be linked with as many people as possible. You need to have given credit to and received credit from your friends, otherwise your way into the payment system is not guaranteed.
The business layer
To be widely acceptable, Ripple needs to attract businesses of all kinds to accept its currency as payment. In turn, those businesses have to have some way of spending the accumulated Ripple currency, either with other businesses or by paying their workers and perhaps the owners.
For a business, a Ripple account is like any bank account. Payments can be received into it, payments can be made from it, and there will be credit lines in and a credit lines out that further characterize the account and link it into the system. For accounting purposes, all that is of interest is the correct registration of transactions and the balance of payments, either positive or negative.
In a time of first implementation, businesses could opt to accept Ripple currency for a certain percentage of any sale, demanding cash or bank money for the rest. As Ripple takes hold, some businesses may move to accepting Ripple currency for the full amount of any payment due.
To attract businesses into the Ripple community, there has to be some advantage, something that makes it worthwhile to use this particular system of payment. It should be more profitable to accept Ripple currency than to only accept money. (open question: what would be a good "hook" for recruiting businesses to accept Ripple payments?
The banking interface
Banks and credit unions could be persuaded to join the Ripple community to offer an additional service to their clients. Banks could also provide smart cards that allow transfer of ripple currency. (open question: how exactly does a Ripple currency account link to a bank money account or to cash?)
Ripple and payment routing
A discussion of the Ripple payment system on the Openmoney Ning forum. Ryan Fugger answers questions about the similarities and differences between Ripple and Openmoney.
New donation pool to raise funds for Ripple development
A new donation pool has been created to raise funds for development of the Ripple project, with an initial contribution of $500.00. The final amount will be donated to the Ripple project to support the development of a standalone Ripple server to provide open decentralized payment through the Ripplepay site as well as other services using Ripple. All content created will be released under an open license.
The Ripple Project Wiki - the current home of Ripple development, with up-to-date information and links to related sites...
Ripple is an open source project to create a new type of decentralised currency based on trust between friends. While Ripple's technical development is ongoing, many of the core ideas are in place, as well as some prototype implementations.
My comment: "Excellent article and great explanation in simple, understandable terms of the potential of Ripple as a currency.
Once the code is polished up and ripple can run in a decentralized way, we really do have a chance of making our own money. That is all we need to keep an economy flourishing, even in times when things are as bleak as they are.
Today, our official monetary systems are being co-opted by speculative, financial interests and they are less and less apt to serve money's primary function, which is the mediation of exchange and the keeping track of debit and credit for those economic exchanges.
Ripple may be just in the nick of time to save the day. As old money gets less and less functional, we make the new on our own."