Ripple 3.0?

[cjen...@googlemail.com]

Hi All

I've been observing the development of Ripple 2.0 - as yet another VC funded slow motion Dot Com train wreck - with a kind of grisly fascination.

There are two types of credit: people-based (based upon the capacity of people to provide goods and services individually and collectively), and asset-based (based upon the production or use value over time of a productive asset.

Ripple concerns the decentralised clearing of 'people-based' credit: what is being missed by the proponents - Mr Larsen and colleagues - is that credit clearing does not require currency at all, but it does require a standard unit of account (which could be the dollar) and it does require a framework of trust (which is of course what credit intermediary banks provide based upon their cushion of proprietary capital).

People-based Credit

People-based credit necessarily involves credit/IOUs issued by individuals or corporates.

In times gone by merchants whose credit was good would have their IOUs accepted - at a discount - in payment, and these would often then be accepted by another buyer and so on down a chain until they eventually found their way home to the issuer being accepted by him in payment for value he provides either in goods or services or in currency. 

We would then see a chain A>B>C>D>E>A and it is from this basis that Merchant Banking evolved.

Note that such chains are routinely generated upon the monthly expiry of the North Sea Brent/BFOE Crude Oil Forward contract. 'Brent Daisy Chains' have been known up to 100 long, and wherever there is an occurrence in a chain of A>B>C>D>A the chain will be shortened by what is known as a 'book-out' where no physical contract is performed with crude oil delivered in settlement of the contract, but rather there is a settlement of a cash difference.

Guarantee Society

A framework of trust is necessary to make a success of Ripple, within local and functional communities -  ie individuals with a geographic or other common interest or Common Bond 

A Guarantee Society is a mutual guarantee agreement. These exist in 18 EU countries where local businesses club together for the purpose of mutual guarantee of bank loans, but this use - like banks - is moribund.

More to the point, for 140 years ship owners have found there are certain risks that Lloyds of London and other insurers will not cover and they therefore formed what became known as Protection & Indemnity (P&I) Clubs.  

http://www.thomasmiller.com/companies-divisions/uk-pi-club/

In this model the members mutually share the relevant risk, backed by premiums and/or collateral paid into a fund in collective (not proprietary) ownership. A service provider/broker - Thomas Miller - has operated these Clubs for 135 years, dealing with admin; handling defaults, and providing other services to members.

The beauty for Thomas Miller - and in a Ripple 3.0 for service-providers-formerly-known-as-banks - is that they need only sufficient capital to cover operating costs, since it is the members who take the performance risk.

I propose precisely the same mutualised architecture as a framework of trust for decentralised credit clearing: ie for sellers and buyers on credit terms to share system/platform costs (eg via a subscription) and for both to pay a guarantee charge for the use of the mutual guarantee. The outcome is essentially a community credit card, but with no payment to rent-seeking managers or owners of shares of joint stock in that particularly lethal form of entity the joint stock company.

This post on the ISRS web-site (I was asked by the former UK Minister of Defence to work - post 2008 Crash - on a more resilient financial system) covers it,

https://blogs.ucl.ac.uk/resilience/2013/04/04/the-community-is-the-currency/

As I have often said - the Community IS the Currency.

Proposal

I am currently working with several governments in respect of next generation financing (people-based credit) and particularly funding (asset-based credit). It is the latter -which uses prepay credits returnable in payment for value such as land rentals or energy - which enables settlement both via Ripple chains, and via the use of currency which is based upon real world value in use.

Now I could possibly recruit a team of programmers; raise funds to cover their agreed costs (I always insist that stakeholders have a stake in the outcome) and create a solution using Ripple's Open Source code as a base. 

But that sounds too much like hard work.

So I'd be quite happy to discuss with Ripple's founders - who appear to have put together an excellent team but who have IMHO both a flawed product and business model - how we might work on a joint proof of concept of the model I advocate, based upon 25 years experience of how markets and market instruments work in the real world. This would not be an alternative to their current work (which might work - I could well be wrong), but rather it would be complementary to it.

If any of them reads this and Ripple Co is interested in forking a Ripple 3.0 which:

• works in the real world;
  

• benefits the real world massively;
  

• makes everyone involved enough to do whatever they want to do;
  

then please get in touch directly. 

cjenscookATgooglemail.com

Best Regards

Chris Cook

[Ryan Fugger]

Chris, I think software to manage guarantee societies could be built quite nicely on top of Ripple.  It seems like the software is a minor part of the equation, though, and that getting people and businesses to buy into the social structure required would be most of the work.  Have you ever run your concept past Richard Logie of http://gets.cc?

Ryan

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[cjen...@googlemail.com]

Ryan

A Guarantee Society agreement is a protocol which is an overlay on the system.

Essentially the proposition for a community with a common bond (whether geographic, functional or both) is identical to that of a conventional credit card.

The difference is that a community credit card will be operated on a social business mode: it will be interest-free, but not cost-free, and it will not incorporate unnecessary and inefficient payments made in excess of agreed costs for the profit of rent-seekers (whether management or stock-holders).

I don't think such a Community Credit Card will be a difficult sell. 

As Bismarck said, people don't need to know how the sausage is made - and the fact that it has Ripple under the bonnet is irrelevant to them.

The credit card will also require a service-provider-formerly-known-as-a-bank however, and the value proposition for existing banks to provide this 'value-added' service is that they will manage community credit creation, but will not take the default risk, which means their capital requirement is minimal, and may indeed be met through participation.

As for Richard, yes, I know him well and indeed he borrowed the phrase 'the Community is the Currency' from me a few years ago.

As and when a prototype is introduced, I could use his software to get it started tomorrow, and then introduce a P2P credit architecture with settlement using  a combination of Ripple, and land and energy based complementary currencies.

Best Regards

Chris

[Apostolis Xekoukoulotakis]

Chris, effectively, I have the same goals with you, allowing for the creation of credit without paying a premium to the banks.

I have skimmed at your proposal before, the ripple system is a replacement of the concept of guaranteed society that you propose, though I have always argued that relations between people / companies might not have enough trust for

credit clearing and thus centralized guaranteed societies like the ones you propose might be necessary. In the near future, I intend to change ripple in a way that clusters of individuals would be able to naturally form so as to withstand

the risk of more credit than is currently possible with this ripple implementation.

I think though that you have misunderstood how ripple works.

The ripple network is an overlay network similar to the guaranteed society. A ripple chain is a chain of insurance, not a chain of transactions between people /companies.

Your "North Sea Brent/BFOE Crude Oil Forward contract" example is exactly that, the credit flows through the different parties that transfer oil, it is a chain of transactions.

In my opinion, opencoin will make a good product. But they are not doing it for the public good. The want to extract a premium like any other bank, or visa / mastercard / paypal.

In London, I am aware that there are p2p banks that push the risk of the loan to the people. I believe that they also fetch a premium from the people.

Unless companies/ people of mutual interest control that guaranteed society, there will always be such a premium.

Guaranteed societies at the moment will also be prohibitively expensive for the simple folk even if they dont pay a premium, it requires a lot amount of effort to set up.

Think of ripple and the improved ripple that I want to make as the guaranteed society that requires zero cost to set up, no lawyers, nothing. Just a few cents/ euros for electricity.

Currently I am the sole programmer on this and have been working mostly on infrastructure while the fun part is on designing the new ripple and how clusters of individuals create naturally those guaranteed societies.

So this needs more programmers to increase the pace of development. Feel free to contact me for information or if you want that we work together on this.

[Thomas Sherlock]

Apostolis, 

what language are you using to code your implementation of Ripple?

Regards, 

Tom

[Apostolis Xekoukoulotakis]

For the general purpose graph processing system, the c programming language, for the database Java. For the web site when it comes to that, smalltalk and or javascript.

tools: apache zookeeper, zeromq, apache cassandra, apache lucene, and possible more..

The idea is to create a non-profit organization that will be responsible in processing the transactions. 

2013/5/22 Thomas Sherlock <t...@ramruva.com>

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Sincerely yours, 

     Apostolis Xekoukoulotakis

[Apostolis Xekoukoulotakis]

Hi Bob, 

Chris and Tony are interested in a specific economic activity which is called credit clearing and they are right when they see a need for an insurance system.

Because ripple was built as a monetary system and not as an insurance system, people can only own currencies they trust.

That is very limiting in my opinion. People should be able to own currencies they dont trust.

Now one can build structures on top of ripple, but what's the difference of using ripple if you use the same methods/algorithms that you used before without ripple?

Lets with ripple and without ripple is the same.

Here's a draft of how ripple should be built(due to a discussion with Tony):

https://docs.google.com/file/d/0B_19ZRSvgXZxRGdqMHZEZTlwZXc/edit?hl=en&forcehl=1

2013/6/10 Bob Way <bl...@bob-way.com>

Hi Chris, (and everyone else)

I just stumbled upon your post and it was enough to make me want to join this Google group. I too have similar ideas to yours. But to reaffirm what Ryan and Apostolis mentioned, most of what you suggest can easily be done in the Ripple.com system as it exists now. You don't need the server code, nor do you even need to run a rippled server.

To demonstrate that point, I created a LETS like Ripple currency called Goodwill (GDW). I won't bore you with details because you intuitively grasp what that means. However, most of the Ripple.com/forum users come from a Bitcoin background and have no idea what a LET System is. https://ripple.com/forum/viewtopic.php?f=1&t=2895  (I post under the nick "Red" there.)

Apostolis, 

There is a forum member Datz who shares your interests as well. https://ripple.com/forum/viewtopic.php?f=1&t=2382 I've been discussing the same kind of system for use in guaranteeing liquidity between Ripple gateways, while preventing the risk of cascading gateway failures. 

Tony,

Ripple already IS what your are postulating. Each Ripple user can/does "issue" their own currency. When there are millions of Ripple system users, there will be millions of currencies. You can make markets among them trivially using Ripple built in exchange. You do not need the source, nor do you need to run a rippled server either.

Others have already made a GDW/USD market on their own initiative. No one needs permission inside the Ripple system.

It is trivially easy to issue new "virtual currencies" as in addition to the more commonly discussed IOU based currencies. 

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[Tony Mondia]

I'm coming at Ripple from LETS, not Bitcoin, like you Bob. I'm awaiting the server code because the "proof is in the pudding" to see if the new iteration of Ripple will be what you stated. Villages, Ripple classic, from my understanding these were built in large part with LETS in mind by Ryan (from my readings of past discussions). It appears the new iteration of Ripple is very much involved with Bitcoin and has been focused on it a lot as of late.

We are seeing governments are cracking down on virtual currencies without proper "Know your customer" policies and procedures. There are several other practical challenges to overcome. This is where my focus is on so as to increase the credibility of currencies (or IOUs). I would like to pass the server code to my team to verify that it could be used in a way that is consistent with all these challenges. The Open Money Platform is an open source software that acts more as a accrual accounts keeping service for individuals in a peer-to-peer network that makes it easy to implement. But more resources are pouring into Ripple so I await to see what may come of it.

If any of you are in Canada drop me an email. I'd be happy to discuss the specific challenges we face here.

[Bob Way]

On Monday, June 10, 2013 10:33:43 AM UTC-5, Apostolis Xekoukoulotakis wrote:

Chris and Tony are interested in a specific economic activity which is called credit clearing and they are right when they see a need for an insurance system.

Yes, understood. Just thought you'd be interested in meeting others with similar interests.

 

Here's a draft of how ripple should be built(due to a discussion with Tony):https://docs.google.com/file/d/0B_19ZRSvgXZxRGdqMHZEZTlwZXc/edit?hl=en&forcehl=1

I'm just suggesting that you might be surprised at all the fields and features available to you. Certainly it can do circular paths. Your trust lines can value one issuer's currency more than another's. Rippled might not implement the ledger exactly as you want. But perfect is the enemy of good enough. The client source and server api are already public. There are certainly usable features to create an overlay system that meets your needs.

[Bob Way]

On Monday, June 10, 2013 11:50:42 AM UTC-5, Tony Mondia wrote:

We are seeing governments are cracking down on virtual currencies without proper "Know your customer" policies and procedures. There are several other practical challenges to overcome. This is where my focus is on so as to increase the credibility of currencies (or IOUs). I would like to pass the server code to my team to verify that it could be used in a way that is consistent with all these challenges.

This is actually one of my interests as well. I have more than a few forum posts on this concept.

I don't have access to the source, but I can assure you from talking to Ripple developers and looking at the APIs, that restricting your IOUs to KYC users only, (through trust line approval), is absolutely possible. The web client doesn't expose this feature. So you'll have to issues some specific JSON commands to the server. But the core support is already there.