who likes the interest feature at ripplepay.com?

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thomas hartman

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May 9, 2008, 12:34:33 PM5/9/08
to Ripple users
I am curious what ripple users think of the interest-accounting
feature at ripplepay.com.

Is anybody actually using this -- or think they would be using this if
ripple had a bit more traction?

Thanks, thomas.

Jonas

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May 14, 2008, 7:06:24 AM5/14/08
to Ripple users
Interest?
I find that very un-sexy actually.
The question is why to start an altarnative monitairy system with the
same grounds as the existing one.
Interest is what makes people make money from money and should that
really be a part of an alternative system?
Or maybe you don't have the other political aspects of the issue?
I think that interest is what makes people greedy, and greed is ... un-
sexy =)

well, that's my opinion...

On May 9, 6:34 pm, thomas hartman <thomashartm...@googlemail.com>
wrote:

Thomas Hartman

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May 14, 2008, 10:04:57 AM5/14/08
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The political and moral aspects of interest have been discussed at
length in this group.

If I was a heavy user of ripple, I would probably charge interest
sometimes, and other times no. I view interest pretty much as an
incentive for a borrower to pay back at some reasonable time, if the
ripple routing mechanism doesn't equalize things "deus ex machina"
style. And also as an incentive for myself to make more ripple
connections, knowing that I will be acting essentially as a guarantor
for other people's debts, if I am acting as a through-pay intermediary
node. I should be getting some benefit for that sacrifice even though
the risk should be pretty small because these are people I trust.

But I am starting to think I would calculate and collect interest
outside of the ripple interface.

This frees me up to a more flexible "incentive" scheme. In the real
world, accounting departments use such debt-collection schemes:

(from http://www.sitepoint.com/forums/showthread.php?t=432424 : "2% 10
days Net 30... means deduct 2% if you pay within 10 days, full balance
due in 30 from i\
nvoice date")

A 2% rebate if you pay on time? And then maybe a 5% APR penalty if you
don't... Is this interest? Kind of... but it doesn't fit neatly into
the pure APR (annual percentage rate) model that ripplepay.com has.

Point is, separation of concerns.

I am starting to think: Ripple's job should be to route payments.
"Incentives" such as interest, which need to be recalculated over
time, should be taken out of ripple and put into an excel spreadsheet
where they belong. (Or in some innovative front-end, but not anywhere
near the routing code.)

An incentive that does make sense in the routing is simple transaction
fees, and favorable currency conversions which can be controlled by
individual users. I believe this is the way things are going to work
in the rippld (p2p) stuff under development.

Having shown my biases in this rant though, if there are users that
really make use of the interest stuff in the existing ripplepay.com
(or think they would if they used it more) I would be interested in
hearing from them. The decision I face is, in the fork I am working
on, should I move towards keeping the interest functionality but
factoring this out of the routing stuff (which will hopefully be taken
over by rippld), or should I just shrug and drop interest entirely for
interpersonal ripple? (Users can do their own calculations on a
spreadsheet.) I'm currently leaning towards just dropping it.

Thomas.

Gabriel Pickard

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May 14, 2008, 10:34:21 AM5/14/08
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Please excuse, if I bring up an issue that's already been discussed, it's my first post here:

If a payment is routed, will the interest that is aggregated by routing this payment also be propagated back to one who is "paying" / sending the IOU?
I don't know if this is the way its implemented, but I believe that would be desirable to avoid unpleasant surprises for someone stuck in the middle of such a transaction.

Probably you've already discussed this, but it just was of interest to me.

Regarding Thomas' post below, moving interest out of the routing decision would impair the system's capability to optimize for low-interest connections.

Best regards, Gabriel

Thomas Hartman

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May 14, 2008, 11:13:53 AM5/14/08
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>> unpleasant surprises

I believe in the under-development ripple server (but not ripple web
site) code, unpleasant surprises for intermediaries is supposed to be
made up for by instantaneous transaction fees. This is also what
makes the system competitive, and ultimately lower cost than
alternatives such as paypal or western union: intermediaries are
competing on these instantaneous fees, balancing the reward of more
transactions (lower fees, more connections) against the risk of being
the guarantor against a deadbeat node.

I think transaction fees are taken at each link in the credit chain;
and of course the ultimate source of the funds is the payment
initiator. Intermediaries should always make a profit, or at least not
have a loss. (Assumimg their trust that debts will be repaid by their
partners is justified.)

> Regarding Thomas' post below, moving interest out of the routing decision
> would impair the system's capability to optimize for low-interest
> connections.

I don't think so. Basically, interest gets taken out of the equation,
but per-link transaction fees get added in, and that's how things are
supposed to work, if I understand Ryan correctly (both on and off-list
communication).

Thomas.

Arshad Syed

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May 14, 2008, 11:29:30 AM5/14/08
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As little as I know of Ripple, I think keeping interest out of Ripple will also keep the framework humane, simpler, and flexible. I personally despise interest - I am pretty sure most of us here detest its horrible effect on nations.

--arshad
--
arshad

Daniel Reeves

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May 14, 2008, 1:29:38 PM5/14/08
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I'm actually the one that literally paid Ryan to implement interest as
a feature in ripplepay.com. And I'm happy to be paying interest on my
ripple balance with Ryan because otherwise I'd feel like kind of a
jerk for having unfulfilled obligations sit there for so long.

Since those opposed to interest can set it to zero (or negative if
they want, and some do want that as a form of gradual debt
forgiveness) it seems like having the interest feature makes everyone
happy. Whether it should be part of the routing infrastructure or
part of the accounting front-end though, I don't know.

Personally, I track a lot of hefty intra-family loans on my yootles
system (hopefully integrated with ripple soon!). My grandfather has
served as the bank for other family members' mortgages, for example.
If he did that interest-free it would be tantamount to huge gifts. If
I got a $200k 0% mortgage, my brother would rightly complain that he
wanted $200k interest-free for 20 years too. He'd invest it or put it
CDs or lend it out to someone else and make a lot of money. So not
charging interest would be obscenely inequitable for those situations.
So then, we figure, why not just have the interest tracked on
everything, big or small, if it's done automatically, uniformly, and
symmetrically. Positive balances get more positive over time,
negative balances get more negative, all at the same rate.

At the very least I'd think you'd want to set an interest rate equal
to inflation otherwise it really is like having a negative interest
rate where your debt just gradually shrinks as the real value of the
currency degrades.

--
http://ai.eecs.umich.edu/people/dreeves - - search://"Daniel Reeves"

Thomas Hartman

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May 14, 2008, 3:16:08 PM5/14/08
to rippl...@googlegroups.com, Ryan Fugger
OK Daniel, one vote for keeping interest, at least in the interface,
is enough for me.

So, I will aim for the first option I described in the previous email:
keeping the interest functionality but moving this towards factoring


this out of the routing stuff (which will hopefully be taken over by

rippld. (To be honest, I'm not sure how much of an interaction there
is with routing in live code -- maybe there isn't even any.)

Interpersonal ripple will continue to have an option for ripple.
Interest is a client side recurring payment just like any other ripple
payment. You could also have recurring payments for rent, utilities,
and netflix for that matter, if these creditors accepted ripple.
Rippled (server side) has no concept of interest. The ripplepay
website client is just a bit proactive about calculating these
interest payments, is all. (A netflix payment you would have to set up
manually in some other process.)

Foreign remittances routed over ripple, hawala/hundi-style, don't
really need interest (I think), but will have instantaneous
transaction fees that intermediaries can compete on.

The point is, there is no intermediary competition for interest when
routing, only instantaneous transaction fees. I think. (Ryan, correct
me if I'm wrong.)

cjen...@googlemail.com

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May 15, 2008, 6:27:21 AM5/15/08
to Ripple users
The solution lies, IMHO, in the use of the Interest function to
collect from both the providers and users of credit not "interest" (as
in a payment for the use of money) but a "provision" into a "default
fund" to be maintained and managed by a service provider.

This is what I call a "Guarantee Society" approach. Users would not
have credit limits, but could have "guarantee limits" instead. Any
defaults would be made good by the Default fund.

This is essentially what Banks do. They provide an implicit guarantee
of their borrowers' credit and back it with a pool of proprietary
capital at levels set by the Bank of international Settlements in
Basel (the Basel Accords I and II)

My recent article in Asia Times, here

http://www.atimes.com/atimes/Global_Economy/JD03Dj04.html

is relevant

Chris Cook



On May 9, 5:34 pm, thomas hartman <thomashartm...@googlemail.com>
wrote:

Alexis Delevett

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May 15, 2008, 8:01:07 AM5/15/08
to rippl...@googlegroups.com
Way to go Chris, I hope this catches on!

----- Mensaje original ----
De: "cjen...@googlemail.com" <cjen...@googlemail.com>
Para: Ripple users <rippl...@googlegroups.com>
Enviado: jueves, 15 de mayo, 2008 3:27:21
Asunto: Re: who likes the interest feature at ripplepay.com?


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Corey

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May 15, 2008, 7:05:09 PM5/15/08
to rippl...@googlegroups.com
There has also already been quite a bit of discussion regarding Guarantee Societies. I think it boiled down to the Default Fund which would have to lie in the hands of  a centralized entity, such as a bank, in order for it to work. This is opposed to each person being responsible for their own debts.

I prefer personal responsibility and hard limits, as I think this is less hassle than going through a whole legal system and negotiations with the bank in order to settle any dispute. With hard limits there will be very few disputes because it won't be possible to default in the first place. However, since Ripple is a protocol, the implementation can vary to accommodate different system preferences.

Getting back to the initial question of interest, I was wondering when interest would be charged. If the balance between two people is not zero, will interest be applied to the person who is in the negative automatically? If that's the case, and I think I saw this mentioned earlier, interest could actually be charged to someone without their knowing due to the various transactions going through their node/account, IF interest was turned on for that node/account, as well as for at least one of the other people who are routing through said node/account. Is this correct?

// Corey

cjen...@googlemail.com

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May 16, 2008, 7:04:30 AM5/16/08
to Ripple users
Corey

>I think it boiled down to the Default Fund which would have to
> lie in the hands of a centralized entity, such as a bank, in order for it
> to work. This is opposed to each person being responsible for their own
> debts.

There is no need for a centralised intermediary.

Using "Open Corporate" partnership-based protocols as a framework
allows a new synthesis between individuals operating individually and
collectively, as follows:.

The Default Fund is held in trust on behalf of the users collectively
by a "Custodian" entity.

This entity is the "Custodian Member" of an LLC or (UK) LLP framework
alongside:

(a) "User Member" - a "club" - or cooperative consortium - of users
individually ;

(b) "Developer/Operator Member" - a club - or cooperative consortium -
of service providers.

One of the service providers would be an institution formerly known as
a bank (or credit union).

> I prefer personal responsibility and hard limits, as I think this
is less
> hassle than going through a whole legal system and negotiations with the
> bank in order to settle any dispute. With hard limits there will be very few
> disputes because it won't be possible to default in the first place.
> However, since Ripple is a protocol, the implementation can vary to
> accommodate different system preferences.

The "legal system" is a two level dispute resolution built in to the
framework agreement: a "referee" to make necessary initial decisions,
with the possibility of arbitration later. Under no circumstances
would the conventional legal system be used.

One of the elements built in to the system is the possibility that
settlement may be made in money's worth (ie barter) as well as in
cash. ie the "Guarantee Society" concept has one foot in the
conventional system and the other outside it.

If you combine:

(a) a barter network;
(b) bilateral credit backed by a mutual guarantee - supported by a
provision into a fund in collective ownership; and
(c) Ripple's "credit clearing" functionality.

The result is essentially a "Clearing Union".

Best Regards

Chris

Thomas Hartman

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May 16, 2008, 10:25:46 AM5/16/08
to rippl...@googlegroups.com
One thing is certain: the interest feature should be implemented in a
way that is easier to understand for users.

Perhaps there should be a button like:
"Show interest payments -- already paid, and scheduled"

If intermediaries are going to get dinged for interest (I hope they're
not!) this would show what their future liabilities are given the
present accounting situation.

As it currently appears, I can certainly see how this feature might
scare off users.

themusicgod1

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Jun 1, 2008, 2:34:27 AM6/1/08
to Ripple users
I think it's necessary to ensure that risk is properly taken into
account by all parties involved, and it also is helpful during the
times when ripple coexists with legacy currencies; usually when I
trade in canadian dollars on ripple, there's an assumption of how much
value a canadian dollar holds, and with that, comes inflation.
For the near term, there's no avoiding it, so it can be taken into
account via interest.
jeff

On May 9, 10:34 am, thomas hartman <thomashartm...@googlemail.com>
wrote:

matabele

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Jun 2, 2008, 8:44:26 AM6/2/08
to rippl...@googlegroups.com
Interest will build instability into any monetary system - it implies
an exponential extrapolation of the present into an unknown future.
This is something to be avoided when you are designing an alternative
monetary system.

Risk where it concerns national currencies can be taken into account
with the use of a bond - the national currency can be exchanged at a
discount with respect the future (ripple) payment.

Any argument in favor of the use of interest can be taken into account
with a contract of this nature. There is no need for interest in a
decentralized banking system - there is no scarcity of money and
there are no bankers to pay. Its inclusion will build the same
instability into ripple as exists in the existing banking system.

Regards William Jackson

matabele

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Jun 2, 2008, 9:01:58 AM6/2/08
to Ripple users
Interest will build instability into any monetary system - it implies
an exponential extrapolation of the present into an unknown future.
This is something to be avoided when you are designing an alternative
monetary system.

Risk where it concerns national currencies can be taken into account
with the use of a bond - the national currency can be exchanged at a
discount with respect the future (ripple) payment.

Any argument in favor of the use of interest can be taken into account
with a contract of this nature. There is no need for interest in a
decentralized banking system - there is no scarcity of money and
there are no bankers to pay. Its inclusion will build the same
instability into ripple as exists in the existing banking system.

cjen...@googlemail.com

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Jun 3, 2008, 5:49:12 AM6/3/08
to Ripple users
As I said here

http://www.atimes.com/atimes/Global_Economy/JD03Dj04.html

the true economic function of a Bank is to provide a guarantee of
borrowers' credit, and Banks back this implicit guarantee with an
amount of capital prescribed by the Bank of International Settlements
(Basel requirements).

But it is possible to disintermediate the bank - as I stated upthread
- if a collectively owned "default fund" (a Ripple "Pool") is
maintained in trust/escrow/custody and system users pay a provision
into this pool.

There would be no "interest" - in terms of a payment for the use of
money - in this peer to peer credit system, but there may be a payment
for system operation and a provision for defaults.

In relation to another comment upthread re family mortgages etc I see
such long term investment as entirely different in nature to the
essentially short term RipplePay credit which oils the wheels of
commerce.

Here I see the requirement for Peer to Peer "investment" along the
lines of kiva, zopa, prosper and all the rest. Personally I think that
such lending at interest is sub-optimal. I prefer the use of "asset-
based" (as opposed to "deficit-based" secured lending) investment
using legal forms other than the Corporation.

as in

www.opencapital.net

Best Regards

Chris Cook
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