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