But really, since long before banks were invented, in fact, ever since the dawn of trade itself, any individual has been able to issue a promise to pay (an IOU, whether verbal or recorded), and anyone who trusts that person has been free to accept that I.O.U., in exchange for goods and services, if they want. The only problem is, personal IOUs are not very liquid or transferable, since only people who already know and trust the issuer will accept them. It's possible that, if I trust you to owe me $100, and my friend John (who doesn't know you) trusts me to owe him $100, I can facilitate a loan of $100 from John to you by acting as an intermediary. But keeping track of such "chained debts" by hand is a cumbersome and inefficient process. People usually find it simpler and easier to use centralized issuers of credit, such as banks and credit unions.
Unfortunately, this centralization has created a problem in the world today where banks, by virtue of their effective monopoly on the issuance of credit, effectively dominate and control the world. These days, no large new project can get accomplished unless its proponents can borrow the required liquid capital from a bank or other large financial institution. Well, one can also issue stock (which is another kind of promise - a promise that the buyer will retain a share of the equity in the venture, and that the officers of the company will exercise fiduciary responsibility in maintaining shareholder value), but usually the underwriters or initial buyers of shares in an IPO will be large financial entities such banks and hedge funds - so effectively in this case it's still these large centralized entities that permit such large promises to be made.
Well, to be fair, these days are a few exceptions, such as crowdfunding through websites like Kickstarter and RocketHub, But these are best suited to funding flashy, exciting, original projects, not necessarily to meeting the everyday needs of small businesses and individuals that need access to credit for miscellaneous reasons, such as to renovate their premises, or buy a new appliance, or a car, or a home. If the "common man" wants to protest against unfair bank policies, and "vote with his feet," as it were, there are few practical alternatives to big financial institutions today.
|A solution to the near-monopoly that the banking industry|
has today on the issuance of credit.
|In Ripple, any user can "grant trust" to any other.|
This is like giving them a new credit line or loan account.
You can create it out of thin air, just like the banks do!
|Ripple automatically chains together trust relationships, so that you can|
accept IOUs with confidence even from people you don't know directly.
- They do not inherently carry any interest.
- There is no specific deadline by which they have to be paid back.
|A $100 bill is essentially just an IOU|
from the US Federal Reserve System.
Anyway, the point is, by generating and sending an IOU (denominated, typically, in some existing currency) to another party via the Ripple network, you are effectively creating your own new paper money, in the same way that banks do when they create loan accounts. Ripple IOUs are backed by the underlying social web of trust that they are based on - i.e., by their users' statements, within the system, that they trust each other to repay those IOUs, up to the specified limits.
|Ripple makes it easy for anyone to exchange|
IOUs for "real" money, or convert between
currencies. BitStamp is an existing entity that
provides these services for Ripple users.
One limitation of Ripple (in its current implementation at Ripple.com) is that there is a small transaction fee for sending IOUs or making currency trades; this is denominated in XRP ("ripples"), which you can think of as postage stamps used for delivering transactions. XRPs are pretty cheap; lately the exchange rate for them through Bitstamp.net has been hovering in the general neighborhood of 10,000 - 50,000 XRP / BTC, meaning that each XRP only costs around 0.000'02 - 0.000'1 BTC (i.e., two to ten milli-bitcents), or about US$0.000'7 - $0.003'5, that is, in the ballpark of one-tenth of a cent. Someone has to give you some XRPs in order for you to get started using Ripple -- you need to keep a balance of at least 300 XRP (about a dollar's worth, or less) on hand to use all features of the system -- but, once you have some XRP, you can always buy more at market prices by going through the trading interface. Also, Ripple.com has been hosting various XRP "giveaways", such as one for Bitcoin Forum users.
It's important to note that, even if you don't transfer a lot of "real money" into Ripple through a gateway like BitStamp.net, as long as you have some XRP on hand for executing transactions, you can use Ripple to manage and track IOUs between yourself and your friends/family/neighbors/customers/clients in any amount you want. If you trust your brother to borrow $1,000 from you, there is nothing to prevent you from granting him $1,000 worth of trust within the Ripple system, and then he can generate an IOU in the amount $1,000 to you "out of thin air," as it were, and send it to you in the Ripple network, in exchange for your giving him $1,000 of money in the "real world." When he pays you back, you send him an IOU in Ripple for $1,000 to cancel out his debt. In this way, you are using Ripple to track the debts in your social circle. And, as long as a chain of trust exists from you to any other party, even someone you just met who you don't know directly, you can use Ripple to automatically generate the chain of IOUs that secures a new loan that you issue to them.
|A new Ripple currency unit: 1 LMR.|
|The beauty of Ripple is that it allows the easy creation|
and spread of liquidity. Anyone can create liquid wealth
that ripples from person to person through the network.
Therefore, I urge you to sign up for and begin using Ripple today. If you have friends who already use it, ask them to give you a few XRP to help you get started. Or if you're an established user of Bitcoin forum, get some free XRP in the giveaway (I got 40,000). Eventually, there will be ways to directly buy XRP on an exchange even if you don't already have some, and then everyone in the world can get involved. At the moment, availability of XRP is more limited - I think they are trying to grow the system gradually, to avoid growing pains.
But, I, for one, am very much looking forward to the day when almost everyone in the world uses Ripple to track their obligations; then we can all just create our own money as needed, in the form of IOUs backed by our existing networks of social capital, and, best of all, we can collectively give a giant "screw you" to the big banks, who have been funding the destruction of our planet's habitability through pollution of the commons, privatizing their profits while socializing their losses through "too big to fail" bailouts (which they can only extort from lawmakers to begin with because the bankers have such exclusive control over the issuing of credit today that they can threaten to crash the global economy by withdrawing it), and sucking up all of our wealth through their control of the present global monetary systems.
By collectively adopting Ripple, and using it to issue credit to each other directly, the world's people can (finally!) successfully "vote with our feet" and tell the big bankers, NO MORE we will put up with your malevolent, greedy control and manipulation of our human economy for your own enrichment! WE ARE FREE!
|"Screw you, you rich bastard banksters!"|