Ripple: P2P Alternative Currency

Posted by Joseph McPatriot

Ripple is hawallah? A black market? An underground electronic economy? A way to work off the books? Or just a way to cut out the middlemen, including the Treasury, the Banks, the IRS? Let's say you want to buy certain items from a dealer you have never met for your favorite civil society group, for example, The Christian Albino Alabama Freedom Brigade....

Comments

[ted]

Sure wish I was a programmer so I could put my volunteer time into this effort. Totally cool. And I love some of the links from that page, such as Start your own bank. Very cool stuff.

[Harry]

The Ripple project is set up to accept donations, but as yet remains in the planning stage. It's a real candidate for Fundable (via Gift Hub).

[JJ Comoner]

yes ... when I first saw it, it reminded me of how the ways we currently use money, and the assumptions behind that, were all once upon a time just a concept. There clearly are other ways we can conceive of, use, exchange and distribute money .. and therefore wealth and power.

Humankind keeps coming up with nifty new ways of doing things .. ways that no doubt would work if (as Bono said recently re: Live-8) if there's only enough will. There are the brains, and the resources, and the need ... and then there's the way things are done that keep things the way they have been and are done.

For some reason this reminds me of an interesting passage in Huxley's Brave New World, which I just finished re-reading. There's a dialogue between John the Savage and Mustapha Mond, regional Controller of the Western World:

"The Savage was silent for a little. "All the same', he insisted obstinately, 'Othello's good, Othello's better than those feelies'.

'Of course it is', the Controller agreed. 'But that's the price we have to pay for stability. You've got to choose between happiness and what people used to call high art. We've sacrificed the high art. We have the feelies and the scent organ instead.'

'But they don't mean anything'.

'They mean themselves; they mean a lot of agreeable sensations to the audience.'

'But they're told by an idiot'.

........................... (the above serves to introduce, sort-of, this excerpt)

'What was that?' asked the Savage.

Mustapha Mond smiled. 'Well, you can call it an experiment in rebottling if you like. It began in A.F. 473. The Controllers had the island of Cyprus cleared of all its existing inhabitants and re-colonized with a specially prepared batch of twenty-two thousand Alphas. All agricultural and industrial equipment was handed over to them and they were left to manage their own affairs. The result exactly fulfilled all the theoretical predictions. The land wasn't properly worked; there were strikes in all the factories; the laws were set at naught, orders disobeyed; all the people detailed fora spell of low-grade work were perpetually intriguing for high-grade jobs, and all the people with high-grade jobs were counter-intriguing to stay where they were. Within six years they were having a first-class civil war. When nineteen out of the twenty-two thousand had been killed, the survivors unanimously petitioned the World Controllers to resume the government of the island. Which they did. And that was the end of the only society of Alphas that the world has ever seen.

The Savage sighed, profoundly.

'The optimum population', said Mustapha Mond, 'is modelled on the iceberg - eight-ninths below the water line, one-ninth above.'

'And they're happy below the water line?'

'Happier than above it. Happier than your friends here, for example.' He pointed.

..............................................................

It creeps me out big-time to note that the fundamental image/metaphor used by Hay Management Consultants (and all other HR consultants who work with "Competency Models") .. as I used to do ... use the image of an Iceberg as a way to show that most of the motives and behaviours that feed or deliver what is called "high performance" in organizational settings are "below the water line", and that all this is related to performance management and compensation practices.

Now .. I'm off to re-read R. Wright's "A Short History of Progress" ;-)

[Tutor]

What are the three or four best reasons to set up or use an alternative currency? Tax evasion seems to be number one? No sales tax? No income tax? No estate tax? What are the good reasons not to use normal banking and cash?

[Harry]

Depends on the kind of alternative currency, Tutor. This is something considerably larger than the labor hours currencies and commodities backed scrips. My guess is that Ripple would be studied for the purpose of abuse immediately by those currently holding the most capital. So there's the tax evasion. It could also benefit those who wish to set up a parallel economy. That's been the radical dream for ages. The only realization of it to date has been the black market, which quickly becomes dominated by the worst element from all parts of the state.

The good reasons for not using normal banking are manifold. I recommend credit unions. Regular currency is just a tool for trading which, thanks to "deregulation", has become a powerful instrument of economic warfare.

[Gerry]

The bottom line in traditional currencies is scarcity. It is necessary to drive up the value of capical and is a fundamental element of maintaining the bonds of WB.

The most interesting element of this is the trust network that becomes a critical part of the networks operation. I do wish the more people who are thinking and working in this direction will come together and share development and infrastructure costs. Particularly since they haven't even started development.

I really think if you are going to do something like this, you have to plan from the start to be ready to abide by the regulations that banks and other financial institutions have to follow.

As Harry says, there are many reasons. The traditional istitutions are very expensive for the average person, and there are huge savings to be had by doing this more effectively with modern systems and business processes. Like the micro-finance experiments, the potential is mutual credit through a self-organized trust network. Done right this can get near zero default rates which is key for making it all add up.

[Tutor]

A pool of several people agree to be mutually liable for the debts of each? That is the principle of microcredit which has been used successfully in third world countries with good results.

[Harry]

The mutual liability is what we have in our finances right now, albeit with the greatest risk socialized downwards and increasing exemption from liability as you go up the food chain.

I think one result of the adoption of Ripple as the model would be an end to most huge projects. The interstate highway system we have now could never have been built. A patchwork would be possible, and maybe one straight line rail, but there would no single pool of capital large enough to get the massive infrastructure started.

The size of the concentrated pool of capital mandates actions for its growth and preservation. It has to keep growing or risk losing value. Projects for which no direct profit is possible only get started by something like a palace coup. National defense is the usual argument in favor, fear being expedient and effective.

[Juke Moran]

There were 2 million people in California pre-Columbus and they didn't even have the wheel, let alone interstate highways. Thriving local economies, well-fed people, sustainable ways of being here. They've been replaced by what may possibly be proving itself to not have been a superior way, though we've been told that it is over and over again.

The main thing that would happen if the currency went alternative is anybody whose nut was non-transferably stuck in the old one would lose it. That was the sting in the new 20's in the US yah? All them drug dealers with ammo-boxes-ful buried out in the yard having to make some quick adjustments.
Rest assured sensible capitalists could withstand even the abandonment of capitalism.
The only filter current society has against corrosive malevolence is the law, so anybody who can scam a workaround on the law is free to prosper. And they have - that's why the system's crashing.
It isn't money that's given the power to evil, it's the access to money's extravagant, culturally untied power, without the necessity of accompanying moral goals - irresponsible and selfish behavior is rewarded/punished on its financial merits only.
US television's shrieking with ads for big tough gas-hog urban survival pods and sleek transcendent status signifiers while the earth goes into a fever dream. Selfish assholes appealing to selfish assholes.
Money has little to do with it, though it's the only prize in the game.
The destruction of morally responsible societies, internal and external, is what's caused it.

[Tutor]

But what makes doing deals via Ripple different from just paying each other in cash? As a metaphor for Utopia I see it, but as a practical thing, why not just use cash? You mow my yard, you get $25. I babysit your kid, I get $10 back. What does Ripple add? Is it more than a medium of exchange? It also provides for micro-credit? I loan you $5 in credits. You pay me back. Then you vouch for a third person, so I give you credits that you give to them. Or I give the credits directly to them with your assets or credibility as security. Couldn't all this be done in dollars, with either hand transactions or electronic accounting?

Is this at bottom social protest? Dropping out of the economic system. Going dark on all the economic screens? And if so isn't it like a black market? If so, won't the IRS and state taxing authorities be all over it, as the record companies were all over Napster?

In other words, in plain English, this sounds to me like tax fraud, plain and simple, whatever can be said for it, unless all transactions are converted into dollars and declared on the tax reporting forms. "Working of the books" is illegal. You have to report tips and "all income from whatever source derived." Won't you have to report the ripple bucks as income?

If you work for me for ripple bucks do I have to forgo the business deduction? Why would the employer do that?

[Gerry]

Alternative currencies come in a number of varieties each of which has different properties and characteristics. In some of them and Ripple seems to be an example of that, credit is created in each transaction and that is the key to eliminating the scarcity of capital. They way that works in the system is pretty counterintiutive, maybe no more so than our traditional currencies which as dynamic systems have some pretty bizzar behaviours as well.

I have also read where the IRS has declared themselves uninterested in these transactions in specific cases. If these currencies are convertable, certainly the IRS might be interested in those transactions and any net increase from a round trip. It can be more or less like buying and selling stocks or bonds. You also get opportunities to incentivize people not to transfer capital out by making the transfer fees asymetric.

It helps to remember that the system we have is completely artificial and of very recent historical origin (a few hundred years really), and so why can't we consider alternatives that support us and our communities better. What appears to be unique about Ripple is the concept of clearing the transactions through a socially constructed network. It is more oriented to exchange than capital formation.

Juke's points about how those with much wealth in the current systems will react are very important. Their disproportional influence on the government may enable them to rule out these approaches with regulation, or the smart money can participate too if they see opportunity (markets are markets and there is always a way to get a piece of some subset of transactions).

It's not really possible to get into the full complexity of these issues in a few comments. Once you understand that the dynamics of scarce fiat currencies guarantee that the rich get richer and the poor get poorer, and the end state is a handful with huge pots of capital and nothing to do with it, you will start to understand why nothing will really change unless we can shift to currency systems with healthy properties rather than the sick systems we have. In the end, traditional taxes could be eliminated, and part of the surplus would go to public works. Since people can create capital withing their transactions, so can the government. They spend their Ripple bucks to build roads and public buildings and create a liability (just like they do now with T-bills only there is no interest) but as long as sufficient new assets are flowing into the system. The Fed or its equivalent would still set the core constants and rates for the system to keep it healthy and law enforcement would address fraud. In other words, it would still be a monetary system, just with different properties. Hopefully properties that lead to general well-being and a more equitable distribution of wealth. Just the idea that you should manage monetary policy for the majority who have little accumulated capital rather than the top 500 families of the globe is a radical and powerful thought.

[Tutor]

Hope you will "tutor" me, Gerry. Can we say that Ripple monetizes "social capital"? The people around the dumpster here have two or three obvious qualities: high intelligence, high idealism, high integrity, little money, or even none. Their greatest assets are not financial. Could you use the Dumpster group as a example and explain how Ripple or something like it might help dumpster dwellers accomplish something that they might not otherwise accomplish? Or use Omidyar.net as an example. "Points" there are a prototype of a trust system that might be monetized?

[Gerry]

I'm not sure the word monetize really captures it, but the sense is right. If you recall from "The Gift" where he is talking about the potlatch traditions and the way the stories were told about this history of the exchange around the coppers. It was almost like a recounting of the sacrifices and accomplishments of great battles. To honor that history, even more must be dedicated in the present. This sort of exchange generates a surplus, which by tradition must not be held back for capital.

I'm still working out my thinking in these discussions, but I think there is a key there about not holding back. Monetary systems are all about conserving scarce resources for future use, but it turns into hording for personal or family gain. With systems like this Ripple, I don't really see them dealing with this. When some accumulate debts they can't pay and others have large surplusses, you need a periodic event to clear the decks, and it seems to me that it would be wise to look to the gift traditions of various cultures for guidance on how.

I was reviewing a couple of O-Net threads on alternative currencies, and it occurs to me that it is time to start a new one. I need to find the inspired notes I wrote up a while back that separated the resource flows into a number of different streams and assigned colors to each of them. The idea is that rather than having a single currency that is in some sense analogous to regular currencies in being a unified exchange medium, you would instead have different pools and flows. Money would come in as donations, investments, fees and dues, and would go out to support active volunteers (i.e. paid volunteers), pay dividends, build common assets and so on. Depending on the color of your money (points, or whatever) you would have a different set of choices. The highest status form wouldn't be redeemable, but maybe assignable to a cause or need. You would accumulate these by donating cash, time or other resources. When you get paid for your time or investment, the status is lower because the gift is partial.

I think that is enough to get the idea. I'm going to look for those notes and maybe create a new topic in the Giving Commons group.

[Tutor]

I am groping with similar issues in trying to get a true gifthub going. I can see a way to get advisors, firms, and wealth donors to the table and how to benefit each other, via a hub/buffer in the middle. Equally important though are the talented without money, the volunteers, the holy fools, the dumpster dwellers. I can see the two projects, WB and Gifthub, continuing as two Texts, intertwined, but even more interesting would be a venture, or association, in which volunteers and holy fools would have their own color of money, as you put it, would be considered as Mission Partners, and would have their own "asset base" and clout.