The world of alternative currencies is abuzz right now with discussions of the pros and cons of Bitcoin, a peer-based currency that is being “mined” using the capability of computers to solve a complex mathematical problem. A good summation of the discussions is on Quora, in the different answers to the question:
There is also speculation on how bitcoin, or rather the development of crypto-currencies, will influence and profoundly change our economic thinking, especially our way of taxing. Rick Falkvinge, the founder of the first Pirate Party, has a very interesting article on this on his blog, titled:
The Information Policy Case For Flat Tax And Basic Income
(I snatched his picture with all those golden coins for this article)
But my idea today was not to add to the already rather heated discussion around Bitcoin. I wanted to point to a little known and little talked-about competing bit of software – The Ripple Project. Could Ripple develop into a currency, much like Bitcoin is doing right now? Although Ripple is not a finished piece of software like Bitcoin, I believe it could … and here is why.
Ripple is an internet based protocol for p2p exchange that is actively under development. The idea is that IOUs, or our trust in people we know, can actually serve as a means of exchange.
As long as there are enough people (and businesses) participating, and as long as each participant creates liquidity in the system by specifying whom they trust, and to what degree, a network can form, inside of which exchange can be mediated by the simple expedient of moving IOUs from one person to another.
Here is an introductory text ( from the Ripple site at http://ripple-project.org/ ) that explains in more detail:
- Money as we know it is made from promises, specifically bank promises, in the form of bank account balances. Ripple’s goal is to make your promises as useful for paying people as bank promises are.
- To start with, let’s look at what happens if you tried to use your own promise as money. Suppose you went to the store and tried to pay with an IOU. This might work, except for two things:
1. the store owner may not know you are trustworthy
2. even if the owner trusts you, many others don’t, so she can’t use your IOU to buy things
- Ripple solves the first problem by finding one or more people who can exchange your IOU for one issued by someone the store owner trusts. For example, if the store owner trusts your friend Alice, and Alice trusts you, you can give your IOU to Alice, and Alice can give her IOU to the owner. This can all happen instantly over the internet.
- The cool thing now is that the store owner can actually use Alice’s IOU to buy things, because Ripple can convert it into IOUs that are useful for paying other people. That solves the second problem.
- All Ripple needs to work is for people in your community to sign up for the Ripplepay system and let the system know who they trust and how much they trust them to be able to repay. You can also sign up and use other Ripple sites.
Developers are discussing Ripple on the Ripple Users Google group
There is a Wiki on the Ripple Project’s homepage that puts together a good deal of information on Ripple.
Ripplepay is a server-based experimental implementation of the Ripple protocol, as is Rain Droplet. There are other implementations and further links on this page.
While Ripple definitely isn’t ready for prime time yet, I do believe it has great game-changing potential. Ripple can use our trust in our closest friends and turn it into actual money, fueling a system that makes it possible for us to route payments from person to person … across a chain of trusted intermediaries.
There’s more information on Ripple’s Frequently Asked Questions page.
A related article by Venessa Miemis: Can Reputation Be A Currency?