Moneyness :: JP Koning :: Ripple, or Bills of Exchange 2.0

Here's some interesting news. Ripple is finally being implemented.

What is Ripple? Ripple is an open source P2P credit system dreamt up by Ryan Fugger in 2004. Its mission is to provide a non-banking payments alternative by decentralizing the process of creating and circulating highly liquid IOUs. Put differently, Ripple offers an environment in which individuals can be their own credit-issuing and credit-accepting banks. Ripple has always remained conceptual. But now a team of developers lead by Jed McCaleb, founder of MtGox, the world's largest bitcoin exchange, are implementing a living breathing Ripple network.

Ripple might seem to be unprecedented, but the decentralized credit system it envisions existed centuries ago in the form of the historical bills of exchange system. ...

This is a fascinating system. Koning's post has a good intro to Ripple and some good background on Renaissance-era banking.

I'm a little concerned about one thing with Ripple though: who am I supposed to endorse? The people I trust the most are very close friends and family members, so they'd be the obvious choice. But there's a reason it's a bad idea to go into business with friends and family: any monetary disputes have an extra layer of difficulty.

It makes most sense for me to endorse a Ripple of a close friend, but in a way those are the people for whom it is hardest to collect on an IOU from. This may sound cynical, but in every clique of friends I've ever seen there is a set of perpetually out-standing small debts. You know you can be delinquent in returning that drill, or suitcase, or $40 from from the time you forgot to hit the ATM before dinner and Dave spotted you your share, because there's a whole history of positive associations to balance out the other side of the ledger. Dave is not going to scuttle your entire relationship because you still haven't paid your share of the gas from the road trip you too took back in 2010. In limited quantities perhaps this perpetually-outstanding debt thing is actually a strength of a system like Ripple, but I'm not putting money into a system unless I have some high confidence I'll actually be able to settle up my accounts at some point of my choosing.

Here's my other concern: how public will it be who you've endorsed? Specifically, if a deadbeat cousin or flaky co-worker endorses your Ripples, will you face social opprobrium for not reciprocating? Because that's the dynamic most social networks have evolved to. Will someone with the upper hand in a combined business/social setting, like your boss or landlord, be able to turn that to their advantage in terms of pressuring people into Ripple endorsements?

Maybe I'm thinking about this on too personal of a basis. Does this kind of system make more sense if you're using it like the original bills of exchange, i.e. endorsing the debts of your clients, suppliers, business partners, etc? Koning's recent post on Bitcoin has at least convinced me that Ripple makes a lot more sense than Bitcoin does.