Topic: is ripple a trojan horse that will destroy bitcoin? (Read 9832 times)
bump for controversy
Gold and bitcoin are not debt. No one has the obligation to repay you anything for your bitcoin/gold.
by that note no one has obligation to repay me anything for my 1 USD. and I do own 1 USD by the way
it used to be that US was obligated to repay gold for my USD holdings but that obligation ended on Aug 15th 1971.(http://en.wikipedia.org/wiki/Bretton_Woods_system)
so I could argue USD is not debt either.
USD is issued=created and then openly traded. people assign value to it based on the fact it was worth something up to this point in time. on itself USD has no intrinsic value other than physical USD coins/notes may have some value in them based on the fact they are created from some material, of course electronic USD has absolutely no intrinsic value at all.
same is true for bitcoin. even though I have to leave my 6.7GH/s mining rig running for 24h incurring a €13 electricity bill to earn 1 BTC by mining with a mining pool.
there is nothing that anyone promised to pay me for that 1 BTC. this 1 BTC has no intrinsic value and I can trade it or spend it with other people who in principle assign arbitrary value to it. as long as we agree on the price of course this defines "value" of 1 BTC.
interestingly almost all of this is true for gold as well. currently an oz of gold trades for about $1600. Even though gold is a metal and has some intrinsic value, most of the gold price is due to the speculation as 50% of the gold is not used as metal but rather is stored in bank vaults as "investment". the other 50% of gold use is mostly for jewellery which means again it's price is judged by tradition and aesthetics, not by it's metalic utility properties. and you could argue gold jewellery is again an investment.
other "common" metals such as silver (trades for about $30 per oz.), copper (for $0.23/oz) aluminium, nickel, zinc and lead (for $0.06/oz), tin for ($0.6/oz) trade for a lot less. steel is about $0.014 / oz. = $500 / t
only really rare metals such as platinum ($1600/oz.) rhodioum, palladium, ruthenium and irridium trade for ammounts which approach $1000/oz.
rarity is not the sole cause of the high price of gold as for example world production of mercury is about half of world production of gold however mercury trades for about $10 / oz.
so: and here is my point:
1. as long as gold or any other material is used mostly as investment than it's price no longer reflects some intrinsic value of that material but is rather subject to market speculation. it is not inconceivable that gold would loose 90% of it's value and trade for say $160 / oz. at some point in time. so it is no safe haven.
2. bitcoin suffers in principle from the same problem. currently trades for $27 oops let me correct that $26, but could drop to $2.6 (note that I use bitcoin prices in $ for simplicity but I could have used any other price such as bitcoin price in oz of gold for example)
3. USD and other currencies issued by governments suffer the same problem as well and more because holders worry that currency issuers may issue additional currency thus diluting existing holdings
it is for this reason that people may want to convert some of their capital into currency which cannot be inflated away.
but this has nothing to do whether or not $ is debt.
Gold and bitcoin are not debt. No one has the obligation to repay you anything for your bitcoin/gold.
#2 your distinction between forward/backward money is irelevant. whatever is used as money: sea shells, stones, gold, tokens, electronic transaction account money, etc., is as good as anything else as long as it is accepted in places where you wan't to spend it.
You don't really understand what money is? You don't really understand what are the consequences for the economy of the very fact of "having money". Saying that forward/backward money is irrelevant is equal to saying that there is no difference between postponed consumption and postponed austerity!? Postponed consumption is capital. Postponed austerity is just more debt to be paid by the future generations! All money, including bitcoin, ripple, dollars and even gold, are based on debt. Holding gold means (more or less) that you have done something worth that gold's value, and you hope that in the future you'll be able to exchange that gold for something of similar value. Dollars and ripple are the same, with a couple of subtle differences. In dollars, certain players can create new debt (new dollars) at will, limited only by the willingness of people to accept them. When you get a bank loan (or a credit card or whatever) that bank has created new dollars out of thin air by magic, limited only by their assessment of your ability to repay. In ripple, everyone is a bank, and everyone can create money through magic, just by finding someone willing to accept it.
Gold and bitcoin, though based on debt/hope just dollars and ripple, have the advantage that no one can conjure them at will. Gold and bitcoin are both past-looking, where holding gold or bitcoin is prima facie evidence that a party has already in the past done something of value for society. Dollars and ripple are more forward looking, where one party has received something of value, and the other party is hoping that they will do something of similar value in the future to redeem that particular debt.
Gold and bitcoin, though based on debt/hope just dollars and ripple, have the advantage that no one can conjure them at will. Gold and bitcoin are both past-looking, where holding gold or bitcoin is prima facie evidence that a party has already in the past done something of value for society. Dollars and ripple are more forward looking, where one party has received something of value, and the other party is hoping that they will do something of similar value in the future to redeem that particular debt.
#1 you are correct that all money represents debt. as you stated correctly money is used to split a barter transaction into two parts, and before completing the two parts of the barter transaction you have money on your hands which represents value but is not value itself.
this is in fact the point which many people on this forum get it wrong when they talk about "commodity" based money such as gold or oil. there is a difference between oil and gold in that oil is something you use and gold is mostly representing value but has almost no value on it's own. ok gold is very good electricity conductor and so forth, but it's price is high mostly due to speculation not it's intrinsic value.
#2 your distinction between forward/backward money is irelevant. whatever is used as money: sea shells, stones, gold, tokens, electronic transaction account money, etc., is as good as anything else as long as it is accepted in places where you wan't to spend it.
but... and this is important
#3 you stated correctly that two parts of the barter transaction may be split in time, which means that the money will be in your possession for some time, possibly long time and in this case money serves as a store of value for this time period.
some forms of money are better at storing value than others. if no one can inflate money supply by arbitrarily creating more money than this certainly helps preserving the value. gold and bitcoin fall into this category.
but... and this is most important
#4 money supply issue is just one half of the problem when money is used as store of value. the other half is commodity supply. if commodity is scarce then it's price denominated in money will rise. oil prices will rise for example as we consume more oil than we can produce etc.
so regardless of what type of money one uses to store value it will not protect you against future price increase of scarce commodities.
most people just assume other people will produce commodities in the future in sufficient quantities so that the only problem they need to solve when attempting to store value for future consumption is assuring no one can inflate the money supply. hence they buy gold or bitcoin.
but the real problem imho taking into account that supply of commodities especially food and energy can fall short of demand hence the price increase even in non inflationary money.
this is why so called "doomsday prepers" store food rather than gold.
In a way you could say that simply holding cash is a loan you have given to the world.
As for traditional banking loans I don't think Ripple can replace that, those things are based on police kicking you out of your house if you don't pay.
Trusting family and friends is not really foolproof, I have seen many family members rip each other off and its not pretty.
Ripple is extra risky because a chain of people owe each other money; if any one of the people in that chain or net doesn't pay up then the next link may have no money to pay with or may decide not to as well.
Loans, stocks and contracts are based on police and courts. Honestly I think people should rent or fully buy with savings instead of continuing our failing credit-card-economy.
Tell me; why all this debt slavery and personal bankruptcy when you could rent the first years and then buy, effectively ending with the same final price as a loan would have cost you? Lets do away with the old system.
As for traditional banking loans I don't think Ripple can replace that, those things are based on police kicking you out of your house if you don't pay.
Trusting family and friends is not really foolproof, I have seen many family members rip each other off and its not pretty.
Ripple is extra risky because a chain of people owe each other money; if any one of the people in that chain or net doesn't pay up then the next link may have no money to pay with or may decide not to as well.
Loans, stocks and contracts are based on police and courts. Honestly I think people should rent or fully buy with savings instead of continuing our failing credit-card-economy.
Tell me; why all this debt slavery and personal bankruptcy when you could rent the first years and then buy, effectively ending with the same final price as a loan would have cost you? Lets do away with the old system.
In reality the volume of credit card economy is gigantic. We've got to admit that the majority of the earth population are sheeple, not liberals.
A few more thoughts on commodity money versus debt-based money.
1. As kjj points out, all money is in a sense debt, i.e. a general purpose IOU. But the difference between commodity money and debt-based money is that the latter is essentially an IOU for another IOU. Maybe it's just me, but that sounds ... potentially problematic, no?
https://www.youtube.com/watch?v=7GSXbgfKFWg
2. There are differences in the way that commodity money and debt-based money are created. In short, commodity money is relatively difficult to create while debt-based money is relatively easy to create. For example, it's easier to issue a new IOU for an ounce of gold than it is to actually dig up a new ounce of gold. And with Bitcoin, once the 21 million limit is reached, it will be mathematically impossible to create new coins.
3. There are also differences in the way that commodity money and debt-based money are destroyed. In short, commodity money is relatively difficult to destroy while debt-based money is relatively easy to destroy. For example, when bank loans are repaid, the checkbook money that corresponded to those loans is destroyed. Bitcoins are never destroyed (although they can be lost).
4. I suppose this is pretty obvious, but it occurs to me that while you can have a money supply that consists entirely of commodity money, you can't have a money supply that is entirely debt-based. Even in our (extremely-dysfunctional) legacy monetary system, we have a monetary base that functions somewhat like a commodity. It's just a ridiculously terrible one because, among other reasons, new base money is constantly being "loaned" into existence.
1. As kjj points out, all money is in a sense debt, i.e. a general purpose IOU. But the difference between commodity money and debt-based money is that the latter is essentially an IOU for another IOU. Maybe it's just me, but that sounds ... potentially problematic, no?
https://www.youtube.com/watch?v=7GSXbgfKFWg
2. There are differences in the way that commodity money and debt-based money are created. In short, commodity money is relatively difficult to create while debt-based money is relatively easy to create. For example, it's easier to issue a new IOU for an ounce of gold than it is to actually dig up a new ounce of gold. And with Bitcoin, once the 21 million limit is reached, it will be mathematically impossible to create new coins.
3. There are also differences in the way that commodity money and debt-based money are destroyed. In short, commodity money is relatively difficult to destroy while debt-based money is relatively easy to destroy. For example, when bank loans are repaid, the checkbook money that corresponded to those loans is destroyed. Bitcoins are never destroyed (although they can be lost).
4. I suppose this is pretty obvious, but it occurs to me that while you can have a money supply that consists entirely of commodity money, you can't have a money supply that is entirely debt-based. Even in our (extremely-dysfunctional) legacy monetary system, we have a monetary base that functions somewhat like a commodity. It's just a ridiculously terrible one because, among other reasons, new base money is constantly being "loaned" into existence.
That's how the human beings informal relations being exploited.
Never lend money you can't afford losing with ease. That's how my informal relations have never being exploited!I don't look at ripple credit as lending money. I look at at it as the price of a friendship or the price of a business reputation. Defaulting party will always lose more in absolute terms than the creditor.
But having to rely on trust is a cost of its own.
Not in Ripple!The trust in context of Ripple is kind of by-product http://en.wikipedia.org/wiki/By-product. It is derived virtually at no cost from much more important to human beings informal (non business) relations.
On newspaper I always read stories like "someone borrows millions of dollars from colleagues/friends/family and run off/go bankrupt/commit suicide/get arrested for scam. Usually the excuse is a wife with cancer/a good investment opportunity/etc. That's how the human beings informal relations being exploited.
But having to rely on trust is a cost of its own.
Not in Ripple!The trust in context of Ripple is kind of by-product http://en.wikipedia.org/wiki/By-product. It is derived virtually at no cost from much more important to human beings informal (non business) relations.
Wow, great discussion! It's definitely helped to advance my own understanding of the nature of money. A few thoughts:
) Traditional non-trust-based money (i.e. physical commodities) are difficult and expensive to transact with, particularly across distance. Commodity I.O.U.'s (or fiat I.O.U.'s) are easier. The downside of using I.O.U.'s as money is that that they're less fungible (the identity of the issuer matters) and they're riskier (which would tend to make them less "acceptable"). Governments have been able to offset both of those disadvantages by creating central banks and giving them a monopoly on the power of money creation. FRN's are extremely fungible. And because of implicit and explicit government guarantees, no one worries about the solvency of the bank where they "deposit" (i.e., lend) their money. But that intervention (like most government interventions) carried a high price tag. The balance we're talking about was artificially and dramatically shifted in favor of trust-based money. But trust-based money is inherently risky, and governments didn't eliminate that risk. To the contrary, they grew it and made it systemic (a fact that's begun to become clear in recent years).
But as a general matter, you're probably right that a system that's not reliant on trust requires more resources than one that is. But having to rely on trust is a cost of its own. Again, it's a question of where the balance will fall. And again, my guess is that Bitcoin (or something like it) will move us back in the direction of non-trust-based money.
3) Bitcoin is a much better money than gold in many ways, including ways that make it more resilient to attempts by governments to confiscate it or suppress its use.
A well balanced monetary system will make use of both trust and distrust based money and will be based on a dynamic trade off. For every day use people will use trust based money since they are cheaper to use and from time to time outstanding credit balances will have to be cleared through distrust based money like gold, silver, or bitcoin that are firmly anchored in the real or digital world.
I think that first sentence is probably right, but I'm not sure about the second. I think Bitcoin has the potential to shift the "balance" you're referring to very much back towards non-trust-based money. ("Distrust-based" seemed a little harsh. ) Traditional non-trust-based money (i.e. physical commodities) are difficult and expensive to transact with, particularly across distance. Commodity I.O.U.'s (or fiat I.O.U.'s) are easier. The downside of using I.O.U.'s as money is that that they're less fungible (the identity of the issuer matters) and they're riskier (which would tend to make them less "acceptable"). Governments have been able to offset both of those disadvantages by creating central banks and giving them a monopoly on the power of money creation. FRN's are extremely fungible. And because of implicit and explicit government guarantees, no one worries about the solvency of the bank where they "deposit" (i.e., lend) their money. But that intervention (like most government interventions) carried a high price tag. The balance we're talking about was artificially and dramatically shifted in favor of trust-based money. But trust-based money is inherently risky, and governments didn't eliminate that risk. To the contrary, they grew it and made it systemic (a fact that's begun to become clear in recent years). Bitcoin is actually very expensive to run and maintain. You'll see that once bitcoin gets widely adopted and blockchain bloated to unforeseen limits.
Really? I haven't read up too much on this topic (and I lack the technical expertise to really understand it), but the wiki on "Scalability" suggests that at least some people believe that transaction fees will stay modest. https://en.bitcoin.it/wiki/Scalability But as a general matter, you're probably right that a system that's not reliant on trust requires more resources than one that is. But having to rely on trust is a cost of its own. Again, it's a question of where the balance will fall. And again, my guess is that Bitcoin (or something like it) will move us back in the direction of non-trust-based money.
You are quite right! But why do you fail to recognize that the dollar successfully managed to destroy gold as money for 40 years? Bitcoin doesn't have a 6000 year of history as money like gold. What will happen to bitcoin if it doesn't get widely adopted as money for the next 40 years?
Fair enough. But a few points to keep in mind. 1) The fiat dollar didn't win that fight on the basis of its own merit. It had more than a little help from the coercive power of the state. I don't think Ripple can expect similar assistance. 2) Gold may have been largely destroyed as a direct medium of exchange, but it's certainly survived as a store of value. If Bitcoin can just achieve a similar feat (i.e., a market cap of $8 trillion or so), I'll be satisfied. 3) Bitcoin is a much better money than gold in many ways, including ways that make it more resilient to attempts by governments to confiscate it or suppress its use. 
However, I don't think people will transact in this way any time soon, largely because it's complex and people are risk averse. Maybe I'm wrong, but I don't see this as a significant application in the short to medium term.
Sounds like a problem that could be easily solved with the right software. USD survives because it is backed by the US government and its nuke. Ripple is backed by what? Who and how to bailout when there is a crash?
Ripple is backed by something much stronger than the US government. It is backed by trust between people! ...I've not studied Ripple...it's on my list of things to do. But, if what you say is true it does not strike me as particularly promising, or at least not very scalable.
It seems to me that one of Bitcoin's strengths is that it completely eliminates 'trust between people' as a construct upon which it as built. Also, I observe that with few exceptions, the (multitude of) failures that Bitcoin has experienced are a direct result of trying to map the 'trust' we've become habituated to in other forms of currency to Bitcoin.
When I look deeply into Ripple I hope to find a fairly tight and default 'web of trust' structure as the basis for it's design. That will give me some hope that it can be at least a valuable augmentation of (potentially) trust-less solutions such as Bitcoin and gold.
Pirate seemed to be trustworthy because he always repaid as promised (before he ran away). That's why more people joined the scheme, and people invested more. If it happened on Ripple, the system would just show he repaid as promised and make him look more trustworthy. He could also loan and repay his sock puppets to build up trust (I bet he actually did this).
The mistake people made (other than the fact that it was obviously a Ponzi scheme) was primarily in increasing the amount of trust incorrectly. That is, it was an algorithmic failure in the amount of trust extended.Pirate clearly had a strong incentive to run off as soon as he was holding the maximum amount of other people's money. There had to come a point where payouts exceeded pay ins, and at that point he has a strong incentive to run off with everyone's money.
However, it might make sense to risk $1 on someone who appears to have been stable for a long time. It's possible that they'll collapse while they owe you $1, but since they've been stable for a long time, your exposure window is short, and you're only risking $1, then what the heck. Now, suppose by a series of transactions in which you only had $1 at risk at any one time, you made a profit of $3. Now, you can risk $4 with this guy. If he defaults, you'll lose $4, but since you've already made $3, that's still only a $1 net loss to you.
In this case, not only are you making money, but they guy you trust is making money too. So he doesn't have such a strong incentive to run off with your money because then he'll have to abandon the valuable trust network he has accumulated. If the network is worth more than he owes, he has no incentive to default at all. In contrast, Pirate was sustaining only losses from day one. There was no evidence he ever made any profit, and so nothing of value for him to have to walk away from. He lost nothing by defaulting.
In other words, the problem may just be using the right algorithm to decide how much trust to extend such that the maximum loss in the event of betrayal has a small bound and people generally have a greater incentive to honor their commitments than to default.
However, I don't think people will transact in this way any time soon, largely because it's complex and people are risk averse. Maybe I'm wrong, but I don't see this as a significant application in the short to medium term.
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If something came up which is superior to Bitcoin hands-down, it could "destroy" Bitcoin and it would be perfectly fine.
If something came up which is superior to Bitcoin hands-down, it could "destroy" Bitcoin and it would be perfectly fine.
Agree. And I agree strongly if I make myself consider it.
In reality, it is likely that various things will crop up over the years which have some advantages and disadvantages to Bitcoin proper. Similarly, it is likely that Bitcoin will be used in ways which are considered positives and others which will be considered negatives to each one of us. My main hope is that Bitcoin and future related technologies tend toward forming symbiotic relationships with one another rather than that they are seen as adversaries by default. And, or course, that these symboitic relationships further what I consider to be positives in our societies.
At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept. It could be a perfect system for Pirate scheme scam.
It could prevent scams & schemes. Who would loan BTC to someone who only has outstanding debt? Who would loan money to someone who's only credit is that from Pirate? Such a system could prevent a pyramid foundation.
Pirate seemed to be trustworthy because he always repaid as promised (before he ran away). That's why more people joined the scheme, and people invested more. If it happened on Ripple, the system would just show he repaid as promised and make him look more trustworthy. He could also loan and repay his sock puppets to build up trust (I bet he actually did this).
It's all about trust and greed, no matter it is run on Ripple or not.
The only reason he may not want to use Ripple is the transparency of the system. However, this could be evaded by using sock puppets.
At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept. It could be a perfect system for Pirate scheme scam.
It could prevent scams & schemes. Who would loan BTC to someone who only has outstanding debt? Who would loan money to someone who's only credit is that from Pirate? Such a system could prevent a pyramid foundation.
At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept.
Exactly. There is nothing wrong with that. Everybody can be a bank! Until now you can go to a bank and deposit your money. The bank issues IOU stating they owe you money. From now on everybody can do this and bear the consequences if they fail or profit from the success if trust gets bigger!So it is about trust in a single person or entity. I'd deposit my money to a bank with 0.1% p.a., rather than to pirate with 7% per week, because I trust the bank more.
At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept. It could be a perfect system for Pirate scheme scam.
It could prevent scams & schemes. Who would loan BTC to someone who only has outstanding debt? Who would loan money to someone who's only credit is that from Pirate? Such a system could prevent a pyramid foundation.
At least I know in Ripple everyone can issue IOU without any limit, as long as someone else accept.
Exactly. There is nothing wrong with that. Everybody can be a bank! Until now you can go to a bank and deposit your money. The bank issues IOU stating they owe you money. From now on everybody can do this and bear the consequences if they fail or profit from the success if trust gets bigger! Jump to: