Can anyone tell me how this thing works?
I looked at the wikipedia article and it basically says its a debt based cryptocurrency that you can trade for social points.
Like wtf if that supposed to mean.
No one cant tell you how it works because it doesn't. i think it boils down to a trust network.
You can look through Ripple's wiki (
https://ripple.com/wiki/Main_Page) and yes, it does work.
Anyways, the main analogue that I usually use for Bitcoin is gold (something that has very little value in itself but that is useful for store of wealth because it is perceived by others the same).
For Ripple I usually use the banking network (= you have an account at your home bank and can receive ACHs from any other bank in the world that in the end gets added to your balance on your account. This balance is money that is DEBT from your bank towards you, also called "IOUs" ("I owe you"s)).
In Ripple you would have an account at a gateway, which is a money processor that can pay you money that you receive in your Ripple account and take money and credit it to your ripple account. Whenever someone on Ripple sends you money, in the end it will be converted to a balance of IOUs that you accept (typically the ones from your gateway, as you know these can be redeemed).
Trust lines in Ripple are used to tell the network which IOUs you accept and to which amount. This is not really modelled in the example, but you could for example think of a scenario where you might open a second bank account, once you have one filled with 100k USD, to always be FDIC insured - so your implicit limit towards one bank would be 100k USD. Ripple makes these limits explicit.
The biggest problem for OpenCoin as operators of this network is now, how to earn money from this without limiting users what they can do with it. In the bank network, banks simply charge fees in their own IOUs (e.g. you have to pay 10 cents per ACH) and pay the international networks (e.g. SWIFT or SEPA) some basic fee. This would mean that OpenCoin would need to charge each gateway all around the world some money that in the end needs to somehow end up on THEIR bank account (probably in USD) as they want to eat too.
The road that they took (and which is criticised a lot here) is that they introduced an "intermediate" currency - XRP. These are (like Bitcoins) completely arbitrary and worthless, but adhering to certain rules and also useful - so they might have some value. Contrary to BTC, which were designed to be given away as randomly as possible to anyone in the world, XRP were given to OpenCoin and are to be sold or given away from a centralized source. This way, they don't have to care about if someone issues IOUs in some currency that they don't even want (e.g. EUR), because if OpenCoin just took a flat 0.01% fee for example, they would end up with all kinds of different balances, like you having hundreds of tiny bank accounts at hundreds of different banks all with a handful of USD, EUR, GBP, CNY, BTC and whatnot in them.
All in all Ripple is a decentralized exchange, their business model is making money from selling their internal funny money and their product is rippled (the currently not publicly available server software used to verify transactions) and clients and libraries interfacing with rippled (these are open source and available on github).
If you have more concrete questions, please feel free to ask, maybe in a seperate thread, as this one is more about Ripple being used more and more in China.
