FAQ

Frequently Asked Questions

Please feel free to ask any questions on the discussion group, or send them to info@ripplepay.com.

What is the status of the project?

There are no vibrant, active, and popular Ripple trading communities yet. There are several single-server implementations of the Ripple concept, in various states of repair and completion. The protocol for a distributed Ripple network has many designs, but no implementations yet. There are many ways to get involved and help out.

Ripple concept

Ripple compared to...

You may also look at the table comparison of payment systems

Using Ripplepay

Security and Privacy

For security FAQ on the Protocol based Ripple, not implemented at the moment, see here.

Legal Issues discuss

Technical

For Technical FAQ on the Protocol based Ripple, not implemented at the moment, see here.

Ripple concept

What makes Ripple "community-oriented"?

In national monetary systems, control over the creation and allocation of money is in the hands of a small group of centralized, hierarchical, corporate institutions. Ask yourself why the government vouches for bank IOUs through deposit insurance but won't vouch for people's IOUs, when bank IOUs are backed by people's IOUs? Corporate banks are given a near-monopoly on intermediating economic exchanges. Is it any wonder that corporations receive economic priority while the human communities in which we all must live slowly disintegrate?

Money is just a way to keep score in the big economic game that we are all playing, so why do only a few people have control of the scorekeeping process? Why keep the units of measurement scarce when needed projects go undone for their lack? It's as though we were carpenters trying to build a house, but the foreman insisted on controlling how many inches each of us was allocated. It makes what could be a cooperative economy into a power game for those seeking control.

Ripple places control of monetary scorekeeping in the hands of the people around us, in our social circles and in your communities. It takes away the excuse, "we didn't have any money in our community," and lets us focus on more fundamental economic and social problems.

The goal of Ripple is to help lessen the gap between what we feel we must do to make money and what we wish we could do to make the world a better place.

What makes Ripple efficient?

Banks employ millions of people to manage the trust relationships which give value to national currencies. The must ensure that account holders are paid on demand, and that loans are only made to creditworthy individuals. Since human beings have evolved to form trust relationships with other human beings, and not with institutions, the whole process is problematic, and requires a gargantuan legal framework of bureaucrats, lawyers, regulators, and accountants to stabilize it.

We all pay for this system in innumerable ways, through interest charges, service fees, taxes, and lost productivity in the economy. Too much of our effort is devoted to regulation and not enough to actual production. Imagine if thousands of bankers and bureaucrats could quit their jobs without hurting the GDP! (This would probably actually improve the GPI.)

Ripple currency is underpinned by natural trust relationships that exist already within families and between friends. Bureaucrats and coercive legal frameworks are completely optional. The currency has value simply because people value their relationships with other people. It's financial capital backed by social capital.

The main expenses of the Ripple system are software development, managing secure webservers, and network bandwidth. These will be negligible compared to the costs of managing a national currency.

A proven example of this efficiency is the Hawala system of currency transfer.

How do I collect my money?

When you get paid through Ripple, you are left being owed by one or more of your neighbours. You may use those obligations to purchase whatever you can by paying them to someone through the system. Of course, you may pay them right to one of your neighbours for whatever they have to offer you, including cash.

Until there is a critical mass of users, buying exactly what you want using Ripple may be difficult, therefore if settling in cash is important to you, you should make this clear to your neighbours so they will not be surprised when you ask them for money. Also, take care to not offer credit limits that are too high, or collecting may become a problem. Remember, someone may become indebted to you not just for what you or they have done on the system, but also for what others have done through the connection between you!

You keep saying "payment", but in Ripple you don't pay anything, only promise to pay! Why doesn't Ripple allow people to pass real money between them instead of only IOUs?

That's what "real money" is, promises to pay. Think about what your bank account really is – a sequence of bits in a bank computer representing your bank's promise to pay you in government currency, which is really just the government's promise to award you credit towards your taxes. Money has value because people will exchange it for real goods and services, which they can do just as readily for bits in a Ripple computer as bits in a bank computer or clever etchings on a piece of paper money.

What stops someone from giving their friend a billion dollars credit?

Nothing. In fact, two people who have a high level of trust in each other could easily grant each other infinite credit. This does not in any way undermine the Ripple system. To understand this point, you must understand that in Ripple, credit with a friend is only useful if you want to buy something directly from that friend, or if other people have granted that friend credit in the same amount.

An example: Suppose I grant you a million dollars credit, and you want to use it to buy a yacht from Elsa, who happens to be connected to me on Ripple. However, for you to pay Elsa one million dollars through me, I would have to have one million dollars of credit with Elsa, and the decision to grant that credit is hers alone. As it turns out, Elsa has only decided to grant me $100 credit, and I have already used $50 of it. That means you ability to pay Elsa through me is limited my $50 remaining credit, regardless of how much credit I offer you.

You might be able to find other paths to Elsa in the Ripple network other than through me, but to make a payment of $1,000,000, you would need to be granted a total of a million dollars by your other Ripple connections, and Elsa would have to have granted her connections a million dollars in total. Not only that, but there would have to be an enormous amount of available credit at each step of each payment chain. To make a payment along a chain of intermediaries, every link in the chain must have already granted at least the amount of the payment in credit to the previous link.

So me granting you infinite credit really only means that I offer you the use of the credit that is offered to me by others.

How do I use Ripple to pay people?

Ripple is an inherently electronic currency (or payment system, whichever you prefer). Payments could be made from any internet-connected terminal or portable device, by smart card, or possibly even over the phone. Wireless internet devices hold a lot of promise.

The initial implementation will be based around web-based payment, much like Paypal.

But I like having a bank.

Fine. Ripple doesn't preclude regular banks from participating. Your relationship with your bank right now is that you grant them near-unlimited credit, and your account balance is the bank's IOUs that you hold. You may receive a small rate of interest. If you have a bank loan, the bank has also granted you some credit, usually at a much larger rate of interest.

The exact same relationship can be replicated with Ripple, by granting the bank's Ripple node a large amount of credit at your Ripple node. Then you can send and receive payments through your bank like you do now. In fact, the entire banking and monetary system is just a very limited and centralized way of passing IOUs that evolved before we had the technological capabilities to search a complex trust network for connections between two people.

The way banks currently handle payments among themselves is very much like Ripple.

Any system that forces people to act like banks for their friends will only cause disagreements and social disruption.

Ripple is not about forcing people to do anything. It is about empowering them to escape the institutional nature of our current economy. However, your Ripple experience will only be as good as the people with whom you choose to participate. Ripple is for mature people who can be honest with each other and resolve financial disagreements like adults. Ripple is very much like lending money to friends. It has the potential to break up weak relationships. Ripple has the benefit of isolating well-behaved groups of people from the effects of poor behaviour.

Social lending is already a reality, and a large part of the lending market. In terms of lending between social relations, Ripple doesn't change much except make it more convenient.

That's nice for playing bank with your friends, but I run a business and I need the security that an institutional and bureaucratic setting provides.

Yes. Ripple does not force participants to abandon the protection of existing legal frameworks, it simply enables them to avoid it where it is not necessary. However, there are many instances, especially in business, that require legal contracts that can be defended in court. Ripple does not specify the nature of the mutual-credit agreement between any two participants, it simply keeps score in an account once such an agreement has been made.

More than that, it allows any sort of private credit agreement between two parties to become a part of a fully-functioning currency system with which participants can pay complete strangers.

Without the credit aggregation provided by the banking system, how would I get a large mortgage or business loan?

First, nothing prevents large bank-like credit aggregators from participating in the system. One might say that Ripple is an experiment to discover not only the degree to which large credit aggregators are required in our economy when they are no longer required to satisfy the payment-routing function, but also to discover the degree to which the need for large credit aggregators to exist in order to route payments determines the nature of our economy.

Why should I pay anyone back?

If you make payments through a friend and don't repay that debt, your friend will be liable to the next link in the chain for those payments. You are putting your friend in uncomfortable position of having to make good on your debts to maintain their good name. They only granted you credit in the first place because they trusted you to not put them in this position!

Simply put, if you don't pay someone back, you have hurt your relationship with them. What you have gained in financial capital, you have lost in social capital. If you go about not repaying your debts, you will soon have no one left to grant you credit. Money is useless without a community of people who will accept it.

How do I tell how much money I have?

In Ripple, all money is stored as debts between two parties. By adding up all the money owed to you, and subtracting the money you owe, you get your overall balance.

So all my Ripple money is just debts owed to me by my friends?

Yes. When a stranger pays you in Ripple, their IOU is transformed through a chain of intermediaries into an IOU from someone who you have already granted credit to.

Wouldn't I rather my debts be owed to me by my bank and/or government?

Who would you trust more when the going gets rough? Consider that it is standard practice for the government to decrease the value of what it owes you by 2% or more yearly through inflation. Also consider that it is standard practice for banks to hold in reserve only a small fraction of outstanding deposits.

Mostly, it comes down to a matter of taste. Do you want to participate in a hierarchical, centralized, corporate economy run by a complex legal framework of banks and government, or do you want to participate in an open economy run by the people you live with? And did I mention that it's cheaper?

What happens if I grant credit to my friend and he doesn't repay it?

That's up to you. Treat it as if you had lent him money and he hasn't paid you back. It's perfectly acceptable for you to end your Ripple account with him. You might want to take him to court to force him to pay. It's also perfectly acceptable for you to forgive his debt and treat it as a gift. It will depend on your relationship with that person. The Ripple system does not impose any punishments. Participants are free to behave as they wish.

How is a child supposed to repay their debts and participate in the system?

They aren't. They or any other dependent person would have to rely on the generosity of their guardians, just like usual. Normally, a child's parents would grant them enough credit to buy what they needed, like an allowance.

I don't trust my friends enough to loan them money, but I can't tell them that or they'll stop liking me.

We have a cultural myth that lending money to friends causes strife, which we often quote when we want to refuse loans to friends we don't trust without telling them we don't trust them. This tactic should apply equally well to granting Ripple lines-of-credit.

I have a friend who I know won't be able to repay all his debts, but I want to help him out.

Just don't collect. It's easy to forgive his debts by simply making a payment to pass back his IOUs and return the balance on the account between you to zero. Or you can just grant him more credit and let his debt pile up. That debt only means what you want it to mean.

What about people who have no friends?

You must know people to participate in Ripple. People who have no friends could maybe use Ripple as an excuse to meet people...? Ripple can facilitate ad hoc microcredit organizations who work to involve marginalized people in the local economy.

Money is evil. People should learn to give as generously as they can and take only as they need without an obsessive need to keep score all the time.

That would be nice, and hopefully Ripple can contribute in some small way towards us realizing that money is not about power, but about community. But Ripple is a practical solution, not a utopian one. Like any system, its success will depend on the participants. Ripple provides an opportunity for those who feel ready to escape the clutches of the institutional economy to do so, but it depends heavily on participants valuing their human relationships over short-term material gain. It won't work for everyone.

Ripple compared to...

Why would I want to use Ripple when I can use regular money?

In short, because it is cheaper to use and because your friends are a more wholesome source of credit than banks. Not only will your friends be more understanding if you need to miss a few payments for a good reason, but they will also be more likely to help you out if your spending habits are getting unhealthy.

For a more detailed perspective, see the essay.

But Ripple "money" isn't as good as real money because not as many people accept it.

True. However, nothing prevents you from making agreements with your associates on the system to settle all Ripple debts in bank or government currency, say, at the end of every month. Some people who don't like inflation might want to settle in gold, or some other real commodity. Used in this way, Ripple is a payment system that avoids many of the costs inherent in other payment systems.

But, as more people use Ripple, and people begin to trust that the system is secure and consistent, Ripple money will start to become as useful as regular money, and there will be little need for most people to convert Ripple's personal debts into bank debts.

How does Ripple allow participants to act like banks?

Creating money "out of thin air" by granting credit is what banks do. Holding balances for associates to be able to pay others through you is what banks do. Making decisions about creditworthiness is what banks do.

Banks also act as the primary payment intermediaries in our monetary system. Ripple can use anyone as a payment intermediary.

Is Ripple a barter system?

No. Ripple is a monetary system, with all the benefits of money over barter, such as not having to find someone who wants exactly what you're offering before you can get something you want. In a sense, all monetary systems are about providing a way to flexibly store value to enable more efficient exchanges, which could be called "delayed-gratification barter". But no, Ripple has nothing to do with barter.

Is Ripple a LETS system?

Ripple was inspired by the LETS concept and the writings of Michael Linton, and was conceived originally as a way to bring more accountability into the spending of credits in a LETS system. Unlike LETS, which only tracks obligations to and from a single central intermediary, Ripple tracks obligations between individuals in a social network. In practice, many LETS users and administrators have complained that LETS provides little incentive to make good on one's obligations other than the desire to have the system work. In Ripple, obligations are never to "the system", or to some other collective entity, but in specific amounts to specific individuals who have agreed to trust you, and the loss of whose trust would have a tangible effect on a participant's life should they decide to renege on their obligations.

Put another way, Ripple is like an interconnected network of LETS systems, each operated by an individual participant. The subscribers to each individual's LETS are his or her neighbours. Each participant acts as a broker to exchange between the LETS currencies they subscribe to.

A LETS system allows people to keep a single balance of their debts with the community as a whole. The problem is that any member of the community can grant credit on behalf of the entire community in order to receive payment. This puts people in the position of granting credit to those who are not necessarily going to repay, but still being able to claim payment on that debt from others in the community. The result is that the community currency slowly devalues and the system runs out of steam. Successful LETS systems avoid this with active centralized management to ensure that everyone does their part to make good on their debts – just like a bank with a friendly loan policy.

Ripple avoids allowing participants to benefit from wrongly granting credit to those who won't repay, by keeping track of credit only between pairs of participants, and never with the nebulous "community as a whole". Anyone who grants credit that is not repaid is fully liable for that debt. It's as if you personally lent money that didn't get paid back. Ripple accomplishes this without needing a centralized labour-intensive bureaucracy.

In Ripple, it's as though every person operates his or her own LETS system.

So a LETS can be run using Ripple, just by starting a node. To model a traditional LETS, the managers of the LETS create a node representing the "community", and then all LETS participants, each with their own node, grant that node credit, and are granted some credit by the "community" node. Payments between members could then go through the central community node. Debts (negative balances) with the central node are payable to the community as a whole, and credits (positive balances) are IOUs from the community as a whole.

However, since Ripple allows anyone to act as a payment intermediary, there is probably little reason in most communities to go through the trouble of creating and operating a separate "community" intermediary-node. Any community that is not tightly-knit enough to have a useful Ripple network is probably not suitable for running a LETS.

See the page on upgrading from LETS to Ripple.

How is Ripple different from other "virtual currencies"?

The promise of internet "virtual currencies" has not been fulfilled largely because no one has designed a stable, usable system that is not mired to our Victorian-era centralized, bureaucratic, and inefficient national currencies. Many efforts so far have been electronic window dressing on top of this behemoth, like building email on top of the postal system.

Ripple currency is fundamentally different from national currency. It is based on debt with anyone you want, not solely on debt with large financial institutions. Ripple payments are not encumbered by the inefficiencies inherent in institutionalizing trust relationships. Ripple is not an institution, it is a tool. Ripple is to regular money what email is to regular mail: free.

You said gold?

Gold is touted by many as a universal, stable standard of value. Ripple accounts can be just as easily denominated in gold as in dollars or euros, or hours or joules, for that matter. Ripple can perform automatic conversions to integrate any type of debt between two parties into its currency network.

This is like Friendster/MySpace/Facebook.

Yeah, except it's actually useful, and considerate of your privacy. It's not just a game to see how many connections you can rack up!

How do I sign up?

Thanks for asking! You can sign up at Ripplepay!

Using Ripplepay

How do I enter pre-existing debt into the system?

First, make a connection to the person you owe or who owes you the pre-existing debt, and make sure that the person owing the debt is granted a high enough credit limit to accomodate the amount of the debt. Then, since payments in Ripple are actually IOUs, the person owing the debt would make a regular Ripple payment in the amount owing to the person he or she owes. That will change the balance on their shared connection account to reflect the pre-existing debt.

How do I cancel debt on the system once it's been settled?

When two connected account partners settle a Ripple obligation outside the system, for example, by using cash, the person receiving the settlement must record it in the system by returning the settled IOUs to their issuer. They do this by making a regular Ripple payment to the person who settled their debt with you. Your mutual account balance will be changed to reflect the fact that the debt has been settled. In effect, they are using the IOUs they hold on the Ripple system to purchase cash.

How do I close down a connection account?

When you no longer wish to have a shared credit account with someone on the Ripple system, you may close the account, but only if the balance is zero. First, set both credit limits to zero. Then arrange for the partner holding the balance, if any, to make a payment on the system to make the balance zero, and settle the debt outside the system.

Alternatively, if you both have other active accounts, you may just wait for through payments to settle the balance for you. The zeroed credit limits will prevent the balance from ever doing anything but shrink.

Why is my account balance outside the credit limits I have set?

You have most likely reduced a credit limit below the current balance so as to have placed the already-existing balance out-of-bounds. Don't fear, the balance will not be able to move any further out-of-bounds, and payments moving through you will likely eventually move the balance into the new limits you have created. You may wish to settle some of the debt on the account with your partner to move the balance back in-bounds.

Why do my account balances not add up?

So that no fractional cents are lost on exchanges between different units, the system keeps accounts to 12 decimal places. Since only two decimal digits are displayed, rounding sometimes means that the totals appear to be off by 0.01. The totals are in fact correct to two decimal places. A future feature may enable accounts to be viewed to more decimal digits of precision to confirm this.

Why does my account balance keep changing?

If you have accounts in several different currency units, and view your overall balance in any one currency (usually your default display units), your overall balance will fluctuate slowly over time as the exchange rates between currency units change.

Why does the total balance for each of my different currencies change?

When you are selected to be an intermediary for a payment, you may receive credits on an account in one currency, and pay out credits in another currency. So your total balance for the first currency would increase, and the total balance for the second would decrease by the same amount. As exchange rates change over time, you may find that any single through-payment may cause you a very small gain or loss for this reason. If this makes you uncomfortable, you may disable automatic conversion between currency units in your profile. This will force your total balances for each of your different currencies to remain the same unless you make or receive payment in one of them.

Security and Privacy

How do I know that my credit account data is safe?

You have to trust that whoever is running the server is keeping good backups and has good security practices.

What happens if there's a data error?

Until Ripple has been tried and tested, it should not be used to manage large debts. Ripple software is open-source, so any bugs can be corrected by a community of developers. Starting from 2006 a small community have been using Ripplepay, but occasional glitches may still happen.

What happens if someone hacks in to the server?

The same thing that happens when someone hacks into your bank's server. They can mess around with your accounts and all the other accounts on that server. If you have neighbours on that same server, they could likely use your node to make payments through those neighbours to whoever they wanted. In this case, normal law enforcement procedures would take over and the offending transactions could be traced to find out who benefited.

Ripple hosts could have insurance to conver client losses in the case of an intrusion.

Ripple allows for any degree of security measures to be taken to prevent a server from being hacked. When was the last time your bank's server was hacked?

How can I be sure the server is secure?

You can never be sure that any server is completely secure, but as Ripple evolves best practices will develop for maintaining security, and servers will develop a reputation for reliability, just like banks.

How does Ripple protect my privacy?

In order to use Ripple you have to enter a valid email address, no need to enter your name or personal details. Your address is given out only to those who need to have it: the people you will have credit lines with, and those that make payments to you. Since anyone can operate a Ripple server, you should, as usual, know and trust the people operating the server before you divulge any information.

Legal Issues discuss

Is Ripple patented?

No, Ripple is not patented. The working principles and business model have been disclosed (for example here). Nothing can be patented after it is made public. Ripplepay is a software implementation of those principles released under GPL.

Is Ripple taxable?

Actually, what is taxable is a business transaction, not the payment that follows (or completes) the sale. The sale is the transaction. If it is between private parties, it is normally NOT taxable. If a sale is between a business and a private person (or another business) and the payment is made through Ripple, it is the sale that's taxable. It does not matter whether you pay by cash, check, or Ripple transfer. The party who's selling is usually making a bill, on which taxes aredue. And it is the selling party that has to pay the taxes in a currency acceptable to the entity that levies the tax. If you deliver some kind of service, you may be taxable, but also in this case, it is the service and the income it provides you, that is taxable. How the bill is paid is of no interest to the taxing entity. In this way, Ripple is not taxable, just as your checkbook is not taxable. The transaction may be taxable, regardless of whether you pay in dollars, silver, gold or ripples...

Technical

How does Ripple handle exchange between different currency units?

Path search messages specify both "pay" currency units and "receive" currency units. If they are different, then any node that receives the message and has accounts in both currencies can perform the exchange at whatever rate it chooses. The payer can then decide whether to accept that rate or search for more paths. Ripple also allows accounts to be temporarily converted to different units for single transactions at pre-arranged exchange rates if both parties to the account agree.

How does Ripple resolve circular debt?

Circular debt is when, to give a three-person example, A owes B, who owes C, who owes A. It would be nice if Ripple automatically resolved. It is possible to always route payments along paths that avoid creating creating circular debt (always pay back existing debt first), however this would likely create unreasonable payment delays. Future versions of Ripple might include a search message for specifically sniffing out and cancelling circular debt.

Ripple is like PGP's web of trust.

Yes, and OpenPGP would make an excellent way for authenticating Ripple buyers and sellers to each other. While the Ripple specification will support any PKI, Ripple implementations will ideally be built on OpenPGP. Hopefully Ripple and OpenPGP can be mutually enhancing technologies. OpenPGP's philosophy is very close to Ripple's.

Ripple needs to include feature X.

Ripple is designed to be minimal and extensible, so that useful features, like PGP's web of trust can be easily integrated. But I see no need to formalize these features in the Ripple framework itself, which is only about making payments along paths of intermediaries in a mutual-credit network. But send us your ideas! hopefully Ripple and OpenPGP can be mutually enhancing technologies. OpenPGP's philosophy is very close to Ripple's.