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= a standard protocol for routing payments through arbitrary currency networks


Now in operation as Ripplepay, at [1]


"Ripple is a monetary system based on trust that already exists between people in real-world social networks. By cutting out the institutional middlemen, Ripple is both more community-oriented and more efficient as a means of exchange.

National monetary systems rely on trust in large financial institutions. A bank account balance, stored as electronic bits in a computer, represents a promise by the bank to pay the account holder. That promise is only meaningful if the bank is trustworthy. Banks, in turn, leverage those deposits to issue new money by making loans to trustworthy individuals as determined by an often labour-intensive screening process.

Ripple cuts the banks right out of the picture by allowing anyone to act as a bank and grant credit within the Ripple system to anyone they know. The system keeps track of the source of all IOUs, so that debts that are not repaid are automatically borne by the issuer."


Sepp Hasslberger writes in December 2010:


Ryan Fugger:

"Ripple is a monetary system that makes simple obligations between friends as useful for making payments as regular money.

Normally, if your friend Alice owed you $10, she would have to pay you back before you could make any use of that debt. If you were creative, however, you might be able to pass the debt on to someone else who knew and trusted Alice, in exchange for something you wanted. For example, you might be able to get a book you want from Bob, who also knows Alice, in exchange for letting Alice know that she now owes Bob $10. Instead of money, you used Alice's IOU to pay Bob. Alice acts as an intermediary between you and Bob.

Ripple does the same thing, only it takes the idea one step further. What happens if you want to get a haircut from Carol, who doesn't know Alice at all? Your $10 IOU from Alice isn't useful because Carol being owed money by Alice doesn't mean anything to Carol. But suppose you had a way to find out that Bob, who knows Alice, also knows Carol. You could talk to Bob and arrange for him to take Alice's IOU in exchange for giving his own IOU for $10 to Carol. Since Alice owes him exactly what he owes Carol, Bob is even on the deal. Both Alice and Bob act as intermediaries between you and Carol.

And that's how Ripple works. You create a profile on the system and indicate who you know and how much you trust them by connecting to people by email address and giving them credit limits. Then whenever you want to make a payment to another Ripple user using only friendly obligations, the system finds a chain of intermediaries connecting you to the person you want to pay, and records the payment in each intermediary's account all the way down the chain. You end up owing one of your "neighbours" on the system, and the payment recipient ends up being owed by one of her neighbours." (

Sepp Hasslberger:

"Paying without cash and without going through a bank may seem an impossible proposition. Not so, says Ryan Fugger, the architect of Ripple, an open source bank-independent peer-to-peer payment system that is now in Beta release, meaning it's open to play with and test.

The proposal is based on the fact that all payments are made through IOUs. While this is obvious in the case of trust between individuals, it is more obscure when considering cash, which is based on trust in the government, or the bank credit, which we obtain by the bank accepting our IOU - collateral - and providing its own IOU - a positive bank balance - for us to use in payment.

The idea of a direct payment system that complements and may eventually make obsolete both bank and government IOUs is simple but it has world-changing potential. It tends to counteract a huge drain on the economy which is operated by the mechanism of interest. Since some 97 % of our money is created a a loan from a bank, it requires continual interest to be paid to its owner, the bank.

Ripple is an account like your bank account or your pay pal account.

The Ripple account is useful because

- it leverages personal trust from friends and family to create credit

- it provides a simple method of payment between Ripple users

Although credit from your friends lets you jump-start the Ripple account by allowing you to go into negative balance, like any other account eventually your Ripple account needs to be balanced, which means you need to put money in to be able to take money out.

To put money in, you either have to get paid through Ripple for something you sold or some service you provided, or you have to convert some of your cash or bank money into Ripple money.

For making payments, Ripple will only be useful if it has wide acceptability.

There are four distinct layers to the Ripple system.

1) The system layer, which is the Ripple program that keeps track of account identities, credits and transactions between accounts and the user interface that allows us to become part of the community and to use Ripple for making and receiving payments.

2) The interpersonal layer, which is an extensive network of friends who grant each other credit as expressed in Ripple currency. Trust between people is converted into liquidity that can be sent here and there to keep track of economic interactions. The network of trust is what provides the route that payments can travel on.

3) The business layer, which connects the Ripple system and our network of friends to the real world, to useful physical products. Businesses that accept payment in Ripple currency are part of that layer.

4) The banking interface, which provides for exchange with the current monetary system. The interface is established by entities like banks or credit unions opening a Ripple account, to provide use of Ripple as an additional service to their customers.

Each one of these four layers has its own problems that need to be solved. Each one needs to be built up to full functionality if Ripple is to be a successful payment system. Although it is conceivable that Ripple could function with only the first three layers, a link in to the "real" money world seems desirable.

Layer 1 exists and there is a workable implementation of the program running at

Ripple software is open source. The current user interface is browser based and records are kept on the server. Other implementations are possible, such as a network of servers that link between each other to route payments. There could also be a peer-to-peer implementation in the future, which does away with the need for a centralized server, storing records and transactions transparently and redundantly on the users' own computers.

The user interface that allows us to make payments could be brought to mobile phones, extending usability of the system very much.

The transfer method is simple - as simple as ordering a payment from your bank account or through paypal. The mechanism behind the payments is not something the person who uses Ripple needs to know in detail. The Ripple program will look for payment paths and do its job in an unobtrusive way. What's of more immediate concern is how to enter in the Ripple community and to link up with others who are already in it.

Layer two: The network of friends

It is possible to start forming that network of friends by going to, registering as a user and offering credit to some of your friends. It would be normal for those friends to offer you credit in turn. By doing that, both of you immediately have the possibility of using Ripple to settle accounts with each other's friends, but of course the real useful part only comes when businesses join up and you can buy things with Ripple instead of spending cash or bank money.

It is important to know that you can't just enter Ripple without also bringing in [at least some of] your friends. For the system to be able to process payments, there need to be paths of trust. Ripple links and extends these paths of trust to make a payment go from one endpoint to the other, always going through an unbroken chain of direct personal links. That is why you need to be linked with as many people as possible. You need to have given credit to and received credit from your friends, otherwise your way into the payment system is not guaranteed.

Layer three: The business layer

To be widely acceptable, Ripple needs to attract businesses of all kinds to accept its currency as payment. In turn, those businesses have to have some way of spending the accumulated Ripple currency, either with other businesses or by paying their workers and perhaps the owners.

For a business, a Ripple account is like any bank account. Payments can be received into it, payments can be made from it, and there will be credit lines in and a credit lines out that further characterize the account and link it into the system. For accounting purposes, all that is of interest is the correct registration of transactions and the balance of payments, either positive or negative.

In a time of first implementation, businesses could opt to accept Ripple currency for a certain percentage of any sale, demanding cash or bank money for the rest. As Ripple takes hold, some businesses may move to accepting Ripple currency for the full amount of any payment due.

To attract businesses into the Ripple community, there has to be some advantage, something that makes it worthwhile to use this particular system of payment. It should be more profitable to accept Ripple currency than to only accept money. (open question: what would be a good "hook" for recruiting businesses to accept Ripple payments?

Layer four: The banking interface

Banks and credit unions could be persuaded to join the Ripple community to offer an additional service to their clients. Banks could also provide smart cards that allow transfer of ripple currency. (open question: how exactly does a Ripple currency account link to a bank money account or to cash?)" (


"Banking was invented to solve the problem of the trusted intermediary: I'd like to buy something from you on credit, but you don't know if my credit is good, so you can't accept my IOU. If we can find someone who you trust, and I can obtain their IOU, I can use it to pay you. Goldsmiths were trusted by everyone in the region because they held gold in their vaults, and so they were natural candidates for a trusted intermediaries. The catch was, you had to obtain their IOU, which was the original paper money, either by borrowing it at interest, or by earning it from someone who already had it.

We have become so used to our banking system, we do not realize that any trusted intermediary will do. For example, a mutual friend might vouch for me by agreeing to assume the debt if I failed to repay. We might even arrange for the mutual friend to simply assume the debt so that I could just pay her. In general, a chain of more than one trusted intermediaries, each a mutual, trusted friend between the previous and the next, works the same way.

How Does Ripple Work?

Ripple is based on a simple idea that has only recently become feasible, thanks to computer technology and the internet. Each participant indicates which other participants he or she trusts, by offering to accept their IOUs up to a certain amount, like a line of credit. To make a payment to someone who trusts you, you simply adjust your IOU balance with them to indicate that that you owe them the amount of the payment.

To pay someone who doesn't trust you, the Ripple system finds a chain of credit connections between you and the payment recipient. Then you pay the first person in the chain, who pays the second person, and so on until the recipient gets paid.

This is exactly what happens when someone writes a normal cheque. Their bank deducts from his account (which is his IOU balance with the bank), and pays the central bank, who credits the recipient's bank, who further credits the recipient's account. In other words, the payer gives some of his bank's IOUs back to his bank, his bank gives some of the central bank's IOUs (national currency) back to the central bank, who passes them along to the recipient's bank, who issues its own IOUs (bank account digits) to the recipient.

Note that all three intermediaries are banks. Ripple lets everyone act like a bank." (

From the FAQ:

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 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 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. 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." (


Francois Rey:

"Ripple ( is one of these projects that applies the power of the P2P principle to payment arena. If you ever owed anything to a friend of a friend, then you certainly considered the possibility of having your friend pay for you and then owe the amount to your friend. That same principle is underlying the ripple project. Ripple offers a distributed P2P payment system based on aggregating trust connections between people and transforming them into potential credit intermediaries in order to route payments. The web site gives another good analogy: when you receive a check, you trust your bank to credit the money on your account, your bank trust the other party’s bank, and so on. Therefore when you enter the network you specify the people you trust and to whom you would grant credit.

Although the current implementation at is server-based, in theory it requires no centralization and the distributed implementation is being developed. At present the system is nearing 1000 users and 500 payments. Of course this is one of those networks that have a slow growth because for a transaction to take place both parties must be in the network and a path must exist between them. However once a certain critical mass is reached the expansion can quickly reach a stage where one can feel ‘left out’ if they don’t join (network effect as seen with Skype). The distributed is certainly a requirement for this to happen."

Ripple as a P2P Currency System

Ripple allows participants to take part in unlimited arbitrary currency networks and to create new currencies on their own. This facility, and the low infrastructure entry cost, make Ripple an excellent utility for P2P Networks that need flexibility, but are able to manage the complexity of providing trust, authentication, and reputation systems for the peers in the network. Ripple is easy to get into. In 20 minutes you can create a currency and send a payment. By itself, Ripple is only as good as the people you know, though, and in smaller networks this can be a boon, but in larger networks some additional information layer that allows users to match wants and needs is important, and if that can work alongside a reputation system, then there's an increased chance of adoption and widespread use.

More Information

See our entry on P2P Exchange Infrastructure Projects and on Infoliberalism

Document at