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Ripple monetary system
From Wikipedia, the free encyclopedia
Ripple is an open-source software project for developing a peer-to-peer distributed social network service with a monetary honor system based on trust that already exists between people in real-world social networks.
National monetary systems rely on trust in large financial institutions as banks. Ripple cuts the banks 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 ("I owe you"s), so that debts that are not repaid are automatically borne by the issuer.
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. So the whole system acts as a distributed mutual bank.
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.
Every Ripple node is like a LETS system, in that it operates as a payment intermediary, vouching for payments between its neighbouring nodes, just like a LETS system operates as a payment intermediary between its members. Ripple allows all these separate currency issuers to connect to a larger payment network without interfering with the operation of their individual currencies. Ripple makes no assumptions about how a currency is issued, except that balances be electronically stored by the issuer.