Peter Schiff explains the value of Ripple in debate with Stefan Molyneux
http://www.youtube.com/watch?v=mFcTJAQ7zc4
Recently two of my favorite libertarians Peter Schiff and Stefan Molyneux debated two currencies, the cryptographic currency bitcoin and gold. The interview pitted traditional banking and economic theory with new age open-source and distributed systems philosphy. While Stefan Molyneux presented well the tried and true arguments in favor of bitcoin, Schiff blended both world views to propose a new class of cryptographic money that is backed by more traditional value.
Molyneux comes out swinging by referencing a recently $6 million transaction made in bitcoin, and argues that bitcoin can make nearly instant and nearly free transactions, which gold cannot do. The drawback for now is that one can’t make long-term contracts because of volatility. For instance Yen or Euro aren’t perfectly stable but won’t be triple the price in a year.
One of Schiff’s most effective arguments was that their is no barrier to entry to starting a new crypto-currency, which could easily result in a currency backed by gold, silver, or oil. He rightly states that bitcoin itself isn’t backed by anything, and the price is essentially what people are willing to pay. Currently people use bitcoin because digital currency can be used to securely transfer money assets anywhere in the world.He imagines a bank in Hong Kong that holds gold reserves and maintains gold balances for their customers. The customers could issue their own cryptographic money that represents the gold stock, making them instantly tradable like bitcon yet backed by gold in a heavily-guarded fortress.
Building sound-money currencies on the Ripple Network
Ripple is a payment network that allows anyone to create their own cryptographically secure currency and issue it on the open market. In the example of the Hong Kong bank that wants to issue its own cryptographic gold tokens they would be able to use the existing Ripple infrastructure and open-source software rather that re-implementing a completely custom cryptography and money system. Each unit of currency they issue would be redeemable at the bank for a unit weight of gold. In order to build such a currency on top of the Ripple there are only a few concepts that the Hong Kong Bank would need to understand.
Currencies on the Ripple network represent IOUs, or credits issued by one user to another user. The holder of the currency extends a line of trust to the issuer of the currency, representing in this case that they trust the Hong Kong Gold Bank to redeem their gold money for physical gold upon request. Other examples of extending trust lines include trusting that a user who credits you with bitcoin IOUs will actually have those bitcoins available if you wish to redeem them.
Issuing a new currency on Ripple is simple and is explained in the Ripple wiki:
Ripple has no particular support for any of the 3 letter currencies. Ripple requires its users to agree on meaning of these codes. In particular, the person trusting or accepting a balance of a particular currency from an issuer, must agree to the issuer’s meaning. As result, any 3 letter code can be used for represent currencies on the Ripple network as long the involved parties agree.
Each customer of the Hong Kong Gold Bank would need a Ripple wallet in order to hold the gold-backed cryptographic tokens securely. In Ripple a user’s wallet is available anywhere in the world and the user has complete control of the currency units in their wallet. A user that holds Hong Kong Gold Bank money units would be able to send them to anyone on the network, or use the network to convert the money to another money of their choosing. They would also be able to submit bids/asks for their gold money against of other currencies.
In the Ripple system the Hong Kong Bank would serve the role of a “Gateway”, which is basically a normal user that issues balances of a currency and allows users to move digital money out to physical goods, or physical goods into the network as a digital representation of that commodity.
