Why Ripple?

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

Two reasons:

1. Ripple is more efficient, and therefore cheaper for payments than regular money.
2. Ripple is more community-oriented than regular money.

The explanation will involve delving into what regular money is and how banks actually work.

To understand why Ripple is more efficient than regular money, take into account that when we say "regular money", we're not talking about paper money, but rather bank account money, which accounts for over 95% of money out there. Banks charge fees to lend and take care of this money. Think of all the people who work directly and indirectly for the banking industry. Someone has to pay all these people's salaries, not to mention the profits that banks regularly rake in. Whether you are charged directly or not, you pay for bank fees because they are factored into the price of every item you purchase. How come Ripple doesn't need to charge fees? Read on:

When you have money in your bank account, you probably realize that the bank doesn't actual have a little bundle of paper money in their vault with your name on it. Instead, what they have is a little number in their computer with your name on it that tells them how much they owe you. You trust that if you should ask for a cash withdrawal, the bank will be able to come up with the money. A bank account is really the bank's IOU, or obligation to you. And if you think about it, paper money is just the government's obligation to you, redeemable as payment for taxes.

Since we trust that our banks will be able to issue us useful government obligations at any time, we are generally content pay one another by having them shuffle their obligations from one person's account to another, using cheques, or more recently, debit and credit cards. Often obligations must be shuffled behind the scenes to a different bank through a central bank, or through several banks in the case of international transfers. This shuffling is exactly what Ripple mimics, except instead of shuffling obligations only between banks, it shuffles them between anyone, including banks, if they wish to participate.

Banks take the money they get in deposits and lend it out. Actually, since most payments are made without ever withdrawing actual cash, and since most cash simply gets deposited right back in a bank anyways, they may lend out up to 10 times the amount of deposits they have. This is how most money gets created: banks simply bring it into being by adding to someone's account balance and calling it a loan – money is nothing but bank obligations, after all.

Banks owe many times what they have in cash, and yet stay solvent because every borrower promises to pay back the amount they have borrowed. When a loan is paid back, that bank obligation is fulfilled – in other words, that money is destroyed. To earn the money to pay back the loan, a borrower must perform some service of value to someone else who has money to spend. That is what gives money its value: borrowers want to take it in exchange for their services in order to pay back their loan. If a bank can't recover the money from a loan, the bank must deduct the unpaid amount from its profit or risk going bankrupt. Banking regulations ensure that banks follow a strict accounting code. The whole arrangement is a rather ingenius way of keeping score of who is doing their part in society, especially given that it was developed well before the advent of computers.

To ensure that it is profitable, then, a bank must only lend to people who are going to be able to reliably earn money and who can be trusted to pay back what they owe. So for a bank to lend you money, it must learn how you are going to earn money in the future, and how well you have fulfilled your obligations in the past. Often this is a time-consuming and labour-intensive process, which is one reason that banks employ so many people: The borrower-lender relationship is fundamentally a trust relationship, and forming a trust relationship takes time and energy.

Ripple is a financial system that recognizes existing trust relationships between human beings and works within that structure, instead of imposing a structure by demanding that we all put in the effort to form trust relationships with institutions that we would otherwise have nothing to do with.

But more importantly, when a bank lends you money, it is making a value judgement, not only on you and whether your activities will be valuable, but on society at large and whether they will judge your activities as valuable. A bank is an institutional entity, and as such it can only value what it can measure: things like income, profit, rates of production, forecast growth, etc. It cannot value things that are truly important to human beings such as love, community, and relationship. Human beings working at banks might do the best they can, but ultimately the relationships between bank employees and bank clients are rarely very deep because they are formed solely for financial reasons. And bank employees can only exercise discretion within the tightly controlled framework of the bank's corporate regulations.

We have a system where nearly all economic activity depends on the presence of sufficient money to enable it. 95% of that money is created by banks for people or purposes that they deem valuable. Yet what banks value is at best a shadow of what we truly value as human beings. Is it any wonder that our economic lives are so out of balance? That what we feel we must do for money so rarely seems to be in harmony with what we truly want to do? That the more successful we become economically, the more the fabric of our communities seems to break down?

In Ripple, the points to keep track of who is contributing to society (which is all money is in the end) are created and accounted for by those who are closest to you, who share your values the most, and who are most familiar with your personal situation.

Money is a fantastic way that we have invented to organize cooperation among ourselves, and using it, we have been remarkably successful at exploiting natural resources to produce an abundance of material goods for our enjoyment. But as important as it is, there is more to life than the enjoyment of material goods. Technology makes it possible to adapt our economic systems to better reflect what we actually want out of life. Ripple is one of the many new systems that have become possible because of the internet.

So, by all means, continue using regular money. But give Ripple and other new systems a try where you can and see if new possibilities don't open up for you.