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Ripple Credit – Pros, Cons, and Swimming with Sharks

Table of Contents

  1. Wacky Intro
  2. Background
  3. Pros
  4. Cons
  5. Parting Thought

Wacky Intro

Idealists and dreamers are able to imagine these wonderful utopias where all the problems of the world are solved. Of course, the same crowd contains those deceived individuals who think there is nothing evil about the average man – it’s society that’s in the wrong (but that’s composed of people isn’t it? Oops!). Hello Jean-Jacques Rousseau!

I… am a dreamer. Fortunately, I also think practically. X/

Now that we’ve reached the age of computers, everything must become digital: money, phone calls, … even your refrigerator settings. This makes it so much easier for hackers to control, not just your computer, but your whole way of life. It sounds like a huge conspiracy, but it’s actually just stupidity. I’ve already addressed the fact that future technology is a Pandora’s box, but let’s take it a step further… *raises voice* into the realm of economics! To infinity, and BEYOND!


Want to move to the next century of economics? Bitcoin will do that for you! Why not? Even our very own WordPress accepts bitcoins! Oh wait, they still want cash, so they use BitPay.

What are bitcoins? More precisely, what is Bitcoin? Bitcoin is a digital exchange program. It is also the name of the digital currency. Yes, currency, as in money. It works off of a protocol created by the original developers. It’s intended to do several things (or at least here’s a list of things people would like it to do):

  1. Provide instantaneous payment
  2. Decentralize the source of money
  3. Create a network of trust for ease of monetary exchange
  4. Provide anonymity of payments

You can read more about it on the official website.

What’s next? Ripple! In this “new” rendition of Bitcoin (which actually predates it I’m told), instead of paying through anyone, you can loan money to people through your friends. How does that work? – IEEE writer Morgan Peck explained it very well in a recent article, but the summary is that of caps. I authorize a monetary cap for loaning to certain friend, and they do the same for their friends. This allows one of their friends to take out a loan that ultimately comes out of my pocket. Doing everything digitally will allow debts to be cancelled faster because a loop of debts will be cancelled out by the program.


Let’s start off on a positive note. Aside from the above mentioned benefits, what are some other things that Bitcoin and Ripple might have to offer?

First, it’s encrypted. Oh good, so it’s defended like a bank.

Second, it’s convenient. One day, you might be able to pay your bills in your pajamas! (Oh wait, can’t you do that with a credit card already?) Transactions are quick and speedy, and you don’t need to worry about a bank statement – you have it all on your computer.

Third, it’s verified. Having multiple computers verify your account information supposedly adds to your credibility as a purchaser.

One of the biggest benefits people taut is the decentralization of the monetary system (which is mentioned on the list above). This has the advantage of taking power away from the government (or whatever central agency has control over it) and giving it to everyone else. The inflation of the US dollar from an overspending government is evidence why this seems to be a good idea – it would supposedly keep the monetary system from this sort of unnatural inflation. The stability of the currency would be determined by everyone else.


Economic Cons

I’m going to start with a very liberal argument (this is SO unlike me, so just watch – I’ll probably botch it).

When the Great Depression came in 1929, no one knew where the money was. Somehow millions of dollars had just vanished from the market. What happened was what I call “avarice” and “hoarding” but wealthier individuals might call “reserving”. Who was doing it? Take a guess after this fact: The only skyscrapers built in the 1930s were by Rockefeller. If you recall your American history, in the late 1800s, men like J.P. Morgan, Andrew Carnegie, and J.D. Rockefeller had millions upon millions of dollars. In their hands was an incredible amount of influence just based on cash. The only economically intimidating factor to them was, of all things at the time, the U.S. government. (Unions were huge, but in order to get their way, they had to break their contracts, break their promises of employment, or break the law.) There were several factors affecting the Great Depression, including the Dust Bowl, and while we wonder whether conservative economic ideals would have eventually rectified the situation, they never got the chance – the F.D.R. administration stepped in and provided jobs through the W.P.A. (Works Projects Administration) and deficit spending – the latter of which it would not be able to do easily with the limitations of the proposed bitcoin economy.

If the government hadn’t stepped in with the W.P.A., would the U.S. have fixed itself? Or would people still be slaves to the big money holders?

Another problem is money mismanagement. We could start by talking about the U.S. government (and most European governments for that matter). I don’t like the government mismanaging money any more than you do, but I don’t think limiting them will help. The libs in office already have trouble keeping track of money – they can’t tell the important difference between 100,000,000 and this 1,000,000,000. What’s the difference? One zero. Ah, but that’s nothing! (Pun intended.) I like the buffer for failure. While their control of the monetary situation is pathetic, at least the army isn’t going to disband on lack of pay. A country can glide on credit even if it can’t run, but it can’t run on no money or credit period. Maybe I’m just nutty about all this.

One of the benefits of Ripple is that there will be debt cycles it can cancel. In real economics, this doesn’t happen as frequently as people would like. Usually it’s the guy with the most loaning out to everyone else. Someone with a killer job keeps going up and loaning out money but to people who may or may not be able to pay it back. The debt continually increases, but will the digital bubble ever bust? Let me see… how high does a floating point number go?

The creators of Bitcoin decided to cap it all at 21,000,000. Perfect – now I can rest easy because I will never be infinitely in debt (even though I can be in debt beyond feasibly repayable). As a nation, I’ll never be able to buy that new supersonic jet from the U.S. for defense, but who cares? This number fails to take into consideration the growing number of people in the world, all of whom will probably need to use currency at some point in their lives, and the possible extension of resource mining in outer space. (The latter is a visionary thing, but isn’t that what we’re talking about anyways?) Oh yeah, the bitcoin can divide into 21×1014 units, which is a big number, but that’s what they said about IPv4 and now we’re at version 6.

Digital Cons

Here: some reading material to get you started on the issues bitcoin is already having.

Let’s talk about swimming with the sharks. One of the catches about the bitcoin network is that it tries to be so tight that no one can fake their cost. Oh really? Isn’t it all digital anyways? Yup. That means ultimately the person can control the program and make it say whatever they want. Someone will inevitably find a loophole around the system, and since Bitcoin itself is an open-source program, no one has to worry about getting sued over altering it.

Along those lines – I imagine people in the future are going to get frustrated over the security holes. Rather than waiting for a new “official” release, they may make their own private version that has special features for certain transactions but resulting in a possibly unacceptable version of the software (unless it can still spoof everyone else, which is quite possible). This activity will then be replicated by people who have more malicious intentions.

Edit: I learned Bitcoin actually works on the basis of a decentralized network that keeps track of micro-transactions to verify purchases and transfers of Bitcoins, which was the issue I had in mind. But that doesn’t prevent digital theft, as in the above article and here.


If it’s sent over a network, it can be intercepted and copied. If it’s on a network, it can be hacked. If such is always the case, criminals will be hackers. If such is not the case, criminals will be burglars. Privacy with Bitcoin doesn’t seem to be at the heart of things. (Edit: Apparently, it does have anonymity… though that has other lovely problems (see the ransom note link below).) In order to make the network secure, Ripple decided to make it a peer-group thing – you’re trusted friends not only can load but also hold the account data of each other. This decentralizes everything and allows for multiple computers to verify account data, but it also exposes very sensitive information to other people, who, with the right tools, can analyze that data without you knowing.

Hard Truth

I saved the best *ahem* worst for last. Ransom note of the future: “Pay me via bitcoin. If the payment is not received in ten minutes… X will happen.” Since transactions that occur using bitcoin take a matter of seconds, this is a very likely scenario. (Edit: Two years later, this is now a real issue.) This wipes the police from the picture – and the only way back on is via a long and tedious investigation. Criminals could even hack someone else’s account in order to receive the payments anonymously. From there, they would have the payment transferred to their account …. without a trace. Lovely thought, no?Another fun scenario: Your computer hard-drive crashes. Let’s hope you’re not trying to pay your latest bill with bitcoins. Sure, everyone has your data on record (recall a waste of memory this is – to have all of your neighbor’s / peer group’s personal account data on your computer – nevermind the privacy), but they aren’t going to pay your bills from their computer. Even if that was permitted, how’s that supposed to be tracked? Username and password? Oh great! So not only do my neighbors know how much I have, but they are also the keepers of my account information. Gosh, what I great idea! Can you hear the sarcasm drooling out of my mouth?

Parting Thought

*sigh* People don’t seem to understand that digital is no substitute for the tangible. Artists, big businesses, and tons of other people who own copyrights are complaining about people not abiding by the rules. The issue is that the digital world is so malleable. It can be rather easy to make our own little world with the digital universe – the only thing that changes are the bits inside of our computers. And that’s just it – all it is, all it ever will be, is just a bunch of bits. You think you’re entitled to a certain arrangement of those bits? Guess again – there are a billion other copies of that same arrangement elsewhere in the world, all representing different things. Some represent art, some notes, others account information, and still others world-revolutionizing science. This malleable world is not the answer to security issues and it is certainly NOT the answer to our monetary issues either.


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