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if Ripple users would use % loans uncontrolled way? For example: system (gateway) have 100 bitcoins, the quantity is limited, bitcoin holders have issued 100 loans for 1 bitcoin each with 10% rate (IOUs+10%), and then somebody lend this 100+10% to somebody for 10% more,how it would possible to return 110+10% bitcoins in real form?

hmmm....If we talkin about dollars its simple, dollars have unlimited supply and can be multiplied infinite, as about bitcoin.. maybe XRP would take role of Dollar as fiat money and bitcoin gonna be a reserve?

*sorry for poor english

  • So XRP should be reserve currency and bitcoin is gold standard of reserve currency? – economicus May 6 '13 at 8:19
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First, I need to point out that this wouldn't be typical use of Ripple. Typical use would be where users trust gateways and all balances are fully backed by the gateway. There's no loans and no credit except to gateways.

But, if people do extend credit to each other, unless you specifically agree to do so, there is no obligation to return an asset to any real form. Typical "loans" in Ripple are actually even exchanges of IOUs. The IOUs are redeemable inside the Ripple system and are only redeemable outside the system if agreed. The rates are initial discounts, not interest rates.

If I have a really good payment network and you want access to it, I might trade a $10 IOU to you for a $10.50 IOU from you (more precisely, I would agree to accept your IOUs at a 5% discount). The "interest" is prepaid as an initial discount. There's no need to settle or pay anyone back because the exchange was an even exchange. We both considered my $10 IOU approximately equal in value to your $12 IOU (because of my superior liquidity.)

If you max out your credit, I now have full access to your network (because I hold your IOUs) but you have no access to mine (because I won't accept any more of yours). To get use of the pathway again, you have to reduce the balance to below the limit. If you don't, I can just do it myself by returning your IOUs to you in exchange for other IOUs you hold -- you've already agreed to accept them when you issued them.

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  • Discount instead of credit? that make sense. Thank you for explanation, thats good to know Ripple not gonna use credit policy like FEd. Still need some time to think about your information to make it clear. – economicus May 6 '13 at 11:13
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Short answer: XRPs will become the reserve currency.

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