W3C home > Mailing lists > Public > public-interledger@w3.org > January 2016

Re: How do bank payments actually work?

From: Fabio Barone <holon.earth@gmail.com>
Date: Tue, 26 Jan 2016 15:17:47 -0500
Message-ID: <CAOL8i_keis6gMDjVMKxCEqdMA7r4MhFyOeerM2qVjcSj+B8M8Q@mail.gmail.com>
To: Evan Schwartz <evan@ripple.com>
Cc: Melvin Carvalho <melvincarvalho@gmail.com>, Joseph Potvin <jpotvin@opman.ca>, Web Payments <public-webpayments@w3.org>, Interledger Community Group <public-interledger@w3.org>, Tom Blomfield <tomblomfield@gmail.com>
Important clarifications Evan, thanks.

Maybe that would be a different thread (I am happy to start a new one if
people think so),
but what do people here think about the potentially incumbent collapse of
bitcoin as a crypto-currency itself and the block-size issue?

The question is related to the blockchain itself, not bitcoin.
Block size is ultimately a "political" decision of the community, and there
appears to be a scism because of that.
Not wanting to discuss that in itself (it's probably being discussed

but what do you guys think this means for blockchain technology itself?
Will we see a proliferation of different blockchains, making ILP even more
interesting and important?
Could this be a blow to blockchain technology itself (unlikely IMHO),
because limitations of this technology are becoming apparent?
What developments do you foresee happening in this field, also maybe not
underestimating a potential collapse of the global economy this year?

On a side note, I like Ethereum's basic tenets but I am worried about a
lock-in of some sorts...

2016-01-26 14:56 GMT-05:00 Evan Schwartz <evan@ripple.com>:

> Interledger is a protocol for secure payments across different ledgers or
> systems that track accounts and balances. It is designed to be used for
> cross-currency and cross-asset payments, including fiat currencies,
> cryptocurrencies, and other types of transferrable resources.
> Regarding the differences between the values and designs of different
> ledgers: in the interledger model it is the "connector" that offers to
> trade one asset for another. Connectors will have different reasons and
> rates for trading between different assets, but the idea is that as long as
> there is someone willing to trade the units of one system for the units of
> another, there should be a way to route a payment through them.
> One of the key points of ILP is that if each of the ledgers -- no matter
> how different their design is -- can support conditional transfers based
> upon cryptographic conditions, multi-hop payments can be made risk-free for
> the sender and recipient.
> Hope that helps. Keep the questions coming!
> On Sat, Jan 23, 2016 at 7:23 PM, Melvin Carvalho <melvincarvalho@gmail.com
> > wrote:
>> On 23 January 2016 at 19:37, Fabio Barone <holon.earth@gmail.com> wrote:
>>> Please bear me with me for my ignorance...
>>> ..but I would like to understand this a tad better:
>>>    - I have seen similar ideas in complementary currency spaces, the
>>>    idea being that value can be exchanged over different currency circles
>>>    - It never took off because the underpinning values systems differ
>>>    too heavily - there's no way to , bridge a local money X with another Y,
>>>    there's too much difference in money design and value systems
>>> Now, my questions for these interledger exercices, are you guys talking
>>> about interledger,
>>>    - but based on the SAME currency as value exchange? Or different
>>>    ones?
>>>    - based on fiat currency, and/or bitcoin?
>>>    - no currency at all, "just" sync records?
>>>    - generic interledger which would work no matter what resource the
>>>    ledger is actually focused on?
>> Personally, I would like to be able to cover all 4 cases, in different
>> layered workflows, that sit at a layer above the ledger technology.  ie
>> loose coupling between the ledger and the ledger communicaton ... that's
>> what im working towards
>>> Maybe my questions are completely off, if I in fact would have
>>> understood things completely wrong.
>>> Would welcome a brief clarification, thanks.
>>> 2016-01-23 10:04 GMT-05:00 Joseph Potvin <jpotvin@opman.ca>:
>>>> Two comments on the published description...
>>>> 1. "Banks pay a few pence per transaction, although no bank currently
>>>> charges customers for this service."
>>>> It's worth noting that this charging structure is suitable for
>>>> transactions greater then, say, about 2£. It would require a different
>>>> transaction fee structure to handle micropayments.
>>>> 2. "Three times a day, VocaLink will send a message to all participant
>>>> banks informing them of their position. To “settle” the funds, participant
>>>> banks have accounts at the Bank of England. They will either make a single
>>>> payment to FPS (if money has flowed out of their bank), or receive a single
>>>> payment (if the net transfer of funds is in their favour). This payment at
>>>> the Bank of England is just another double-entry in a ledger; the bank’s
>>>> settlement account is debited and the FPS account is credited with the same
>>>> amount."
>>>> I think perhaps this is mis-stating the operation by using words "make
>>>> a single payment to FPS" and "receive a single payment". I'm fairly certain
>>>> these are accounted for as loans, to which the "Bank rate of interest" is
>>>> applied. Please correct me anyone thinks I'm wrong about how this
>>>> particular settlement system works. I think that while the mechanics remain
>>>> true that it's "just another double-entry in a ledger", these show up in
>>>> the books as off-setting loaning and borrowing by the Central Bank, and
>>>> they include an interest rate which needs to be taken account of.
>>>> http://www.investopedia.com/terms/b/bankrate.asp
>>>> For those of you creating test environments, taking account of this
>>>> factor complicates the model in two ways. First directly, you would need to
>>>> attach some sort of index (the interest rate) to the inter-bank
>>>> transactions. Second, you would need to create an policy-motivated actor
>>>> (agent) who makes decisions about that index.* [I'll proceed a bit
>>>> off-topic here just to illustrate...] This is because this  "the Bank Rate"
>>>> which is the benchmark by which a Central Bank motivates increases or
>>>> decreases for all interest rates of the given currency zone. The 'fun'
>>>> start to happen when a central bank decreases an interest rate in order to
>>>> simultaneously incentivize capital investments (its cheaper to borrow) and
>>>> decrease forex traders' demand for that currency (better returns on static
>>>> deposits are found elsewhere) in a period of competitive currency
>>>> devaluations, all of which artificially stimulates that country's export
>>>> market. Well, they've all been doing that for a while, and have run out of
>>>> room at the bottom. But they keep going!
>>>> http://www.bloombergview.com/quicktake/negative-interest-rates
>>>> <http://www.bloombergview.com/quicktake/negative-interest-rates>  *
>>>> [Back on-topic...]  Any model of payment must be a simplication of
>>>> complex reality, so this is not a critique of the published description as
>>>> far as it goes. I just raise a caution that with a title like "How do bank
>>>> payments actually work?", this summary of some of the mechanics of the
>>>> system inevitably has to leave out much of how bank payments actually work.
>>>> I've c.c.'d the author, Tom Blomfield, in case he'd like to comment.
>>>> Joseph Potvin
>>>> Mobile: 819-593-5983
>>>> On Wed, Jan 20, 2016 at 6:03 PM, Melvin Carvalho <
>>>> melvincarvalho@gmail.com> wrote:
>>>>> Interesting post on the inter ledger element of banking.
>>>>> https://getmondo.co.uk/blog/2016/01/20/how-do-bank-payments-work/
>>>>> Im thinking of simulating this on a testnet for people to play around
> --
> Evan Schwartz | Software Architect | Ripple
> [image: ripple.com] <http://ripple.com>
Received on Tuesday, 26 January 2016 20:18:22 UTC

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