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

Re: How do bank payments actually work?

From: Joseph Potvin <jpotvin@opman.ca>
Date: Tue, 26 Jan 2016 15:49:04 -0500
Message-ID: <CAKcXiSpwdP+do5XPopspVBCSfgFaMVT2=uwt1hYTm2nC3uLHeg@mail.gmail.com>
To: Web Payments <public-webpayments@w3.org>, Interledger Community Group <public-interledger@w3.org>
RE: Will we see a proliferation of different blockchains?

Permit me to re-send a comment I offered in 2013...


*---------- Forwarded message ----------From: Joseph Potvin* <
jpotvin@opman.ca>
Date: Fri, Sep 13, 2013 at 12:58 PM
Subject: Fwd: Looks like the US will be very competitive in the ASIC miner
market.
To: Web Payments CG <public-webpayments@w3.org>

Bitcoin is scarce but an infinite number of technologically identical
derivative crypto-currencies can be created. So is it not true to say
that Bitcoin is only scarce based on brand loyalty? If/when Gitcoin
and Hitcoin and Titcoin also come on the market, then what does the
mathematical scarcity of Bitcoin really come to?

This is all fine, in my assessment, however. There's no way that contrived
scarcity of an intangible could ever play the economic role of genuine
scarcity of a tangible foundation for money. On another thread in this
list, also in 2013, I suggested the units like a BTC or an XRP should have
a monetary value of precisely zero in themselves. They should come into
virtual existence and then expire just to serve a mundane functional
purpose. (There's a lengthy discussion on the thread about that, and it's
not my intention to restart it here. I'm just mentioning this perspective
again as a response to Fabio's note.)  The blockchain method remains
interesting and useful. Hype about the units has been a distraction. Maybe
that's a tiny minority opinion.

BTW, I removed Tom Blomfield from this thread. It was me who added him, but
he's not replied, so I'd rather not quasi-spam him.

Joseph Potvin
Operations Manager | Gestionnaire des opérations
The Opman Company | La compagnie Opman
jpotvin@opman.ca
Mobile: 819-593-5983
LinkedIn <https://www.linkedin.com/pub/joseph-potvin/2/148/423>

On Tue, Jan 26, 2016 at 3:17 PM, Fabio Barone <holon.earth@gmail.com> wrote:

> 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
> elsewhere),
>
> 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 20:49:55 UTC

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