Re: Vehicle Currency in Web Payments [WAS: Ripple]

I think a lot of people get hung up on XRP. For the most part, I expect the
majority people who use the Ripple payment network to be able to ignore
XRP. XRP will just be the hidden plumbing.

Payments in the Ripple network can bridged through other currencies besides
XRP. It is completely optional for payments to bridge through XRP.
Generally, payments will only bridge through XRP, if people find it more
efficient or otherwise desirable to do so.

At the time a payment bridged through XRP happens, the value of XRP is
probably less important than the spread. As transactions occurs atomically
and the spread is what is captured as profit by the market makers on each
side of the XRP trade and is the apparent cost to the counter-parties.

The Ripple network combines a currency market with a payment network. This
encourages the instant settlement of cross currency payments versus
netting. For market makers to make a profit providing liquidity they must
beat all other competing market makers with the best rate. This should give
excellent rates for the counter parties of a payment.

I would guess XRP would only have the best spread, if network participants
want it to.

This might then turn the discussion to: what will have the best spread and
what might improve the various spreads?

Additionally, I expect we will soon have a better understanding of the
economics of the Ripple network shortly as it rapidly gains adoption or
not. This could eliminate much of the need for speculation.

-Arthur




On Wed, Nov 20, 2013 at 7:38 PM, Joseph Potvin <jpotvin@opman.ca> wrote:

> The topic of what could or should be backing a currency is a very big
> matter, not only in significance globally, but also in terms of the volume
> of essential discussion needed.  My worry here is that it could involve
> considerable off-topic conversation for the "webpayments" list. I will
> therefore limit my comments here to the intersection of the two topics:
> "web payments" and "vehicle currency". I have adjusted the subject line
> accordingly, since this matter is of generic concern, and is not unique to
> Ripple or XRP.
>
> Let me introduce the existing phrase "vehicle currency" with a google
> search link:
> https://www.google.ca/#q=%22vehicle+currency%22
> ... in order to illustrate that the "medium of exchange" role discussed in
> relation to XRP within Ripple is not unique. Example: "In this sense the
> dollar acts as a ‘vehicle currency’, i.e., a medium of exchange between
> currencies."
>
> http://www.economics.ubc.ca/files/2013/05/pdf_paper_michael-devereux-vehicle-currency-2011.pdf
>
> In systems design the well-known aphorism that it's best "when form fits
> function" is always good to keep in mind. I mentioned earlier three
> consensus functions of money, but more generally I include a fourth which
> is greatly enhanced in the digital currency era:
> (1) a medium of exchange
> (2) a unit of account
> (3) a standard of deferred payment (requiring that it be a stable store of
> value)
> (4) a system of information
>
> The Ripple "paths" concept illustrates nicely why economists generally
> have "medium of exchange" separate from "unit of account". When there's a
> need to accomplish an EUR→CLP conversion, the vendor, or the purchaser, or
> the transaction intermediary might find it most convenient to accomplish
> this as EUR→USD | USD→CLP. The vehicle currency function is a much larger
> proportion of conventional international trade than most people realize.
> For just one nicely illustrated empirical study, this paper reports the
> following:
>
> Italian Imports (2010)
> 43.4% “Vehicle” currency
> 36.6% Importer's currency (€)
> 20.0% Exporter's currency
>
> Italian Exports (2010)
> 19.6% “Vehicle” currency
> 7.7% Importer's currency
> 72.2% Exporter's currency (€)
>
> Luigi Ventura and Mark David Witte. 2011. "An Empirical Examination of the
> Currency Denomination of Trade"
>
> https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=MWITFall2011&paper_id=70
>
> That's to say, when Italian wines or Alfa Romeos are being sold to Chile,
> the transaction may not be in EUR or CLP, but in USD.
>
> The USD has been an all-purpose workhorse for all four of the functions of
> money, so in our minds each function blends into another as a big
> conceptual blob. The elegant thing about discussing web payments is that we
> get to separate out the precise functions being served, and we have the
> opportunity to tailor form to function.
>
> My concern with the current design of XRP is that the "medium ofexchange" function is unnecessarily conflated with the "standard
> of deferred payment" function. I say "poorly" because the part about a
> stable store of value is missing. It instability to the up-side is
> precisely what has Ripple Labs investors excited. But here's the problem.
> When The Fed needs more "liquidity" they type more USD units into their
> databases and give that a fancy name and some procedural mumbo jumbo so it
> doens't seem quite as simple as it is. But when they need to "unwind", they
> can and do, with some impact. The money they conjured in, then gets
> conjured out of existence.
> http://www.ft.com/intl/cms/s/0/9763c2d2-d9c5-11e2-bab1-00144feab7de.html?siteedition=intl#axzz2lFNfKtN6
>
>
> The ideal digital "medium of exchange" vehicle currency is one that gets
> conjured in and conjured out of existence in the time it takes to carry out
> the transaction, so that form is precisely matched to function. There
> absolutely no need to keep any in a reserve -- they are virtual after all!
>
> Joking about the separate store of value function I suggested to declare 1
> XRP=1 banana, which is at least more generic and value-convertible than 1
> XRP = 1 very very happy Ripple Labs Investor.  I've got nothing at all
> against Ripple Labs Investors. I just don't know what their happiness has
> to do with web payments functionality. (Of course, when I refer to XRP,
> read also BTC and any other such system.) In monetary theory and actual
> practice there used to be the (key!) concept of ultimate value
> convertibility. Should the currency system implode, I could always convert
> my holding to "x", whatever that was. It might be an inconvenience, but I
> can usefully take (or thus trade) delivery on 1000 bananas or an ounce of
> gold. However I can't access the happy feelings of a cryptocurrency
> investor, especially if their cryptocurrency has just imploded.
>
> A couple of people have raised the topic of an energy unit definition of
> money. There's considerable literature on that. My own work on an "Earth
> Reserve" system would include (but is not limited to) a unit referred to as
> "exergy":
> https://en.wikipedia.org/wiki/Exergy
> http://www.theoildrum.com/node/7016
> I'll follow up later on this topic....
>
> Joseph Potvin
>
>
>
> On Wed, Nov 20, 2013 at 5:15 PM, Fabio Barone <holon.earth@gmail.com>wrote:
>
>> That's the same question I have.
>>
>> The only answer I have so far is that it would allow comparison.
>> BTC or XRP only have value when compared to USD or EUR.
>> Now, if we could arrange (market-driven) prices to say 1.5 BTC = 2
>> EnergyUnits,
>> I may have an idea of how much XRPs I can expect/I am willing to invest
>> for
>> a specific transaction.
>>
>> maybe ;)
>>
>>
>> 2013/11/20 Patrick Logan <patrickdlogan@gmail.com>
>>
>>> But I have no idea why I, as a holder of one of your notes, would care
>>> how much energy you can "reference" unless I have the ability to
>>> exchange my note for your energy?
>>>
>>> (I'm missing something fundamenta;.)
>>>
>>> On Wed, Nov 20, 2013 at 12:47 PM, Fabio Barone <holon.earth@gmail.com>
>>> wrote:
>>> >
>>> >>
>>> >> My first thought is, how could that be? Currency is virtual and can be
>>> >> exchanged virtually for relatively little energy.
>>> >>
>>> >> Energy is not (yet) at all stable and is not efficiently exchanged
>>> >> across significant distance. In fact in the US at least for multiple
>>> >> reasons, we need to put a lot of energy *into* decentralizing our
>>> >> energy generation.
>>> >>
>>> > Good question. I think it is not about exchanging intrinsic value of
>>> energy,
>>> > but about by reference to...
>>>
>>
>>
>
>
> --
> Joseph Potvin
> Operations Manager | Gestionnaire des opérations
> The Opman Company | La compagnie Opman
> http://www.projectmanagementhotel.com/projects/opman-portfolio
> jpotvin@opman.ca
> Mobile: 819-593-5983
> LinkedIn (Google short URL): http://goo.gl/Ssp56
>