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Ripple Co-Op

The Ripple Co-Operative is a new venture which aims to unleash the peer to peer banking potential of the Ripple protocol by enabling anybody to set themselves up as a 'gateway', and to buy and sell Ripples (XRP) in their local area.

Ripple Gateways and Decentralization

At its heart Ripple is a decentralized financial network which can be used for a wide range of purposes. Any currency, digital or fiat, can be stored and traded within a Ripple wallet. Apart from the internal currency XRP, the primary purpose of which is to pay the very low transaction fees, prevent spam, and to provide liquidity between other currencies, all money on the Ripple network is stored as IOUs. These IOUs are like the original bank notes – they are a promise to 'pay the bearer' a certain quantity of the underlying asset. This underlying asset could be gold, like those original bank notes, or it could be a fiat currency like dollars or euros, or it could be anything else. Any person or business who issues and redeems these IOUs is known as a gateway.

This system can be used as a kind of distributed exchange and remittance network, through which you can deposit money with one 'gateway', trade it for another currency, and withdraw from a completely different 'gateway' possibly in another part of the world. It can be used as a payment processor which allows you to make a payment in any currency, even if you don't own any of that currency, by choosing a balance to pay from and allowing the system to find the best pathway to convert it using Ripple's peer to peer market. And it can be used for a wide range of other peer to peer financial services as well.

In its original form, now known as Ripple Classic, this system was used by individual people to trade and barter with each other, conducting their financial relationships directly with other people – without having to go through the intermediary of a financial institution such as a bank. As the system grew and evolved into its current form, however, there was a shift towards having a small number of well known and trusted businesses acting as 'gateways'. These large gateways have started to become like Ripple banks, holding funds and processing transactions for a large number of clients. This movement towards greater centralization has made Ripple more convenient and easy to use, and there will always be a place for these large gateways, but it has also moved Ripple further away from its decentralized, peer to peer roots.

Ripple Co-Op aims to provide an alternative to this increasing centralization by allowing anyone to set themselves up as a small gateway or exchanger. The first step towards doing this is to enable users to buy and sell Ripples (XRP) in their local area. Just as localbitcoins.com has done for Bitcoin, Ripple Co-Op will allow members to post listings to buy or sell XRP using their preferred payment method – bank transfer, payment in person and so on.

But of course Ripple is about a lot more than XRP – its real power comes from the ability to hold and trade any currency or asset within your wallet – so Ripple Co-Op aims to make it as easy as possible for users to sell their own IOUs or buy them from other members.

Decentralizing Trust

The problem with making deposits and withdrawals from ordinary individuals rather than a large financial business is knowing who you can trust: in order to hold an IOU from someone you need to trust that they will make good on that promise and process your withdrawal when you want it. This is why centralized gateways have been so useful, because a large registered business with a professional website rightly engenders more trust in its users than an individual. Trust is a very important part of Ripple, and is formalized through the use of 'trust lines'. In order to hold an IOU from any gateway you need to formally set up a trust line which broadcasts to the network information about which currency you trust that person or business for, and how much of that currency you trust them to hold for you.

Ripple Co-Op will help to decentralize these trust relationships through a system of user credit ratings and guarantees. This will be organized through a series of membership levels:

  • User: regular users will be able to respond to listings on the site to buy or sell XRP, or to make deposits and withdrawals through gateways listed on the site, but will not be able to create listings themselves. Members with this level of account will be asked to verify their account by providing identity documents to comply with AML and KYC regulations, but will not be required to pay any fees.
  • Exchanger: Members paying a small monthly fee will be able to upgrade to an 'exchanger' account. This will allow them to post listings to buy and sell XRP, and to start building up their credit profile through a combination of site history and the use of Ripple credit reports provided by Ripple Union.
  • Gateway: Gateway membership will carry a slightly higher monthly fee compared to an Exchanger account, and will enable members to post listings to issue IOUs onto the Ripple network as well as to buy or sell XRP. Gateway members will be able to define their own deposit and withdrawal fees as part of their listing.
  • Gold Gateway: Only members with at least a 3 month Gateway trading history through the Co-Op and at least 10 transactions (purchase or sale of XRP) or 5 withdrawals (fiat or crypto currency) under their belt will be eligible to apply for Gold Gateway membership. Gold members will be asked to pay a one off fee in addition to their monthly membership, which will be used to request an offline credit report from an appropriate national credit rating agency; this credit report will contribute to their Co-Op credit score, and Gold members will also be able to upload HD photocopies of bank statements to help them improve that credit score further. Outstanding IOUs from Gold members will be guaranteed by the Co-Op up to a certain amount, which will improve according to both their credit score and their length of time as a member. Gold Gateway member listings will appear above those of both regular Gateway and Exchanger members in search results and on category pages.

Ripple Co-Op IPO

The Ripple Co-Op is due to announce a crowd-funding initiative in July 2014. Virtual shares purchased during this funding drive will be eligible for monthly dividends at a rate to be announced at the beginning of the funding drive itself.

Until then you can sign up for news and announcements here: http://ripplecoop.com.

Categories: E-Currency | Ripple


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