Ripple for Users

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Let’s begin by understanding Ripple from a user perspective.

For this discussion we are going to view Ripple through the eyes of Alice who wishes to pay Bob over the internet.

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Alice has cash. Bob wants cash. But Alice and Bob are physically far apart. Maybe even in different countries using different local currencies.

So Alice enlists the help of a local Ripple gateway.

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  1. She creates a “Trust Line” to the gateway’s address. This tells Ripple she is willing to trust that gateway to help with her transactions.
  2. She “deposits” $100 with the gateway.
  3. In return, the gateway “issues” a $100 balance to Alice’s trust line.

Elsewhere, Bob has found and trusted his own local gateway.

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So to make a transaction, the first thing that Ripple must do is to find a trust “pathway” from Alice to Bob. Between the two gateways there may be one or more other parties along that pathway in that cloud, but neither Alice nor Bob need to know or care.

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Then, when Alice makes a payment to Bob, Ripple takes care of all the details, adjusting each party’s balances appropriately.

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1) Alice’s gateway balance is reduced by moving her balance to someone else. 2) Bob’s gateway balance is increased by moving someone else’s balance to him.

We call this series of balance adjustments a “rippling” transaction. By processing multiple institutions transactions simultaneously, Ripple removes unnecessary latency and overhead from the financial system.

Afterwards, Bob can keep his gateway balance and use it make his own payments. Or Bob can “redeem” his balance and “withdraw” cash from his local gateway.

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Beyond Banking

So at first glance Ripple appears a lot like the traditional banking system. But Ripple accounts empower users move beyond traditional banking relationships.

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For example, Alice can also open sub-accounts for her children.

Say Alice pays each of her teenagers $20 a week in allowance.

Each child gets their own Ripple account and “trusts” their mother. This lets Alice hold their money and take the role of a mini-gateway for her family.

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Each week Alice “issues” a $20 allowance to each child.

Notice that Alice’s trust line balance with her gateway did not change, because no one spent/withdrew money being held by the gateway.

However, since now Alice owes each child $20, her net account balance becomes $40.

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Now, If Carol does some chores for Dave, he can pay her using Ripple by sending her some of his allowance balance.

But better still, Carol, Dave and Edward can each spend their Ripple balances without their mother’s intervention, just as if they had cash. This is possible even though they don’t have their own direct gateway accounts.

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Carol’s payment simply “ripples” through her mother’s gateway account on its way to a merchant.

Family Credit

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Now suppose Edward wants to buy something that costs more than his current balance. If Alice thinks that is OK, she can offer Edward credit on his future allowance. Alice simply “trusts” Edward to owe her the difference.

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While paying the merchant, Ripple redeems Edward’s $20 allowance balance and issues a $10 allowance credit to his mother. Edward’s net balance won’t become positive again until after his next weekly allowance payment.

Account Portability

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Even more empowering is that Alice can change gateways without losing any of her Ripple relationships. Her public Ripple address remains the same just like her phone number remains the same when she switches phone companies. None of her family members even notice she changed gateways.

Multiple Currencies

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If Alice travels she can trust multiple gateways for different local currencies. That way she can hold multiple currencies in her Ripple account, just like she can in her physical wallet.

Currency Conversion

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Before traveling, Alice can convert her local dollars to Euros by choosing her own exchange rate and placing market offers.

Or she can accept the best current market offer using Ripple’s built in currency converter.

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Either way, Ripple finds Alice someone to trade for the currency she needs, all without going any farther than her smart phone.

Automatic Cross-Currency Payment

But even without holding foreign currencies, Alice and her children can still pay European merchants in Euros. Ripple automatically calculates the best conversion rate and tells Alice what each purchase will cost in dollars.

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The Ripple Client

The Ripple web client does its best to hide all those steps. But under the covers Ripple always follows these steps as you enter a Ripple address and amount.

  1. Find the best paths from your address to the destination
  2. Report how much making that payment will cost in your local currency
  3. Ask you to approve sending the payment
  4. Adjust each trust line balance along the path appropriately
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