What happens when people can no longer afford Ripple XRP?

[xrptracker]

My understanding is that more XRP can be created (by consensus amongst gateway operators). And I seriously doubt that the transaction fee will be set much lower than what is reasonable to the creators (since they're the largest holder of XRP reserve). Any fee change will affect the value of XRP. The reason is that XRP serves dual roles, it acts both as a currency and a spam deterrence. That is a serious problem/deficiency.

More XRP cannot be created. The solution is that account reserves and transaction fees can (and have been already) lowered.

[shekenahglory]

the price of XRP going up is not inflation, its more accurately deflation. If its going up in US dollar denominated terms, it could be a product of inflation in the US dollar (inflation = dollar purchasing power drop). The price of XRP going up means ripple purchasing power increases = deflation.

1 XRP = 100,000 transactions at the current transaction fee. So $10 per XRP = 10,000 transactions per dollar, or 1000 transactions per penny. I don't think that's expensive enough to drive away any potential customers, assuming the reserve has been lowered correspondingly. This level of price I see as possible, but only if ripple gains widespread use - such as millions of transactions happening every day, and millions of accounts. The only way for that to happen is for the large account holders to give or sell their holdings to drive adoption (which is their stated intention, at least.) They would then not have nearly the ability they have now to manipulate the price. I don't think speculators or manufactured scarcity could ever support that kind of price, only success could (realized value of the ripple network, not just perceived potential value)

Its my understanding also that more ripples can be created by consensus, as JoelKatz said it is possible but just as difficult as difficult as increasing the total number of bitcoins. One question I wonder is, if the money supply were ever to be inflated, how would it be distributed? to whomever is running rippled servers? or would it be like a stock split, where everyone gets 2 for 1? It seems like that would be fair to me, at least at first glance.

[Havoc]

1. Nobody is going to seriously consider lowering the cost of transaction as it will undermine/seriously decrease the value of their own holding. As the largest holder of XRP, I doubt the creators of Ripple will let that happen. That's not an option, and I'd be surprised if they go for that route.

They have already significantly lowered it once, and stated that they will do it again if needed. It is in their best interest as if Ripple becomes too expensive to use some other system will overtake it. This will eventually make the XRP owned by OpenCoin worthless.

The same argument holds for a consensus about lowering the cost. Ripple needs to be cheap enough to be comptetitive but expensive enough to prevent spam and DoS attacks.

[QuantPlus]

I think there will be a increase in XRP rate when Ripple becomes opensource

The initial rate won't make a difference. As long as XRP is being sold and bought by a large number of people, the price is going to fluctuate. Like I said, it's going to face same problems as Bitcoin has now.

No, XRP is not a free market commodity...
It is a highly manipulated, micro-managed commodity with a TINY float...
That trades a paltry $50,000/day... at least on Bitstamp.

Only 1.2 billion out of 50 billion to be distributed is out there...
Until most of that is out...
The price of XRP will be whatever the Principals want it to be.

Right now they seem to want keep it stable.

Also, XRP is the most misunderstood tech invention I've ever encountered.

[Red]

No, XRP is not a free market commodity...
The price of XRP will be whatever the Principals want it to be.
Right now they seem to want keep it stable.

I've expressed my views in other threads that I don't believe is speculating on XRP. At least not in the sense that BitCoin speculators and market traders us that word. XRP does not have the same market dynamics as BTC.

1) XRP's only innate values relate to its use in funding reserves. (account, trust line, offer, and contract) And in paying minuscule transaction fees. Since reserves and fees can NEVER be allowed to price new adopters out of the Ripple system, that puts an upper bound on the value of XRP for those uses.

2) BitCoiners believe that as long as the demand to use BitCoin (<-- the system) keeps increasing, the price of BTC (<-- the currency) will keep increasing. That is a logical statement when it comes to the BitCoin world. However, that logic doesn't apply at all to Ripple (<-- the system). There is an unlimited supple of an unbounded number of different currencies. Since you can hold any currency and make payments in any other currency, no currency (including XRP) has transactional advantages over any other. So as the Ripple System economy increases that puts no upward pressure on the price of XRP.

3) XRP has a use as an intermediate currency when trading between two other currencies. XRP is not required for trading between two other currencies. But, it can hold the O(n^2) market combinatorial explosion to a O(2n) linear increase. But even if you presume that XRP as intermediate currency will become the norm. Each pair of currency exchanges USD/XRP then XRP/EUR buys and sell exactly the same number of XRP. So increases in fiat/fiat exchange volume puts no upward pressure on the price of XRP.

4) The desirability of possessing XRP from a speculative point of view DOES put pressure on XRP pricing. However, as far as I can tell there are only two reasons for a speculator to see value in possessing XRP.
a) He thinks he can out compete OpenCoin at "market making" for fiat/fiat currency conversions.
b) He sees himself as the lesser fool holding XRP waiting for the greater fools to arrive.

a) seems fool hearty considering OpenCoin has billions of XRP that they made for free.
b) is an emergent self created pyramid scheme.

Also, XRP is the most misunderstood tech invention I've ever encountered.

Boy that is the understatement of the year!

Fot the life of me I don't see any other factors that can put upward pressure on XRP's price. If you see another reason to desire possessing XRP please post it here. If not which of the above do you see as having been the cause of XRPs recent price increases?

[shekenahglory]

Fot the life of me I don't see any other factors that can put upward pressure on XRP's price. If you see another reason to desire possessing XRP please post it here. If not which of the above do you see as having been the cause of XRPs recent price increases?

Aristotle's characteristics of good money:

1) Durable - the medium of exchange must not weather, fall apart, or become unusable. It must be able to stand the test of time.
2) Portable - relative to its size, it must be easily moveable and hold a large amount of universal value relative to its size.
3) Divisible - should be relatively easy to separate and put back together without ruining its basic characteristics.
4) Intrinsically Valuable - should be valuable in of itself, and its value should be totally independent of any other object. Essentially, the item must be rare. (and desired)

Anyone want to make a case for how it fits these criteria, or compare it to another option? or dispute the list of characteristics? I think one could make a compelling case. I would love to hear from ripple's creators on the subject.

EDIT: I would say #1 would be the weakest point, if the network were widely adopted. If the network is not widely adopted, #4 is pretty weak.

[shekenahglory]

There is an unlimited supple of an unbounded number of different currencies. Since you can hold any currency and make payments in any other currency, no currency (including XRP) has transactional advantages over any other.

This is one of the things that makes ripple interesting in the terms you defined interesting. Ripple has the potential to create a free market for currencies in a way that has never existed. Having an unlimited supply of any one currency (not merely within ripple) could be significantly detrimental to its value (because of #4 of Aristotle's characteristics) and it only works if you can manufacture ways to force people to use it.

If you remove those constraints, then the currency is forced to compete on its merits, and its issuer is forced to remain honest or risk loosing marketshare. This has huge implications in developing countries - if they have access to a stable, unmanipulated currency it should facilitate healthy economic growth. Not to mention in the United States, where our currency is currently becoming less rare to the tune of 85 billion per month. If ripple is perceived to be "good money" or at least better than the alternatives, this will put upward pressure on its price, I think.

[Red]

If you remove those constraints, then the currency is forced to compete on its merits, and its issuer is forced to remain honest or risk loosing marketshare. ... If ripple is perceived to be "good money" or at least better than the alternatives, this will put upward pressure on its price, I think.

I think your full post is the best (most even handed, non-incendiary) version I've ever heard of this argument. I totally agree with you. However, I want to avoid over encouraging XRP speculators by making one additional point. Though XRP might be seen as better than the local fiat alternative when it comes to things like seizability (Cyprus) or inflatability (US et.al.) it may not be seen as "the best" alternative to hold over the long term. Perhaps people will perceive their local currency to be falling against the BRIC currencies faster than it falls against XRP. In that case they might prefer holding one of the BRIC currencies (over XRP) in place of their local fiat.

I pointed out that XRP makes a good "intermediate currency" for currency conversions. But that doesn't make it "best" from a currency speculator's point of view. In fact, since it is not pegged to any currency it represents a sort of "average" currency. Let's say you converted 1 loaf-of-bread (LOB) worth of USD to XRP today. In five years if USD falls to half its value then your XRP would be worth 2 LOB in USD. However, the Brazilian Real might have doubled in value against XRP. If you had saved your 1 LOB in BRL it would be worth 4 LOB in USD. So think of the "intermediate currency" as being "middlingly valuable" to currency speculators.

[shekenahglory]

I pointed out that XRP makes a good "intermediate currency" for currency conversions. But that doesn't make it "best" from a currency speculator's point of view.

I agree, the best currency for money is not necessarily the best currency for speculators. The best one for speculators is probably the one that is most undervalued. It looks like XRP was undervalued at 400:1, but it doesn't seem to be undervalued here. The best currency for money I think is the one that is most stable. I imagine OpenCoin agrees with this, and therefore will do their best to avoid any massive price swings, especially during giveaways.

[Red]

The best currency for money I think is the one that is most stable.

Agreed.

I imagine OpenCoin agrees with this, and therefore will do their best to avoid any massive price swings, especially during giveaways.

But once you decide that OpenCoin is actively working to provide price stability, then at that point you must also concede that there is no longer an "early investor advantage" to purchasing more XRP.

New XRP's purchaser's desire must stem from:
1) A need to fund account reserves and pay transaction fees.
5) A belief that XRP is stable enough for holding a users "cache" (short/medium term cash needs.) But with knowledge that doing so isn't really the best "investment' in the "savings increasing in value" sense.