Quote from: dannyjpw on February 20, 2011, 01:11:42 PM

The situation here is exactly analogous to the way fiat money works. In this case the block chaining node (master node) needs to be compensated, but he does not trust those who would pay him. This is solved by allowing the master node(s) to coin digital currency. He spends this as he sees fit on goods and services from other cell members, and he can do this because the currency is accepted for clearing debts among all those nodes subscribing to the master nodes cell.

The cell members then return this currency to the master node in payment for his cpu effort (and no doubt other efforts he would make in maintaining an active cell in the real world). The nice thing here is that the master node effectively gets paid 'up front' when he creates new currency.

My proposal was to set the rules for valid transactions so that any user in the network has to accept the IOU's created as fees to the node even if they don't trust the original issuer of the IOU. Once these IOU's belong to a subnetwork that trust the issuer, those IOU's can be treated as normal and be destroyed by coming back to the issuer. The flaw in this is that if the issuer address becomes isolated, then the IOUs against that address are not redeemable and would stay in circulation forever.

Quote from: dannyjpw on February 20, 2011, 01:11:42 PM

Of course the situation is exactly the same as the US dollar reserve currency. It is created and then some of it is demanded back as tax. Except happily in this ripple/bitcoin case, if the master node misbehaves is is straightforward for the members to leave and create a new cell with new master nodes.

If a "master" node misbehaves the other nodes won't accept his block as the next block in the chain, so it's impossible for a node to misbehave.

Quote from: dannyjpw on February 20, 2011, 01:11:42 PM

The currency issued here would obviously be bitcoins. If each new ripple block created also created 1 bitcoin as a side effect, then it is all quite neat I think.

The IOU's issued here could be denominated in bitcoins. This way it would be easier for the nodes to calculate how much they earn by helping "ripple-coin" compared to what they earn helping bitcoin.
Each new bitcoin block generates 50 new bitcoins and not 1 (anyone correct me if I'm wrong).

What you're suggesting, I think, is a hybrid system with money based on debt between trusted parties (ripple's IOUs) and fiat (or electronic commodity backed if you wish) money.
I thought about that too, but finally I decided I don't like it.

I will post on Ripple forum, but I need some time to answer Ryan's long posts and I've been busy lately.
I'm very glad you are interested in my proposal. What a pity that no one seems to be interested here in the bitcoin community.