Paying without cash and without going through a bank may seem an impossible proposition. Not so, says Ryan Fugger, the architect of Ripple, an open-source bank-independent payment system that is now in Beta release, meaning it's open to play with and test.

Photo credit: Mikael Damkier

Conceived by Ryan Fugger and quite formally defined by Sylvain Poirier, Ripple is a P2P monetary payment system based on trust that already exists between people in real-world social networks.

By cutting out the institutional middlemen, Ripple is both more community-oriented and more efficient as a means of exchange

The idea is simple but it has world-changing potential.

Here is how it works, as explained on the Ripple.com site:

Ripple is a monetary system that makes simple obligations between friends as useful for making payments as regular money.

Normally, if your friend Alice owed you $10, she would have to pay you back before you could make any use of that debt.

If you were creative, however, you might be able to pass the debt on to someone else who knew and trusted Alice, in exchange for something you wanted. For example, you might be able to get a book you want from Bob, who also knows Alice, in exchange for letting Alice know that she now owes Bob $10. Instead of money, you used Alice's IOU to pay Bob. Alice acts as an intermediary between you and Bob.

Ripple does the same thing, only it takes the idea one step further.

What happens if you want to get a haircut from Carol, who doesn't know Alice at all?

Your $10 IOU from Alice isn't useful because Carol being owed money by Alice doesn't mean anything to Carol. But suppose you had a way to find out that Bob, who knows Alice, also knows Carol. You could talk to Bob and arrange for him to take Alice's IOU in exchange for giving his own IOU for $10 to Carol. Since Alice owes him exactly what he owes Carol, Bob is even on the deal. Both Alice and Bob act as intermediaries between you and Carol.

And that's how Ripple works. You create a profile on the system and indicate who you know and how much you trust them by connecting to people by email address and giving them credit limits. Then whenever you want to make a payment to another Ripple user using only friendly obligations, the system finds a chain of intermediaries connecting you to the person you want to pay, and records the payment in each intermediary's account all the way down the chain. You end up owing one of your "neighbours" on the system, and the payment recipient ends up being owed by one of her neighbours.

Ryan Fugger, the man behind Ripple, explains how the testing is proceeding and the availability of the first working implementation:

Date: Sat, 25 Mar 2006 15:18:12 -0800
From: "Ryan Fugger"
Subject: Ripple project website version - beta

Hi. This email is to invite you to check out the first implementation of the Ripple concept at http://ripplepay.com/. We would like to find at least one community of people interested in using Ripple as a local currency and provide us feedback to help continue developing the website.

We're particularly interested in how to make the purpose of the site clear and the site itself easy to use.

We're on a shared server until we need to move to a better dedicated host, so invite people you think might be interested in using the site, but please don't invite the swarms. Thanks.

We will also be implementing a distributed P2P version over the next few months.

There is also a new draft of the protocol design document at http://ripple.sf.net/. The intention is to eventually integrate the
distributed protocol into the website version so ripplepay users will be part of the greater open Ripple network.

Find out more about Ripple.