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I'm beginning to wonder what my liabilities may be once I start using a system like Ripple.

For example if a gateway I'm using (say Bitstamp) suddenly vanishes, could I, as a user of Ripple and Bitstamp, be held liable for some sort of debt (in addition to losing my balance on that gateway)?

Say I have 3 bitcoins on Bitstamp (and they're worth $1000 each) and transfer them to Ripple and I buy for $3000 of Litecoin. Then for whatever reason Bitstamp disappears and the price of bitcoin reaches $100 000 (it's just an example), would it be possible that the person/service I bought Litecoin from comes to me and say "You bought us for 3 bitcoins of litecoins and you got your litecoins from us, but your gateway disappeared and hence we never had our bitcoins. So you're liable of $300 000 to us".

Or could Ripple itself come to me and say: "Look, you used coins coming from Bitstamp to buy Litecoins but Bitstamp couldn't honor his word, so now we'll force the sale of your house so that you can pay us the x bitcoins you owe us"?

The question is probably silly but I'd still like to know what, as a a user, my liabilities could be because I certainly wouldn't want any money that I have outside of the crypto currencies world to be at risk once I start using/trading crypto currencies.

I'm asking this because I read about the IOU and I often read things like: "you don't have 3 bitcoins, you have an IOU saying that someone owes you 3 bitcoins". What I want to know is if I'm selling/trading the IOU or if I'm putting my a** on the line.

user10785
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  • No, Ripple payments work nothing like what you describe. Your description is like someone saying "you paid with X bitcoins but now two days later the value of bitcoins crashed therefore your payment is longer good". – dchapes Dec 13 '13 at 23:35
  • @dchapes: in Ripple, are you paying with bitcoins or with IOU of people/exchange basically saying: *"we hereby recognize we owe you bitcoins"*? If the later, when you trade bitcoins on Ripples, are you actually really trading (part of) the IOU? If it's nothing like I described, maybe you could explain a bit why I can't be held liable? – user10785 Dec 13 '13 at 23:38
  • Closely related: [What happens when a gateway on the Ripple network defaults or simply vanishes?](http://bitcoin.stackexchange.com/q/7621/5406) – Murch Jan 16 '14 at 18:26

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You are not liable when a gateway vanishes.

When you send money on Ripple, you are trading IOUs. In order for someone to receive IOUs, this recipient must have expressed his acceptance of IOUs from the corresponding issuer.

Alice wants to buy a lot of ice-cream from Bob for $20. They both trust the gateway Gateway.

Alice has previously paid $100 to Gateway and holds therefore an IOU from Gateway with the value of $100. She sends $20 to Bob. Bob also trusts Gateway, so he is willing to accept Gateway-IOUs as payment. Gateway now owes her only $80, and Gateway owes $20 to Bob.

At this point their deal is done. So, if Gateway went under after this, there would be no liability, because the payment was transferred and accepted by Bob. His beef is with Gateway, or with himself for trusting Gateway, not with Alice.

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Murch
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