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How does a gateway IOU differ from any other IOU on the Ripple network? Say, if I got a $1000 from a gateway, does that make it a better currency than say, creating a second account and sending myself $1000 through that? Does the Ripple network somehow distinguish between those?
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It doesn't differ.
Gateways are just issuers that you somehow have more trust for, so much trust that their IOUs can basically be treated like cash.
This is what happens in the current financial system, when you see $100 on your bank account it doesn't mean that you actually have $100. It just means that you hold your bank IOUs.
From what I understand there is no technical distinction between both types of IOUs.
6The basic difference is that if you hold an IOU from a gateway for $1,000, there's a good chance you'll be able to pay that to nearly anyone at very close to face value. If you have an IOU from some random guy for $1,000, you may not be able to find any payment path to people you want to pay and no payment path to a gateway if you want to cash out. But the Ripple network itself doesn't make any technical or behavioral distinction. – David Schwartz – 2013-02-13T14:01:05.883
@DavidSchwartz Isnt that a huge flaw in the system? That the one $1,000 can has less value than the other $1,000, based on who the debtor is. The whole power of Bitcoin is that all coins have equal value, and to preserve that philosophy they will never allow tainted-coins. But how you describe it now it looks like my wallet can show $1000, but based on the 'taint' its real value can be as low as $50. – Muis – 2013-02-15T19:24:58.413
2@Joshua: You should make that a question as it's a very good question and a complete answer won't fit in a comment. – David Schwartz – 2013-02-16T01:53:01.267
@Muis Perhaps you shouldn't really call "$" the IOUs whose value can be less. Think of them as of some "custom $". – imz -- Ivan Zakharyaschev – 2014-05-29T08:25:01.817
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In my understanding, the difference between a gateway and any random user is that a gateway has a well-defined process for getting non-Ripple stores of value into and out of the system. Users have to register with the gateway, and then they can put money in or get money out. So if you have some random IOUs, they probably won't be worth much because anyone wanting to redeem them will have to track down the random person and convince them to exchange their IOUs for actual items of value. But if you have a gateway's IOUs, they'll probably be worth close to par, depending on how streamlined the process is of getting the real value.
If a gateway stops processing redemptions, it's no longer a gateway.
"if you have some random IOUs, they probably won't be worth much because anyone wanting to redeem them will have to track down the random person and convince them to exchange their IOUs for actual items of value" Or you could trade them to someone who trusts the issuer and knows how to redeem them, and get some other kind of money in exchange. – imz -- Ivan Zakharyaschev – 2014-05-29T08:21:13.013
Well, assuming you trust the gateway more than you trust a given 3rd party, then it's better. However, I guess you're asking if there is something specific about a gateway that gives their IOUs "special powers" regardless of the specific trust you place on them. – ripper234 – 2013-02-13T10:19:46.423