Bitcoin Forum

Micon it's nice to see your questions and legitimate complaints expressed in a civil fashion. I totally agree with you that Ripple is hard to understand at first. Perhaps the easiest way to understand Ripple is to recognize the similar ways that you already accept IOUs and currencies. I'll use MtGox as an example:

https://i.imgur.com/a8dAqTO.png

Imagine you wire some money over to MtGox because you want to buy Bitcoins. A few days after you wire the money, the balance appears in your MtGox account and is visible when you log into their site. Now you look at the order book and decide to place a few orders. Eventually they execute and you are left with both a USD balance and now a BTC balance. Both of these balances are visible on the MtGox website. At this point you decide that you would like to have your dollars and Bitcoins so you go to their Withdrawal page and first ask them to wire you the remaining USD balance to your bank account, and then have them send your Bitcoin balance to your wallet address. An hour or two later the bitcoins appear in your wallet, and hopefully a few days later your bank account shows the dollars.

Ripple functions almost identically to this example! Using Ripple to perform these actions would look like this:

You choose a Ripple gateway that you trust (right now Bitstamp is the largest gateway but that will change as more appear). You open an account at the gateway then you wire some dollars over to the gateway. A few days later the balance appears in your gateway account when you log into their site (bitstamp.net for example). Now you "withdraw" the dollar balance into Ripple. Logging into your Ripple wallet client (http://ripple.com/client) you will see that you hold a USD balance from your gateway. You look into the BTC/USD order books inside the Ripple client and place a few orders. Shortly after, they execute and you are left with a BTC and USD balance showing. Now you decide that you want to cash out so you "Deposit" the BTC and USD from Ripple back into your gateway account. You log into your gateway account through their website and you can see your BTC and USD balance. You go to the Withdrawal page at the gateway and first ask them to wire you the remaining USD balance, and then have them send your Bitcoin balance to your wallet address. An hour or two later the bitcoins appear in your wallet, and hopefully a few days later your bank account shows the dollars.

What's the difference between this and MtGox? Imagine if you had a $100 balance at MtGox and you could transfer that balance not just to any other MtGox user but to any user in general. That's the power of Ripple! If you are holding IOUs from a gateway, Ripple's decentralized system allows you to send those IOUs to anyone who will accept them in a cryptographically secure manner. You can use those IOUs to trade in the built-in distributed order books to receive BTC IOUs, exchange them for other currencies like Euro IOUs, or anything.

As long as you trust the gateway to redeem those IOUs back into whatever they are supposed to represent (like dollars or Bitcoins), then the balances in the Ripple system are as good as the money they represent.

Can you lose money? Yes. You don't hold actual Bitcoins in your Ripple wallet, you hold a gateway's promise to pay bitcoins later. If the gateway defaults you can lose up to the entire amount of their debt that you hold. This is no different than having a BTC and/or USD balance at MtGox, and they freeze your account or otherwise refuse to redeem your balance.

A lot of bitcoiners might complain that having to trust a gateway is the very problem that Bitcoin is intended to solve, and to a certain extent they are right. However, this overlooks the fact that it is impossible to completely avoid interacting with the fiat money system. Rather than thumbing its nose at the banking system and asking for a fight, Ripple plays nicely with it to the extent that it can. It provides tremendous functionality. You do have to find a reputable gateway for IOUs to have value.


"XRP" (often confusing called "Ripples") is a crypto-currency that is built into the Ripple system. Like bitcoins  there can only ever be 100 billion of them, and they are divisible to many decimal places. Unlike bitcoins, they are not mined. Instead, the "genesis ledger" (this is similar to Bitcoin's genesis block) was created with 100 billion XRPs sitting inside an account whose private key is owned by the founders of the Ripple system.

Ripple uses XRPs to pay for transaction fees. The XRPs used to pay for transactions are destroyed (this might seem counter intuitive but trust me its the right thing to do). XRPs are also held as reserves in your account to allow you to do certain things. For example, in order to even create a Ripple account you need 50 XRPs to sit in there. XRPs used as reserves cannot be sent to any other account, but they can be used for transaction fees. Essentially once the XRPs are used as reserves they are "stuck" or "sequestered", unless the network decides reserve requirements should be lowered because they are too expensive.

OpenCoin states that 20 billion XRP is held by the founders of the software, with the other 80 billion going to OpenCoin. Out of this 80 billion, a full 50 billion will be given away to promote the usage of the system (in other words, to make new account creation essentially free for a time). The remaining 30 billion will be held and sold from time to time by OpenCoin in order to fund its operations. Holding and selling XRP is the only way OpenCoin can make money.

Because XRPs are sequestered as reserves, OpenCoin can give away a lot of them without causing the price to drop, since reserves cannot be sent to other people or used to buy IOUs.


XRPs are different from IOUs. XRPs are not debt. Anyone with a Ripple account can issue IOUs. The trick is getting people to accept your IOUs. Realistically speaking, only IOUs from a gateway will have any significant value or liquidity. Gateways are corporations with legal standing, and should be licensed and fully regulated in their jurisdiction. This is why you can hopefully trust their IOUs. Gateways also need to hold customers' funds on deposit.

It seems Bitstamp and WeExchange were very interested in operating as gateways early on, while other exchanges were not. I see no evidence that OpenCoin is restricting companies who want to get on board. Quite the opposite, it would seem to be in their best interest to have as many gateways as possible. The more gateways, the better, because there are that many more ways to get money into and out of the system. Compare this with Bitcoin, where MtGox is the bottleneck and lifeblood of almost all the Bitcoin businesses. If MtGox was to close down it would disrupt Bitcoin significantly for a while. With Ripple, having many gateways allows many points of entry; Once you have deposited funds in a gateway they can be used anywhere, not just in MtGox' order book.


Yes it is possible:

1) Open an account at a gateway (Bitstamp.net for example)
2) Deposit your BTC at the gateway
3) Withdraw the BTC as a BTC IOU in Ripple
4) In the Ripple client send a payment to yourself in USD
    The client will show you the price, you can accept it or cancel
5) Deposit the USD back into the gateway
6) Withdraw the USD from the gateway to your bank account


Complex yes. And very much needed!


Ripple is definitely not trying to be Bitcoin. Instead, it is trying to take concepts that we are already familiar with like exchanges holding our fiat money and cryptocurrency for us, and make it more explicit and functional using a decentralized cryptographically secure accounting system.

Just The Facts

I've made this a moderated to prevent repetition of baseless accusations. To be clear, here are some well established facts about Ripple:

1. Ripple is a payment and accounting system, not just a cryptocurrency.
2. Ripple is beta software and not ready for the general public!
3. XRP is Ripple's built in currency, and it is used for important things.
4. Only 100 billion XRP can ever exist, and OpenCoin starts out with all of them.
5. Transaction fees, paid in XRPs, can be lowered or changed through consensus.
6. Ripple server is closed source but will be open sourced soon. The client is open source now.
7. OpenCoin says their plan to make money is to "hold XRPs and hope they go up in value."
8. Ripple founders own 20% of all XRP.
9. OpenCoin plans to give away 50% of all XRP to fund new accounts and promote the system.
10. OpenCoin will sell the remaining 30% of all XRP to finance operations and repay investors.
11. As long as OpenCoin holds most of the XRP, they can influence its price.

You do not need to invest large amounts of money in XRP or hold a significant amount of XRP in order to benefit from Ripple!

Investing in XRP is risky as fuck!

Let's take an example of two gateways, Bitstamp and Foobit.

They both issue IOUs denominated in bitcoin.  Does Ripple have an order book for BTC <-> USD or is it really Bitstamp-BTC-IOU <-> USD, and then a separate order book for Foobit-BTC-IOU <-> USD?

If I have this right then ripple isn't really a decentralized exchange, it's a common interface to many exchanges.   You still cannot put in a single Bid order for 10 BTC and expect more than 1 gateway to see it?

Thanks for the explanation. This makes things clear.

It seems that XRP is centralized fully controlled by single entity "currency" which looks like a "pyramid" scheme where early XRP holders, who get it for free from OpenCoin corporation, do their best to promote this "currency" and make it popular and gained in price. Don't you agree?

You're welcome.


I fully disagree. This is the definition of a pyramid scheme:


If Ripple did not offer anything useful then yes I would think it was a pyramid scheme. A few of the alt-coins could be considered pyramids. But Ripple is not just a simple coin, it is a decentralized system for tracking balances, self-issued credits, and making payments. Therefore it is not a pyramid scheme.

The XRP currency will go up in value not because it is promoted by people, but because it serves a useful function. Just like Bitcoin.

But since the most of XRP is in full possession by OpenCoin, doesn't it mean that market value of this currency can be easily controlled (manipulated) by this corporation?

It's actually a little more complicated than that. If both gateways deal in both BTC and USD, then we have these order books

BTC.Bitstamp -> XRP
BTC.Bitstamp -> USD.Bitstamp
BTC.Bitstamp -> BTC.Foobit
BTC.Bitstamp -> USD.Foobit
BTC.Foobit    -> XRP
BTC.Foobit    -> BTC.Bitstamp
BTC.Foobit    -> USD.Bitstamp
BTC.Foobit    -> USD.Foobit
USD.Bitstamp -> XRP
USD.Bitstamp -> BTC.Bitstamp
USD.Bitstamp -> BTC.Foobit
USD.Bitstamp -> USD.Foobit
USD.Foobit    -> XRP
USD.Foobit    -> BTC.Bitstamp
USD.Foobit    -> USD.Bitstamp
USD.Foobit    -> BTC.Foobit
XRP              -> BTC.Bitstamp
XRP              -> BTC.Foobit
XRP              -> USD.Bitstamp
XRP              -> USD.Foobit

Each order book only goes "one way." To present the bids and asks the way we expect, the Ripple client combines two order books and shows them as bids and asks. For example, it would show USD.Foobit -> BTC.Foobit and BTC.Foobit -> USD.Foobit as a unified book.


Partly true. The main concept in Ripple is the notion of "rippling a payment". In laymans terms this means that Ripple uses an algorithm to compute a payment path that can involve changing between multiple currencies in any order book in order to get you what you want.

Even if you put a bid for 10 BTC in a particular order book, someone else who is not specifically looking in that order book can take your offer if their payment "ripples through" your bid (i.e. your bid is the best price at the time).

For rippling to work there needs to be liquidity in the order books. If you notice, in your simple example there are lots of books! A liquidity provider will typically not put offers in all the books. Instead, they will just put offers converting IOUs to and from XRP. Then the Ripple software will see a pathway between any currencies. For example a liquidity provider might place offers in these books:

USD.Bitstamp -> XRP
BTC.Foobit -> XRP
XRP -> USD.Bitstamp
XRP -> BTC.Foobit

Now consider what happens when you put up a bid for 10 BTC in the Foobit order book. Someone who has only Bitstamp USD can still take your offer by sending a payment to himself denominated in Bitcoins! It will take this path:

USD.Bitstamp -> XRP -> BTC.Foobit -> XRP -> BTC.Bitstamp

Here, someone with Bitstamp USD is able to take the Foobit BTC order and receive Bitstamp BTC, using liquidity in the 4 order books. There are costs associated with this, based on the spreads in each book. But since anyone can compete to provide liquidity the spreads will get really small.

This is what makes Ripple powerful, and also why XRP will be useful and appreciate.

Moderated threads about something like Ripple - pro or con - are pointless.

Now go ahead and delete this.

As long as OpenCoin holds a lot of XRP, they can influence the price. They can't create new XRPs though, without approval of all the validators participating in the consensus process. Realistically, they can only manipulate the price until their XRP runs out. Then the price will be dictated by the market.

Is price manipulation so bad? They could hold a lot of XRP back and make it go up in value. This could make transactions and new accounts more expensive temporarily, but the validators will just vote to reduce the reserves and fees. So OpenCoin hoarding XRP does not affect users of the system very much.

They could give away tons of XRP, which is their stated plan. This might not affect the price much at all, since the reserves are "sequestered" in the account and cannot be spent except on fees.

They could sell XRP into the market. If they sell too much, the price could crash. Notice that OpenCoin is not recommending XRP as an investment! If you plan on buying a lot of XRP, you are exposed to what we call "flood risk:" that OpenCoin will dump large quantities of XRP and make the price drop. Will they do this? I don't know. It will certainly be against their best interests. Think of it this way: if you held 50,000 bitcoins would you put them on MtGox and sell them at market?

Another possibility is that OpenCoin will manage the price of XRP so that it grows slowly and in a sustainable way to prevent bubbles like what we saw with Bitcoin going to $266 then crashing to $50. People complain about Bitcoin's price stability all the time. With XRP's temporary central management, there is a solution. I don't know what they will do though.

Let's be clear:

Investing in XRP is risky as fuck!

I prefer unmoderated threads but the problem is that a small handful of bad actors and one scammer have taken it upon themselves to flood otherwise useful threads with repetitive noise. This thread is my attempt to explain Ripple to people who actually want to understand it. For the Ripple-bashers there are plenty of other threads for that.

Ripple is a complicated piece of software. It is nothing like Bitcoin, which is simple and can be explained a 9 page research paper. There are a lot of misconceptions about it. I would like to clear up those misconceptions.

For the most part I will not be deleting many posts. However, anyone who comes here and repeats things that have already been stated (see my Facts post) is going to have their post removed. Sorry about that!

Thanks for honest answer. In other words, XRP is FIAT cryptocurrency backed by OpenCoin. It can be trusted as long as you trust OpenCoin.

It seems that "decentralization" in ripple is the same as decentralization in USD. You may freely use both USD and XRP in decentralized trades until issuing authority sees that their interests are affected by your business. Am I correct?

I'm having trouble understanding how this is decentralized? Could you please elaborate on that?

Is a gateways IOUs issued or outstanding public info?

Can you explain how an IOU in the system defaults?

People please keep in mind that the creator of XRP pre-mined 100% of the coins. And Ripple will be an open sourced system. Your XRP are very likely to lose value in the future.

You're welcome! That's what this thread is for. Honest facts without the zealous rhetoric.


No. XRP is a cryptocurrency. No one can take away your XRP, no one can create new XRP, and no one can prevent you from sending or receiving XRP. (Note, this all assumes that the source code is published).

You won't have to trust OpenCoin to be able to use XRP (after the source code is released). However, for as long as OpenCoin still holds almost all of the XRP they will have a lot of control over the price. This may make XRP unsuitable as an investment. But this won't interfere with your ability to use Ripple for its other useful features.


No. USDs in Ripple are IOUs. A gateway promises to pay you actual USD in the future when you redeem the IOU. But XRP are built-in to the system. Gateways do not issue IOUs. You will always be able to send and receive XRPs, and no one can take away your XRPs (once the source code is released).

Thanks, I added that to the "Facts" section.


Like I said, XRPs are a risky investment! But you do not have to invest in XRP to get the other benefits of the Ripple system.

I'm leaving this up since it is not a repetition up to now but anyone who repeats that "XRPs will lose value" or brings up the pre-mine will have their post deleted.

+1

misterbigg,

Are you affiliated with OpenCoin or any of their affiliates/subsidiaries?

Yes. It is decentralized because no one can stop you from sending or receiving things in the Ripple network, nor can anyone seize the items in your account. You don't have to trust OpenCoin to send balances from one account to another. There is counterparty risk when depositing funds in a gateway but that is unavoidable.


Yes. You can see a summary of the total issued gateway balance for each currency here:

http://ripplecharts.com

https://i.imgur.com/juLsN5g.png


When part of your balance is represented by a gateway's IOUs (for example, you have a balance of Bitstamp bitcoins), at any time you should be able to send the gateway part or all of that balance and receive the actual thing that it represents (bitcoins in this example).

The process of redeeming the balance is called "settlement" or redemption, and the legal framework that enforces this is called the "settlement agreement."

When you deposit money at MtGox and obtain a USD balance, there is an implicit agreement that you can withdraw those funds back into your checking account.

In Ripple this works the same way, when you have a balance there is the understanding that you can redeem the balance at the corresponding gateway and receive the funds. If the gateway does not fulfill this obligation then they are in default.

You need to make sure that the gateway is reputable, in exactly the same way that you would have to make sure that a Bitcoin exchange is reputable.

No. I don't work for OpenCoin, they don't pay me, and I haven't received any compensation for my views (nor would I want to, for then I could not claim objectivity).

I do, however, hold a substantial quantity of both XRPs and Bitcoins. I'm equally bullish on both.

I finally decided to go and try it out, is it seriously still in a closed beta testing phase?  ???

I wouldn't say that it is closed, because you can still create a wallet and open your existing wallet but I think they might have not made it as easy as possible. I opened a bug report about this a little while ago:

https://github.com/rippleFoundation/ripple-client/issues/489


They postponed the announcement of the next round of giveaways, I think to give them some more time to polish up the client. In my opinion the client is a very rough ride and not ready for the masses, in fact I've opened up several GitHub issues about it.

If you look hard enough you will be able to create a wallet, PM me with your address and I will fund your account with XRP so you can use it. But be warned...this is still beta software!

I just wanted to be clear if I was talking with a representative of the Company or just an investor.  Thanks for sharing your views on the topic.

So, if I have to log into ripple's wallet site.. who actually holds my ripples, and who holds the ledger listing who owns what? In short, what effect would there be on the Ripple network if OpenCoin and the ripple website disappeared?

The Ripple wallet client is written in Javascript, and it runs entirely on your own machine. If you want to, you could clone the Github repository (https://github.com/rippleFoundation/ripple-client) onto your local machine and open it from there. Ripple.com is just where you get the client app right now, but Stephan (another OpenCoin genius) is building a really cool distributed system for securely getting a signed instance of the wallet. You can read his research here:

Secure Bookmarklets (https://ripple.com/wiki/User:Justmoon/Secure_Bookmarklet)

His research and development of secure bookmarklets is public and open, and can be directly used by some of the Bitcoin javascript wallets (like Blockchain.info).


Your balances are kept in the ledger, which is a shared database very similar to the Bitcoin block chain. Each validator maintains a copy of the current ledger. Most validators can also provide historical data, like previous ledgers. The ledgers form a hash chain, and all of the information and transactions can be verified with cryptographic signatures.

After the source code is published and all of the bugs, features, and kinks worked out, the closure of OpenCoin will not affect the Ripple network or its account balances. Ripple will be decentralized in the same fashion as Bitcoin.

It is worth repeating, however, that when you extend trust to a gateway there is always a non-zero risk of default.

Now let's say Bitstamp gets hacked and those 2907 BTC are wiped out. People start withdrawing BTCs from Bitstamp. How does that get resolved? In order or does Bitstamp choose which IOUs to deal with first?

Is there a way to "cold store" XRP?  As we all know one of the major issues with Bitcoin, especially early on, was accounts being compromised and BTC's being stolen.  Paper wallets and such was a huge leap forward in terms of security, is there a similar option with Ripple?  At the very least, they should enable two-factor authentication (Google Authenticator or SMS Text are my preference).

If you could please edit your post to not quote the entire block especially the image that would make things look neat.


Most likely it would be a chaotic free-for-all. If there were any bitcoins, whoever redeemed first would get them. People who then realize that the Bitstamp IOUs are worthless would try to trade them for something else as quickly as they could, likely at a discount (to get out fast). Whoever hears the news last would probably end up holding the bag.

It would be very similar to what happens at MtGox if they get hacked and lose a bunch of Bitcoins, or if the government seizes some of their USD.

-

-

I don't have a lot of knowledge about two-factor authentication but I believe that it requires a central authority. Can someone enlighten me? Is it possible to have two-factor authentication in a client application? It seems that the client would have to store your private key anyway - rendering two factor authentication useless.

"Authentication" is different from decryption in the sense that in an authentication system it is presumed that you are authenticating against a central authority. Where in the decryption scenario, there is no server that is checking your credentials (the decryption operation simply produces garbage). Two factor systems are authentication based not decryption based.

-

-

　

Well, you're posting this on a forum for a p2p cryptocurrency that was designed to give the _users_ of the system control over their crypto-tokens, so let's be clear-- you _must_ hold XRP in order to gain anything like the control over your own tokens that you have in Bitcoin.

When I say "control", of course I mean a type of control that comes with all the price swings/risks of scams/hacks/bugs, and everything else that may in the end make that control more theoretical than practical.  That control includes:

* irreversibility.  I send you XRP/Bitcoin, you have XRP/Bitcoin.  No double spends, no questions.
* no counterparty risk.  You send XRP/Bitcoin to a nonprofit, that nonprofit _has_ those XRP/Bitcoin.  No third party can "freeze" those funds (though idiots can certainly make overlay coin-taint systems that hurts the fungibility of the currency in general)
* there is an unblockable (or at least _extremely_ difficult to censor) route from me to you that only depends on the system itself holding to the minimum protocol rules required for the system to function.  If there's a bug in the system, or some unexpected fork it can make me decide to delay my payment, but if there is some bank account of an exchange that holds an alarmingly large portion of the currency that gets frozen it does absolutely nothing to delay my transaction (unless of course they hold my coins on my behalf).


Yep.

Yep, I agree with that. Only XRP offers similar functionality to what Bitcoin provides. And it differs from Bitcoin both in the method of distribution, and that the code hasn't been made open source yet (although they promise to do so soon).


This is all correct. But we need to recognize that even though we're on the Bitcoin forum, it is unfortunately a necessity today to extend trust to various entities. I use MtGox as my favorite example. Until we can "close the economic loop" with Bitcoin by dealing only in Bitcoin and not having to go to and from fiat, it will be necessary to interface with non-Bitcoin systems. Ripple does this exceedingly well, and does as well as you can hope to do while still dealing with fiat.

-

Great explanation, misterbigg. One of the best high-level explanations I've seen about Ripple, and this is after spending hours at the Ripple booth this past weekend hearing from David Schwartz directly about how things worked.

Your comment about the <currency>.<gateway> bidirectional order books clears up why OpenCoin thinks XRP will be so valuable; because it's the only non-IOU (real XRPs are sent), the only non-gateway-issued currency, it would become the default reserve currency in this ecosystem, just like the US dollar is in the world today.

And why is that? Just curious.

This is under the assumption Bitstamps won't make good on their debt. Bitstamps can borrow BTC to pay back everyone else. I'm not saying they will, but that is an option. Most likely they'll be able to trade their debt for Ripple XRP until they can get back on their feet. Ripple founders and OpenCoin have a lot to lose if Bitstamp defaults.

Of course you'd figure once OpenCoin becomes open source the Ripple price will go up... But it has already gone up. Way da hell up. 52 XRP / $1. Something is wrong when a Bitcoin Talk account is worth $200.

At that price, the total XRP pool is worth almost 2B USD, and OpenCoin's share is already worth 500M (albeit in a very illiquid/fragile market). I bet they're not raising money at that valuation from investors, though.

It's based on the scarcity of the currency... which isn't scarce at all. But this obviously won't stop speculators.

I had another random question.
Let's say I have a "John Doe - $5 USD" IOU pending. John Doe does not have $5 USD in the gateway, but he does have 5 dollars worth of BTC in a gateway. Will the gateway automatically sell John Doe's BTC to pay me $5?

Here are my questions so far.


1. Account management & centralization

I only used ripple.com, so far and I have a wallet login and within that wallet one public address, so I guess, this address is linked to my wallet account. For creating an semi-offline wallet, one suggested to use ripple.com/client, create an account there and write down the info. So it seems, I have no way to participate without using ripple.com and I'm completely dependent on ripple.com. (edit: ripple.com seems to be the interface to the "ledger/shared database similar to the blockchain" - tell me more, I don't see anything shared right now and I'd like to know how it works).  If they go down, my account is lost. Or another concern: if they don't like me, they could easily lock me out. Is that correct? I know Gox could do the same, but I'm asking, to understand the underlying system.

2. The role of XRP

They weren't intended as currency-to-use at all, why do we need them and what is their role? Fees could be charged in a different way and the system "ripples" through the books anyway, so you don't need it as inter-currency.

3. Toxic IOUs

Let's say you have two or three larger networks of trustful people in which users trust each other and there are connections between those networks and the system "ripples" orders, so [person A], which belongs to [trusted network 1], which is somehow connected through trust to [trusted network 2], which is somehow connected to [trusted network 3], could get an IOU from [person B], who belongs to [trusted network 3]. What happens, if [person B] now gives trust to villain [person C], which has many many toxic IOUs which aren't backed up by anything (i.e. TF BTCs). Wouldn't that compromise all three networks? Is there a way to see, if a IOU is toxic or was issued from a legit gateway? Is there a way to prevent the system to "ripple"?

4. Trust & gateways

As it seems, gateway IOUs are the only legit source of IOUs so far. Talk about that a bit please and I'm also interested in knowing who decides that a gateway is trustful and who can become a gateway.


I'm looking forward to some answers. :)

I'm not going to pretend to understand it as well as David Schwartz but the way that he explained it is that the alternatives create the wrong incentives. For example, if the server who first hears the transaction claims the fee then they could spam. Validators could split the fee, but then there is an incentive for people to become validators just to claim the fee. Having lots of random validators doesn't help Ripple. Having reputable validators (where reputation is defined as "not colluding with a significant fraction of other validators) does.

OpenCoin doesn't receive the fee. If they did, it would also create the wrong incentive because then they could spam. To which account would it go? Anyway that sort of change would never be accepted, and whoever gets the source code might just change it to go to their own address.


Gateways can and will default, sometimes for reasons out of their control. MtGox customers just experienced a partial default with any funds held in the Dwolla account. MtGox is still holding onto the Bitcoinca funds due to the lawsuit, this is another form of default. In both cases MtGox is breaking the settlement agreement.

I'm wondering whether to moderate this post or not....I guess I will leave it here but you are repeating information already stated so your post is mostly noise. From now on any more repetitions from anyone will be moderated.

Who decides who is a reputable validator and who is not?

I posed this question to a Ripple employee at the Bitcoin Conference this weekend. He told me that you can indeed prevent the system from "ripple"ing, but the option is not in the current client (and it's on by default). So my followup question is, does ripple still work in practice if this default is switched to "off"?

I'm not exactly sure to be honest. One of the Ripple developers can probably explain it well.

But from my understanding, you want to make sure that you know who the validator is. They might have a domain, registered corporation, signed SSL key with company information, the company owners might maintain a public social networking profile, etc...

For example, I'm running a validator here:

http://opengroin.com

You can see my ripple.txt configuration file here:

http://opengroin.com/ripple.txt

I still have to get the SSL certificate and also form a corporation.

Even if a validator colludes, the worst they can do is deny users access to the network. They can't drain account balances or discover your private key.

Whether you "ripple" or not isn't an explicit setting in the client, nor should it be. Rippling happens when you extend trust to more than one issuer for the same type of currency. If you don't want to "ripple", don't extent trust twice for the same currency.

I opened an bug issue asking for an explicit warning in the client when you extend trust the second time:

https://github.com/rippleFoundation/ripple-client/issues/682

How do you get a copy of rippled (the binary, not the source) and run a validator?

If I understand this correctly what Ripple provides is a very efficient mechanism for the issuance, trading and redemption of IOUs. The best analogy I can think of is bank notes issued by individual private banks, as opposed to central banks, against their reserves. These notes become a bearer instrument and are then used as currency. At one point in the early 20th Century this was common but it is now rare. A good example that remains is Scottish pounds https://en.wikipedia.org/wiki/Banknotes_of_the_pound_sterling (https://en.wikipedia.org/wiki/Banknotes_of_the_pound_sterling). A similar example in Canada is Canadian Tire money http://en.wikipedia.org/wiki/Canadian_Tire_money (http://en.wikipedia.org/wiki/Canadian_Tire_money) In this case the currency is backed by store credit at Canadian Tire and it has been used as currency outside of Canadian Tire.

Just as the examples above Ripple IOUs are only as good as the credit of the issuer, and in order for them to become liquid and easy to trade one needs an issuer large enough to have very good credit in the marketplace. The dangers with Ripple are in reality the very same dangers that are present in world banking. In particular when IOUs are used as collateral for the issue of more IOUs there is the ever present danger of overall collapse if the credit of a significant portion of the IOUs becomes questionable. In addition if the underlying asset is Bitcoin or gold rather than say USD, EUR etc then it is not possible for a central banker to come to the rescue by printing more USD, EUR etc.

My take is that the issuers of Ripple IOU's are going to be subject to the same type regulation as banks and the likes of Paypal etc., because that is what they are in reality. I expect that the financial regulators will, quite unlike the situation with Bitcoin, have a field day with Ripple, since it is debt based and regulating debt is their primary mandate.

I think that if your intention is to explain Ripple to Bitcoiners, you should also link to the TradeFortress "Ripple gone wrong" experiment. He didn't cheated the system, he used it as it is designed and was able to create that big mess that is now currently in some threads around the forum. It's important to explain the system as it is, with the pros and cons.

That's quite alright, I think he's gotten enough publicity. In any event, the client needs to warn users when they extend trust twice for the same currency.

Huh? But what if I want to hold more than one type of USD IOU? Are you saying everyone should just use a single gateway? Surely there are valid reasons to trust more than one. For example, it becomes more convenient to deposit with a new bank, though you still hold an account at your previous bank.

And I'm still searching for an answer to my question:


Misterbigg, do you know the answer?

I was able to get access to the source by asking in person. Perhaps a phone call or very courteous email is all it would take.

Same here.

Same here.

[/quote]

Cool, I'll ping them then. I wasn't sure if I was missing some obvious link on Ripple.com or something.

I think trust lines have a "quality" setting, which is the ratio for converting between one type of IOU and another type of IOU. The client doesn't let you set it but you can issue a raw RPC command with JSON in it that sets it. I expect in the future this option will be provided.


I am not 100% certain but it would have to be implemented in a way that says "ignore everything but order books when computing paths." I believe Ripple would still work in practice with this change.

Gateways don't automatically do anything. What you want to ask is whether or not Ripple can find a path that allows John Doe USD IOUs to be converted into Gateway BTC IOUs. If Ripple finds an appropriate offer in the respective order book or order books (considering all combinations of conversions) then yes.

What motivates a person or company to become a ripple validator? Do they make any profit of this activity?

OpenCoin doesn't recommend using XRP as an investment...but that's what they're doing, right? I sold most of my free 35 kXRP for ฿2.5. Perhaps I'll regret that someday, but, OpenCoin won't get rich if we all invest in (and hoard) XRP!

There's no direct profit, this would create a conflict of interest. The wiki has a little more detail (not much though):

https://ripple.com/wiki/FAQ#Who_will_run_validating_nodes.3F

I think this is right. It sounds a lot like what the OpenCoin guy in the booth told me. He said you can even move it all the way to zero (in both directions), effectively disabling all rippling through you.

Since there are risks involved with being a free liquidity provider, and no benefits (as far as I can see), I'm trying to understand what incentive I have to do anything other than dial this knob all the way down?


Interesting. Thanks for your insight.

Well you can adjust the knob in a way where you can charge people for rippling through you. For example, you exchange 1 A.BTC for 0.98 B.BTCs.

I agree with you, the default when creating a trust line should be to set the quality to zero. Would you like to open a Github issue? You can do it here:

https://github.com/rippleFoundation/ripple-client/issues?state=open

I guess, but with the default set to 100% quality, probably everyone would route around me and it's not worth the risk.


This misstep gives me some concern about OpenCoin's understanding of markets. Did they seriously not realize that liquidity providing is a risky business that demands payment to the liquidity provider?

Well, trusting more than one issuer for the same currency turns yourself into a gateway.

I was thinking about a path like [trusted person] <-> [trusted person] <-> [trusted person] <-> [toxic villain], where the first person seems to have a trustful network from his point of view. It doesn't matter how many people there are who you trust, even if those trust a trustful person, who trusts a trustful person, who trusts a ..., ... if it only takes one untrustful person, to compromise the complete trustline/network?

Uhhh, reading your post brings up a few questions.  As I am not overly familiar with ripple;  glad I looked.


Ok so here XRP is a currency.  I see 100 billion to start.
-that's the highest number of units for any currency (at start) in history correct?
-divisible by many decimals, would then be the most inflatable in history too, correct?
-I require this currency - to spend currency - and once used it's sequestered.  Isn't there an unnecessary extra step in here?



First here, LOL
- Why would you call it a "trick" to get someone to accept this IOU?
- Gateways are corporations (e.g. banks and too big to fails);  EG same as the current monetary system, check.
- Gateways hold my funds, right, same as banks currently.......but why do I get an IOU instead of money like I can do now with current banking system?
- This sounds remarkably similar to the sales pitch used with derivatives that caused the housing market collapse, correct? 
(e.g a high value gateway (like AAA bank) could take on junk IOUS (like junk house mortgage) and all is well until .....)  <<assuming since this logic has manifested before, sure seems a breeding spot for it again.

(comparison with current method above in red)

Yes I would agree complex and brings more questions.
- Why would I use a Gateway and Ripple middle man, making 2 more steps in this process?
- Doesn't this remove the "highly touted"  No-Middle-Man concept of BTC?
- This removes any "hightly touted" anonymity belong to BTC as well, correct?
- For attack vectors with ripple we have step 1,3,4,5,6  with current method we have step 2,4
- For Tracking points with ripple we have step 1,2,3,4,5,6 with current method we have step 2,4
- For seizure points with ripple we have step 2,3,5,6 with current method we have 2,4
I'm missing how this is improved.

Finally then, since all currencies are held by these gateways;  no individual actually owns anything correct?  EG at 100% market integration - 100% of the global value would be in the legal possession of these "corporation gateways", correct?

*If the goal would be to consolidate all buying power(currency physically owned) into corporations and remove all consumer buying power (while maintaining no legal recourse for recollection of this currency); then I guess I have no questions and DO understand.  In which case the above can be disregarded.

I may be off base with some of these questions; but these are what comes to my mind from reading your description. Sorry to be long, but I think that covers them all.
Thanks

Hmm...no. A gateway is an entity that self-issues currencies in the Ripple system.


No. Schwartz explained this elsewhere really well. Even if there is someone somewhere in the chain that you don't trust, all Ripple payments are atomic. They either go through completely, or fail. If it goes through, you get exactly the balance you asked for (or better). If it fails, no balances are changed.

The number of units doesn't really matter, as long as there are enough of them. I think they choose 100 billion because it fits into a 64-bit integer (100,000,000,000,000,000 including the fractional part)


Not really Right now it takes 50 xrp to fund an account. One Ripple is made up of 1,000,000 "drops". A transaction costs 10 drops to send. The 50 xrp that funds your account is sequestered. You can only use it to pay for transaction costs. If you had more than 50 xrp you could send the remainder elsewhere. For example if you had 70 xrp you could send 20 of it to a friend.


Its not a trick in the "trick or treat" sense. What I mean, is that it is not a simple task. Getting other people to trust you requires effort. You need to show them that you can be trusted, and that there is a legal recourse if you don't honor your agreements. That's why anonymous gateways should be avoided at all costs.


It sounds like you're saying that all corporations are bad. That's certainly not the case. MtGox is a corporation, are they bad?


The "IOU" is a cryptographic token that can be passed around the Ripple network. In the current banking system there is no convenient way to transfer a balance out of your bank account to someone else. These are your choices:

1) Write them a check (physical, takes a few days, can't be automated)
2) Wire the money (takes a few days, expensive, can't be automated)
3) Withdraw cash and hand them the money (requires face to face, can't be automated)
4) ACH Transfer (one end has to be a business, costs a lot of money for regulatory compliance)

Unlike your bank balance, a Ripple balance can be sent through the decentralized peer to peer Ripple network in flexible ways. Ripple transactions take 2 to 20 seconds to "confirm." They are incredibly fast compared to bank methods. And they can be automated.


No. There are different kinds of "debt." When you deposit money at MtGox they "owe" you dollars, or bitcoins if you buy from their exchange. This is not a derivative - its a different form of IOU. Is a MtGox balance the same as a mortgage or collateralized debt obligation? I hope you don't think so!


Imagine if you could deposit your money at MtGox, but then send some of your USD balance to a friend. They could take that USD balance and buy Litecoins from BTC-e. Then they take those Litecoins and use them to pay a guy in China, who receives it as CNY (Yuan, China's native currency). This is what is possible with Ripple.

Here's another scenario: you open a Ripple-enabled checking account. Using your bank's online banking web page, you withdraw the dollars into the Ripple network and use it to purchase bitcoins at multiple gateways for the lowest price. Then you redeem the bitcoins into your bitcoin wallet. Or, you keep your bitcoins as a balance in your checking account and when you use your debit card, it sells just enough at market rates to pay for the charge.


Sort of. MtGox could be considered a middle man. Any time you want to sell your coins you need to trust someone, unless its a face to face exchange (and even then you have to make sure that they don't rob you).


Like bitcoin, anonymity is not the default but it can be achieved to varying degrees of success with work.


That's right. In theory, you could lose some or all of the entire amount that you are trusting to the gateway. This is why Ripple will not replace Bitcoin! When you need to reduce your counterparty risk to zero, you will use bitcoins. When you need to pay a bill in fiat, you can use Ripple to pay for it with your bitcoins. Ripple complements Bitcoin.

Until most people can live their lives paying all bills and receiving all income with Bitcoin exclusively, it will be necessary to interface with the traditional financial system. MtGox must interact with the fiat world, and most people need to interact with MtGox. Even Bit-Pay depends on MtGox, as well as most other Bitcoin payment processors. If you only buy things using Bitcoins, you are indirectly dependent on MtGox if your payment processor requires access to their liquidity.

For as long as Bitcoin exchanges are needed, Ripple will be a superior solution. If we can get rid of all the Bitcoin exchanges and still have a well functioning economy, then it might be possible to live completely without the need for trust. I don't see this happening in the forseeable future though.


Yep, I understand where you are coming from. Given the current global economic situation, it is totally legitimate to be concerned when hearing the words "trust", "debt", "IOUs", and "licensed, regulated gateways" in Ripple's description. Ripple doesn't prevent the problem of government seizing funds at a gateway. But it is an improvement over the current banking system. And it enhances the value of Bitcoin.

Thank you for your time to answer my questions as it has helped and I'll watch the progression of ripple for a bit.

In terms of my thoughts of corporations; yes I'm not fond of them.  However, I do limit this to say fortune 500; or specifically the 200 identified @ 97%.  If these 200 were the final gateways, whew!
So just corporations with minimum cash "influence" thresholds.

with with the 50 xrp for funding and drop transaction cost.  It would seem this 50 startup would last quite a long time then, if I understand.

I note at the lower end you mention "If we can get rid of all the Bitcoin exchanges and still have a well functioning economy....."

How would the pricing for BTC be determined then?  By the gateway's correct?

Thanks again for the help with my questions.  I DO agree  nice system is needed to facilitate easy utilization and transactions of BTC via multiple methods.  Guess I'm still on the side of BTC = commodity, but open as times goes by.

How is this possible? Where do you open a Ripple-enabled checking account?

Well, we hope that one day a bank will operate as a gateway. Hasn't happened yet.

Is there a Compare/Contrast between Ripple and OpenTransactions? They seem to be doing the same thing.

You can come over to my non-censored (no self-moderation) thread, cypher: https://bitcointalk.org/index.php?topic=211596.0

There are plenty of other places for inflammatory talk and personal attacks - this isn't one of them!

Even though I already knew all this, I forwarded this to reddit because it seemed quite readable and accessible to others.

Standard disclaimer:  mention does not constitute endorsement.  :)  I just believe in widely sharing all knowledge.

 

I don't know Open Transactions very well but my guess is that during Ripple's development, they made different choices at key decision-making points from the ones Open Transactions made. As a result, they were able to produce a viable system whereas Open Transactions still has unsolved problems. This is mostly theory though...I haven't worked with OT much. I just read a few of the papers.

Okay, got it. You had me excited for a minute.

Great thread misterbigg!  You have objectively outlined all the facts about Ripple in a friendly and easy to read manner.  The other Ripple threads are good for a laugh though.


The problem with Open Transaction is that it is confusing as all hell, and the software is nearly impossible to set up and run.  I'm fairly techie and after numerous attempts have still yet been able to install and run OT.  Even when the software loads I cant figure out how it works.

FellowTraveller has stated that he wishes other users to pick up the OT library and develop other software with it, but it really needs an easy to use GUI to showcase its potential ( I think there is even a bounty for it).

I'm very optimistic for the future, with the triple threat of Bitcoin, Ripple and OT we have the toolsets to become the worlds new financial standards.  Its funny with all these pro-bitcoin, pro-ripple threads going on, at the end of the day it doesn't really matter who says what, if Ripple brings a benefit it will flourish just like Bitcoin did in the face of extreme derision.

http://www.reddit.com/r/Bitcoin/comments/1e3s82/anyone_that_has_read_about_opentransactions_got/

See the link to stackexchange and also the discussion by FellowTraveler about half way down the page.

Thanks!


And this is exactly why I prefer that Ripple is developed by a for-profit company that can pay developers. They also have a strong financial incentive to ship their product in a complete state instead of having it drag on for years by someone who has to work a full-time job elsewhere to pay bills.

I don't mean this to sound like I'm bashing Open Transactions; There are a lot of really nice innovations and solutions in there. Its just that it didn't put the pieces together the right way.

It looks like FellowTraveller is raising funds and developing OT in a more commercial manner at the moment, sounds like there will be some IOS apps a GUI clients etc coming out soon.  Of course this will probably mean closed source apps and proprietary protocols etc if some company is doing the funding and wants a profit..

So out of the 3 projects, all looking for funds we have:

* Bitcoin - Bitcoin foundation begging for donations, potentially skewing the bias of future development towards what the donators want
* Ripple - XRP reserve to fund OpenCoin for continued development
* OpenTransactions - Closed, proprietary add-ons, clients, systems to the free opensource OT library.

Everyone's gotta make a living :)

Edit: Seems like Satoshi was the only true altruistic developer

Yes there can be a most trusted gateway (i.e. the one that manages to attract the largest total amount of deposits across all currencies). But those deposits can be used to exchange for balances at any other gateway. I'll give you an example, with two hypothetical gateways "Bitstamp" and "Foobit", that each issue both BTC and USD. Bitstamp is the big gateway and Foobit is the tiny one.

First recognize that there are 20 order books in this scenario (!!!):

BTC.Bitstamp -> XRP
BTC.Bitstamp -> USD.Bitstamp
BTC.Bitstamp -> BTC.Foobit
BTC.Bitstamp -> USD.Foobit
BTC.Foobit    -> XRP
BTC.Foobit    -> BTC.Bitstamp
BTC.Foobit    -> USD.Bitstamp
BTC.Foobit    -> USD.Foobit
USD.Bitstamp -> XRP
USD.Bitstamp -> BTC.Bitstamp
USD.Bitstamp -> BTC.Foobit
USD.Bitstamp -> USD.Foobit
USD.Foobit    -> XRP
USD.Foobit    -> BTC.Bitstamp
USD.Foobit    -> USD.Bitstamp
USD.Foobit    -> BTC.Foobit
XRP              -> BTC.Bitstamp
XRP              -> BTC.Foobit
XRP              -> USD.Bitstamp
XRP              -> USD.Foobit

Now imagine that someone places BTC up for sale in the BTC.Foobit -> USD.Foobit order book. How can someone who is holding USD.Bitstamp purchase these bitcoins? First recognize that we want to send Bitstamp USD and receive Bitstamp BTC. Now consider one possible path:

USD.Bitstamp -> USD.Foobit -> BTC.Foobit -> BTC.Bitstamp

Ripple will look at these order books to calculate the depth and price:

USD.Bitstamp -> USD.Foobit
USD.Foobit -> BTC.Foobit
BTC.Foobit -> BTC.Bitstamp

It is unlikely that gateways will maintain walls in these books, because it would expose them to counterparty risk. Instead, liquidity providers (I plan on being one) will use software to keep automated bid and ask walls in the appropriate order books. For example, I will accept Bitstamp USD and give you Foobit USD. I will need to charge a small premium, which I will build into the offer. I might give you 1 Foobit USD for every 1.03 Bitstamp USD that you give me.

Repeat the process for each order book and now Ripple can supply you those Bitstamp BTC in exchange for Bitstamp USD, even though the best prices and depth are in a different issuer's order book.

As you can imagine, the number of combinations of order books across all issuers and currencies will explode in number. An alternative is that liquidity providers can maintain bids and asks for issuers currencies in conversion to XRP. The path in the previous example could also be written this way:

USD.Bitstamp -> XRP -> USD.Foobit -> BTC.Foobit -> XRP -> BTC.Bitstamp

or this way:

USD.Bitstamp -> XRP -> USD.Foobit -> XRP -> BTC.Foobit -> XRP -> BTC.Bitstamp

These examples show how XRP can be used as a "bridge" currency. By the way, this is all in the wiki.


You don't need an account at each issuer. That's the whole point of Ripple. You deal with a gateway that you trust, to handle deposit and withdrawal, and then you can access everything on the Ripple network no matter who the issuer is.

If you are holding the currency of a gateway that you don't have an account with, Ripple can easily exchange it for something that you would prefer to have by automatically going through order books and "rippling" through people who have extended trust to multiple gateways for the same currency.

This is the distributed exchange Bitcoiners have been dreaming of!

You know what Ripple reminds me of?  Google wave.  It was neat, it had lots of potential, it was geeky, the few people who got it were really excited, and it ended up being totally worthless.

To clarify my comment, the reason why I think this is because it seems like Ripple is trying to replicate some of the things Bitcoin can do and some of the things it can't.  But in the process of designing it, they ruined everything that made Bitcoin ingenious.  Bitcoin provides everyone, from the top to the bottom, everywhere, reasons and motivations to use it.

Ripple provides no motivations for anyone to use it until it reaches critical mass.  Which it will never do, because people have no reason to start using it to push it to critical mass.

Just like Google wave.  It *was* cool.  It did lots of neat things.  But no one was motivated to use it, at all.  So it died.

This is no different from the person with USD.Bitstamp to withdraw the USD, and deposit the USD into BTC.Foodbit to buy the BTC.  There is zero advantage in adding another intermediary in the transaction, especially one with Ripple, where the transitional currency is also open to price manipulation.

And why use hypothetical example where people kept their wealth on gateways?

Most people will keep their crypto currency on their local wallet, and their cash in the bank.  

It is fairly easy to deposit/withdraw both of these with a local exchange.     For international exchanges, depositing/withdrawing will be harder, but this will be the same problem face by the liquidator in Ripple network.      No problem being solved by Ripple.

What is the value proposition to the end-users for going through this added hassle of using Ripple?

What is the value proposition to the exchanges for them to federate with Ripple?

The difference is like night and day! With Ripple you do it with the click of a mouse. The other way you have to do wire transfers, talk to your bank, etc...

This was what you posted on first page about Selling 1 BTC for USD.

1) Open an account at a gateway (Bitstamp.net for example)
2) Deposit your BTC at the gateway
3) Withdraw the BTC as a BTC IOU in Ripple
4) In the Ripple client send a payment to yourself in USD
    The client will show you the price, you can accept it or cancel
5) Deposit the USD back into the gateway
6) Withdraw the USD from the gateway to your bank account

How are these any easier than:

Open account with Bitstamp
Deposit your BTC at Bitstamp
Sell the BTC on Bitstamp
Withdraw USD to Bank

Why the need for Ripple?

Yet another Ripple thread centered on Open-Transactions...

How to get free support for OT:  irc.freenode.net  #opentransactions

How to build OT from scratch:  https://github.com/FellowTraveler/Open-Transactions/blob/master/docs/INSTALL-Debian_Ubuntu.txt (https://github.com/FellowTraveler/Open-Transactions/blob/master/docs/INSTALL-Debian_Ubuntu.txt)

How to install OT via apt-get:  http://www.openwallet.org/downloads/ (http://www.openwallet.org/downloads/)


Coming soon (screenshots): http://ft.vm.to/files/screenshots/ (http://ft.vm.to/files/screenshots/)

(There are other clients in the works, but that's just an example.)

There's also, of course, the test GUI, from which people can copy sample code: https://github.com/FellowTraveler/Moneychanger (https://github.com/FellowTraveler/Moneychanger)


This is half-correct.

Open-Transactions is an open-source project, not a commercial project.

Similar to Bitcoin itself: there will be commercial projects built on top of it, from various entities.

So OT will be used by commercial projects, including my own, but OT itself is not being developed as a commercial project.


I can see how you'd make this assumption, but Monetas (my commercial effort) has no plans to use closed-source.

We don't even really believe in intellectual property, and we will be releasing the code for our products when those products themselves are released.

(And yes, we know how to monetize our products regardless.)


This is a mischaracterization.

Open-Transactions is free and open-source.

Monetas will also release its products open-source.

The protocol is not proprietary whatsoever.


I was fortunate enough in my previous career, to be able to work for several years full-time on OT, at no benefit to myself.

I paid my own bills.

Thanks fellowtraveler for the clarifications.. my apologies for my many incorrect assumptions about OT.

Truth is, I think all 3 projects are doing great things for financial freedom.  And actually I think all developers would continue to work on them even without monetary reward, but its also nice to sometimes get paid doing it, particularly if it means you can work on it full time.

Anyway, look forward to seeing what goodies OT brings to the table.. its a very exciting time.

mmmmm it's all wonderful, but i will not use ripple until they will implement google authenticator or yubikey.

Yes you may ask. No his post wasn't particularly useful, I just forgot to remove it. Both of the posts in question are repetition of item #11 in the "Just The Facts" post (first reply to the OP).

Not sure if this was mentioned already - i know MisterBigg said he expects that a real bank will eventually be a gateway on ripple.

Would that mean you could theoretically open an account at that bank, get your paycheck direct deposited there, and buy bitcoins on Ripple instantly, without all the hassle of moving your dollars in and out of an exchange?

Yes. Not only that, but you could keep a bitcoin balance in your bank account and spend it anywhere that takes your debit card.

Thanks for this interesting thread.

Maybe it's just because it's late and I need to get to sleep, but I feel like after reading this and other threads I'm more confused about how bitcoin will coexist with ripple. I came to this forum because I was interested in learning more about ripple. Personally I don't have too much use for bitcoin as it is currently implemented, but perhaps one day I might see the value in it. However, if ripple were to become widespread, why would I hold bitcoins when I could just hold xrp? I've read your explanation as to how the two can coexist, but it seems like that explanation is predicated upon the assumption that the person would see a value to holding wealth in bitcoin. I can't think of a situation where that might be true for a newcomer to cryptocurrencies. Can you provide an example? If you already did and I just didn't read carefully enough, I apologize. I'll go back and try to find an explanation.

I'll admit I'm still quite fuzzy about exactly what Ripple does and does not enable. Here's an outline of my high-level impression, I'd appreciate it if anyone could point out inaccuracies:

Ripple essentially makes it easy to extend and receive credit  (debt). The debt can be passed on, according to a set of rules. It can also be realized into currency taken out of the system.

That's how I've understood it so far, and based on that, I'm not comfortable with Ripple. With currency, increased velocity is good because it increases the usefulness of that currency. With debt, increased velocity seems to me to increase risks. It's all well and good to remind people IOUs are not the same as actually holding currency, but isn't Ripple as a system intended to encourage people to hold and trade IOUs?

What systemic safeguards are there in Ripple against meltdown resulting from a masking of risks as people become accustomed to treating IOUs as currency? This is something that happens with debt, and the results can be quite ugly, as we're seeing in the "real world" now.

The main safeguard in my opinion is that you can choose whom you give credit up to which limit and when you settle it with this entity.

Ripple handles the whole rest (converting currencies/IOUs).

In reality to make any kind of trade that is beyond barter trade in person settled in cash (or trading 10 chicken for 1 cow) will involve IOUs. Sometime quite explicit (MtGox balance), sometimes quite implicit ("you go first, then I immediately will send my funds"). Sometimes for a longer (ASICMINER shares) and sometimes for a shorter (SatoshiDice) amount of time.

Still, the only thing you can receive for BTC are either other BTC or IOUs. There is no system in place in Bitcoin that lets you receive anything else than other ledger entries in the block chain that you can spend with your private key.

If you accept absolutely 0 IOUs or debt ever, then you cannot use Bitcoin as well, as the only way to use it within itself is to get other BTC. You can mine them without owing anyone, but then you're stuck.

Especially with the characteristics of Bitcoin (easy and fast to send + script, irreversible) it makes it easy in combination with Ripple to decrease the exposure to IOUs to a minimum. Instead of sending a balance to Paypal in advance and having it sit there for days/weeks, you can fund your Ripple wallet on the go and also withdraw any incoming payments as soon as they arrive in BTC/LTC/whateverelseyouwant.

Bitcoins are in some sense the ideal fiat money - they have no intrinsic value (they have utility and usefulness though, no doubt!) and are created out of thin air just to exist as money. They can be 100% "owned" (if you keep the private keys safe, yada yada).
IOUs on the other hand exist to be destroyed, either (ideally) by being settled/redeemed or (in the case of TradeFortressBTC) by being deemed useless/worth 0.

Current fiat currencies (USD, EUR etc.) are a mixture between being IOUs (they cover about 1-10% of the economy they represent) and just existing as a useful token. Bitcoin only exists as a useful token, Ripple (as I understand it) tries to exist as far on the other end of the scale as possible.
As much as Bitcoin has useful characteristics to be a money system, Ripple has useful characeristincs to be an IOU trading engine.

Thanks for all the constructive comments!

Ok. Thanks for this thread, I hope I finally understood what Ripple is :)

In simple words it's trading platform based on a ledger inside crypto-blockchain (like bitcoin), where it stores all exchange/trade history and keeps balances which reflect debts (IOUs) of any type (btc,usd,artists shit, etc) issued by pre-approved vendors named "Gateways". Ripple system doesn't guarantee safety of traded debts. if "Gateway" defaults, you lose value of all its IOUs, so it's matter of trust to "Gateway".
Ripple transactions are final and cannot be manipulated as it's protected by math/crypto formula similar to bitcoin.
Transaction fees are in XRP, which is pre-mined crypto currency and at the moment these fees are almost free because small amounts of XRP coins are being given away to everyone.
OpenCoin company expects making profits by manipulating XRP prices in future, when Ripple trading becomes common and widely adopted.

Am I correct ?

we cannot foresee that this will happen for sure, but that's the risk.

Well, anyone can issue IOUs on Ripple who has a handful of XRP, there is no real centralized or decentralized "approval" process. Other than that you gave a fairly correct overview on how Ripple operates or will/might operate.

I have a question about the operation of Ripple for the purpose of cross-chain-trading.

Suppose I have BTC in my wallet and want to send it to someone 'conditionally' on them sending me Bitstamp.BTC  without having to trust any other party other than BitStamp once the transaction is complete.

I don't want to go first because I don't trust them.  They don't want to go first because they don't trust me. 

So I want to implement atomic cross-chain trading with Ripple.    Is this possible and what would be involved?

Ripple doesn't know anything about the bitcoin block chain and transactions therein.

This means, you will always have to use a gateway or service of some sorts, as there is no way in Ripple or Bitcoin to create a transaction that relies on a certain external event without trusting an oracle to track this event or using a conversion service.

If I understand you correctly, you have e.g. 1 BTC in a Bitcoin address that you control and 0 BTC (just some XRP) in your Ripple account. You want to end up with 1 BTC.Bitstamp in your Ripple account and 0 BTC in your Bitcoin address. You do however trust Bitstamp that they are honest people and if you send them your 1 BTC IOU, they will then send 1 BTC on the Bitcoin network to an address of your choosing. Also, if you send them 1 BTC, they would credit you 1 BTC.Bitstamp.

In this case (you trust Bitstamp + have 1 BTC) you don't need a third party, all you need to do is to deposit your BTC in the Bitcoin network to Bitstamp and withdraw it from there to your Ripple account. And if you don't trust Bitstamp anyways, why would you use their IOUs?

In the more abstract case (e.g. you want Bitstamp USD and Bitstamp does not offer any Bitcoin trading/deposits at all) you would need at least oracles that track the Ripple ledger/Bitcoin block chain + probably also something along the lines of the NashX idea where you risk more by being fraudulent than staying honest. I'd still recommend in this case to find a gateway you trust, get some BTC IOUs from them and trade them for whatever other IOU you want to have. You counterparty can facilitate this by offering a direct path to the IOU of your choice, in case there is none or only bad ones so far.

Trading Cross-Chain doesn't even really work with Altcoins so far, and these are not even IOUs (IOUs make it actually easier to trade, as you can see above) and based on Bitcoin code. I'm not sure if atomic trading between chains/currencies and even for IOUs is very desirable, it seems so simple at the first glance but as soon as you think about race conditions, you run into a lot of things that can go wrong and that seem to be very hard to solve just algorithmically.

Maybe try OpenTransactions and building a way in there to represent not only (colored) Bitcoins but also Ripple IOUs, then it might work that both partners create OT blinded tokens and exchange + redeem them atomically.

To get straight to the point:  does Ripple support anything like multi-sig or conditional transfers?

https://ripple.com/wiki/Transactions, especially https://ripple.com/wiki/Transactions#Sign_.289.29 - MultiSig seems to be at least planned/in the works.

Conditional transfers might be more difficult, but can be emulated with Multisig I guess (e.g. require signatures from 9/10 public oracles + your signature, 11 in total, as soon as 10 of these sign, your condition is met).

Edit: you might want to look into https://ripple.com/wiki/Contracts... not sure how much of that stuff is already available/possible though.