Yes, exactly, it's because they're the biggest markets. When a trade takes place on a market. that means a buyer and seller agreed on a price, which suggests that the price accurately reflects the value of the thing traded. (Assuming there are no confounding factors, such as difficulty withdrawing from the exchange inflating the price.)

If you want to know the price of eggs in dollars, what do you do? You go to the places that exchange the most eggs for dollars and see at what price those exchanges are happening.

In order for an exchange to happen, the buyer and seller must agree that the price is fair, and both must be able to get to the exchange. This generally means the places that can attract the most exchanges have the most accurate prices.

There are just under 2^256 private keys, just under 2^256 public keys, and 2^160 addresses. There are some addresses that have more than one corresponding public key and thus more than one corresponding private key.

That's obviously silly. If you don't see why, consider this:

In an inflationary environment, nobody sells anything -- because whatever you want to sell is sure to sell for more in a few days or weeks.

If the inflation or deflation comes from the currency's characteristics, it doesn't make anything more expensive or cheaper except the currency.

I don't think many people dispute that the goal of laws against adultery is to protect the sanctity of marriage. However, a sensible discussion about laws against adultery would likely look very different form a sensible discussion about protecting the sanctity of marriage.

You can define backing however you want, so long as you explain to other people what you're talking about. But IMO, that's not a useful definition of "backing". Suppose someone offered a "secured Bitcoins" service, with a promise that they will buy back any secured Bitcoins you have for $10 any time in the next ten years (or 1/4 gram of gold, if you prefer). These are "backed" by your definition, but common sense will tell you that they're not significantly more useful or valuable than "unbacked" Bitcoins. And the truth is, this is the only kind of backing you have for fiat or even gold. Nobody "backs" demand. At most, they back supply. And Bitcoin's supply is backed more than fiat is.

I agree. Rather than arguing over whether Bitcoin is "backed", when we all agree on its properties, let's instead talk about what the consequences of those properties are.

If you accept this reasoning, then gold is not scarce. Everyone but you could agree to consider aluminum to be the same as gold and now your gold is no more valuable than aluminum. This is not that unrealistic. Fractional reserve gold notes could actually do this if the market considers them "close enough" to gold.

How likely must something be in order to be a "guarantee"? Absolute certainty? What guarantee of future exchange value do US dollars have? (And how do I enforce that guarantee?)

This notion of "backing" as an absolute (or near absolute) guarantee of future value is simply not useful. Nobody can ensure future demand. They can, however, back the supply or promise to exchange for something else of value. (Though that is not an absolute guarantee, of course. It's only relative.) Those notions of "backing" *are* useful.

I would point out that the US dollar has no backing of this sort, other than a vague, unenforceable promise not to inflate the supply "excessively". There is no guarantee of future demand by anyone, though of course future demand is nearly certain.

On its abstract, technical merits, Bitcoin is vastly superior to US dollars as a means of exchange. However, there are many practical ways in which the US dollar is superior to Bitcoins. For example, demand for Bitcoins is much more likely to drop drastically in a short time than demand for US dollars. The value of a Bitcoin is much more subject to manipulation and is much more unstable than the value of US dollars.

"Backing" is a solution to a problem that Bitcoin doesn't have. The reason you want a currency to be backed by someone or something is to ensure its scarcity.  Otherwise, the value can be stolen from you by supply expansion.

But backing is an imperfect solution because the backer can always either fail to meet its obligations or can structure its obligations so vaguely that it can technically meet them while still devaluing the currency and robbing those who hold it. Even physical scarcity, which is what gold has, is still imperfect -- we might one day find an asteroid full of gold and gold might become as cheap as aluminum.

Bitcoin's scarcity is guaranteed by mathematics. It's as close to perfectly guaranteed as we humans are capable of. So long as there is demand, its value will be assured because its supply is known. (Of course, there's no guarantee of demand.)

All IOUs can have a transfer fee. The restrictions are that it's a per-account setting and that it must be a ratio of the amount transferred.

Autobridging isn't implemented yet.

It is a separate setting. It's a per-account setting.

Only in the same sense that "buy Bitcoins with USD, send half of them to the Bitcoin eater, hold the rest and wait for them to go up" is profitable.

It certainly can be -- particularly if there's a lack of transparency. In the current economic climate, there's basically no choice but to keep a full reserve. And if you're holding Bitcoins, for the forseeable future there will be no choice.

But, for fiat currencies, that is really only because interest rates are so absurdly low right now. When economic conditions return to normal, it makes sense for gateways to store their fiat reserves in an ultra-low risk, interest-bearing form. It's not that difficult to structure things such that if the ultra-low risk investment somehow fails, the owners lose their capitalization but the customers do not lose their money. This should allow them to charge their customers less and also have more funds to invest in customer service, security, and features that make them more convenient to use.

I don't have a crystal ball though. My prediction of future gateway business models is basically just a guess.

Yes, make everyone who holds Bitcoin rich, that'll teach them.

This is basically impossible. The more they try to buy all the Bitcoins, the higher the price gets. They have to keep paying more and more money to keep buying and everyone else who holds Bitcoins gets rich as the price goes up.

The second they try to sell, the price tanks. They lose a fortune. And Bitcoin is fine.

This business model has been tried before and everyone who has attempted it has lost millions, or even billions.

There are three main reasons:

1) XRP funds transactions and ledger entries as a means to control spam. For technical reasons, the only currently practical alternative to proof of work is a native crypto-currency built into the system. The problem with proof of work is that attackers will always have advantages over defenders -- attackers can optimize their hardware to do proof of work while legitimate users have to use whatever they have, such as a mobile device.

2) XRP serves as a "lubricant" to improve liquidity. When introducing a new currency into the system, the easiest way to make it liquid is to place offers to exchange it for a currency that's already liquid. Any currency but a crypto-currency in its native environment will have counter-party risk and is likely to be regional. That makes it less suitable for this "universal currency".

3) XRP makes Ripple Labs' business model work, funding the development of Ripple and making giveaways possible both to promote Ripple and to do good. The value produced by Ripple Labs -- the Ripple network, protocol, and software -- belongs to the world, and Ripple Labs neither owns not controls it.

Because Bitcoin uses proof of work to secure the currency, you have a problem in the beginning. When Bitcoin was first introduced, Bitcoins were worth zero and transaction volume was zero. There was no way to use transaction fees to fund the proof of work needed to keep the currency secure. The block reward's technical function is to keep enough proof of work going on to make the currency usable (until transaction fees can take over) by providing a financial incentive. Every dollar that buys mining hardware or goes to an electric company to power mining hardware is one dollar of value the Bitcoin ecosystem created that leaves that ecosystem. The Bitcoin economy has to produce millions of dollars in value a day just to hold the value steady. Mining is Bitcoin's biggest downside, taking much of the value Bitcoin creates and giving it to chip manufacturers and electric companies.

And, unfortunately, it's economically impossible for mining to be a wealth-spreading mechanism to the world at large or to people in need. If mining is more profitable than other things people might do, then mining will increase -- thus so will the difficulty, until it's not more profitable than anything else people can do with the resources they have. It will likely always be a near-break-even proposition, profitable only for those who have especially good deals on hardware or electricity, sucking money out of the Bitcoin economy.

To be clear, I'm not saying Bitcoin is broken in any way. I'm just saying that there's no factual basis for seeing mining as a strength.

If we had created Ripple with mining, Ripple Labs could still have the same amount of XRP holdings today. The difference is that we would have had to raise a lot more money and pay it to electric companies and hardware manufacturers instead of being able to use it to build the team that's developing Ripple. It would mean that instead of being able to give away XRP to do good in the world, it would go to whoever was willing to waste the most electricity mining it, people who would likely barely break even. Bitcoin's early day miners who made large profits generally did no better than people who bought Bitcoins and certainly repeating Bitcoin's early mining success stories is nearly impossible. Ripple doesn't need to incentivize people to provide massive amounts of proof of work.

The only attack that would be possible is a denial of service attack though -- causing the network to not reach consensus. And since each node signs all of its proposals with the key by which it's known, it should be obvious which nodes to stop trusting. So to launch this attack, someone goes to all this trouble to build human trust, they maybe stop consensus for some period of time, but then they lose all that trust and have to start over. It seems unlikely anyone would bother.

Correct, but everyone will know the network is partitioned because they won't see the validations and proposals they're expecting. A key Ripple concept is this -- if conditions make it such that reliable operation is impossible, don't pretend that everything is fine.

Exactly. So you get quicker absolute confirmation unless conditions are such that this is not possible. In that case, you don't get quick confirmations, but at least you don't get confirmations that don't actually confirm anything. If Bitcoin has an extended split with mining power on both sides (as it did during the blockchain split), both sides will think they everything is perfectly fine and will see confirmations that appear perfectly normal in all respects.

Agreed. Ripple is more complex than Bitcoin, has a larger attack surface, and has not had as long to prove itself.

Actually, the more nodes, the easier. It does take a bit longer, the consensus time goes up with the log of the number of participants you need to encompass most of the weighted trust, but it's much more robust.

Unfortunately, I'm not sure how useful our consensus algorithm would be for other classes of problems. It might be, but it might not be. We get a lot of simplifications from the fact that we were able to structure the problem we needed to solve specifically to make it easy to solve. For example, all a consensus is really established on is which transactions are going to go in a particular set. If two transactions conflict, to avoid a double spend, you just need to agree which comes first (most of which you can do with a deterministic rule). We've removed a lot of the double spend problem by the design of the ledger and transaction mechanics.

For each transaction any node has seen during a ledger window, the network need only come to consensus on whether or not to try to apply it, and can implicitly agree not to apply it simply by failing to agree to apply it. Everything else is handled by deterministic rules known to all nodes.

This is surprisingly simple because:

1) If there is absolutely no conceivable reason why the transaction should not be included, every honest node will agree to include it.

2) If there is some reason why the transaction should not be included, there is no harm in not including it. (If it's valid, every honest node will see no conceivable reason not to include it in the next round anyway.)

And it doesn't matter if invalid or conflicting transactions get agreed on. The deterministic rules will ensure valid results regardless of which transactions are included or when.

The primary one is transfer fees. Every time an asset they issue changes hands inside the Ripple network, the gateway can charge a fee. Bitstamp, for example, charges 20 basis points ($2 per $1000). The net effect is that a gateway's outstanding obligations shrink without them having to do anything. This applies to any transaction made possible by the liquidity the gateway provides, such as cross-currency payments.

Gateways can also charge for any services they provide. This includes deposit fees, withdrawal fees, or even a monthly account maintenance fee if they want. In the future, when interest rates return to more normal levels, a fractional reserve gateway could draw revenue from interest on funds they hold.

https://ripple.com/ripple-gateways.pdf

How do you figure? The miners most likely to find blocks are also the miners most likely to submit shares that don't find blocks. It's perfectly fair to everyone, all it does is let each miner choose precisely how much variance they want. PPS is fair to everyone. Solo mining is fair to everyone. Everything in-between is fair to everyone -- the difference is just variance.

How do you figure? It would be fair to every single miner. It could even use pure PPS. You pick a percentage, X. If you mine a block, you get X% of the block reward less the pool fee. For each share, you get (100-X)% of the PPS rate less the pool fee.

Variance would be precisely as high or as low as you want it to be. Set X to 0 and you get perfect PPS with no variance at all. Set X to 100% and you get the same variance as solo mining. You get to choose exactly how much variance you want.

It is incredibly risky. The price of Bitcoin could crash to near zero at any moment and it's far from certain that it would necessarily recover. I think Bitcoins are a pretty good investment (though now is a particularly dangerous time to buy) but to deny that it's very, very risky is madness.