I just looked closer to Ripple with high expectations but got finally a pretty bad impression.
Maybe I dont understand all aspects right and maybe I am missing some. I am open for comments if I am wrong with some of the following.
But at least I am not the only one who sees Ripple as at least a pretty misleading project:
http://ripplescam.orgHere is my summary of that afternoons investigation:
As far as I understand Ripple, it has much more in common with the traditional banking system then with Bitcoin.
It may be an interesting modernisation for banks and may be successful in that direction as well as it supports new crypto currencies. But it is in many aspects very different to Bitcoin:
- Money as depth
- Based on trust to gateways (banks, brokers, exchanges, FED...)
- NOT decentralized (gateways)
- Controlled and issued by a company
- Not anonymous (at least when you want to convert your IOUs)
…
I think it includes the same or even higher risks as our traditional finance system.
If a gateway goes default and if it is a huge system relevant one (like MtGox or BTC China), that event could cause a default of many other gateways and a bailout by all the users with trustlines to them (if I understood Ripple correct). The trust lines are obligatory to be able to interact but not well controlled (does the user alway update the trustlines after each tx?).
The inter-gateway (interbank) transfers could cause dangerous system wide effects.
Lets think of an example:
A Ripple user could use Ripple and another exchange with very different prices for arbitrage. So he needs a trustline with at least the tx volume to the Ripple gateway exchange. The fact that there are real reasons why there is a price penalty at some exchanges (problems to get out the fiat like at MtGox, low volume, weak trust of exchanges in some countries with low legal environment, weak security or customer care,......) will be blurred behind the scenes (the exchanges negotiate inter-gateway transfers like interbanking).
That will cause some distorted balances. Say JustCoin (which has normally much lower volume and higher prices then MtGox) will hold a lot of these BTC or USD Vouchers (BTC or USD in ripple are not real, they are IOUs for that currency including the trust that some gateway will convert it back some day, just like fiat). Some day MtGox get hacked/shutdown/defaulted and simply disappears as possible gateway for liquidity for interbanking tx. What happenes to the other small gateways? Will they get desctructed by that major event like in the bank crisis the default of some big banks destroyed small ones?
What happendes to the trust lines many users has setup with MtGox to be able to do arbitrage trades? They will loose that amount (but not only the money they had "desposited" but the whole value of the trustline if they have forgotten to adjust it after every tx). There is no protection of the state for such events unlike the "100k at bank are safe" promise....(and we all pay pretty much for that insurance). Will then a FED step in as gateway to save the system if it had already reached a global system relevant size?
Another point is the "p2p" transfer between users directly. That sounds like cool p2p and a decentralized system. But if you look closer it turn out it is the same kind of a decentralized system like a money transfer from one users bank to the other users bank. The IOU (I owe you -> debt, fiat) is transferred but it has just some value if you trust a gateway (bank, FED,…). So you can make a tx directly but with a token controlled by a central instance. Its like you send a cheque or company voucher to a friend. Its even worse as you have to implicit trust that instance and as far I have seen (not sure with that) there is no automatic adoption to the min. amount of trust needed. That trust is the same you create when doing a deposit to a bank (when paying in 100 USD you trust the Bank for 100 USD). But here the trust/risk is implicit adopted with every tx. At the end your balance is the trust/risk. With Ripple I think you need to change that trust level after every tx (if you have deposited first 1000 USD, then widthdraw 900 you still have 1000 USD trust setup). But I have not looked that close to Ripple, so maybe I am wrong here.
And there a much more problems with Ripple, best explained at
http://ripplescam.org.
For me the Ripple system looks very similar to the our banking system, where we suffer from to strong interdependencies to some "too big to fail" companies and socialized losses (bailouts payed by the tax payers). Just to include crypto to that system seems for me more danger then benefit. If the bank lobby and state manage to hype Ripple as better BTC (just because it has crypto) it could become a real danger to the distribution of BTC.
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