Ripple SOUNDS nice but there are some MAJOR problems

[JoelKatz]

Bitcoin doesn't allow people to pay each other in fiat currencies or across currencies.

Bitcoin payment processors and exchanges do though.

Right, but that only works if you want Bitcoin on one end of the transfer -- though you don't get instantaneous competitive exchange rates and you're reliant on a system that isn't open source, does have central authorities, can arbitrarily freeze your account, and so on. There's always a risk that the fiat ends of the transactions will be reversed, so you have to pay someone to take that risk. You also can only store value in Bitcoins, which is not such a bad idea right now, but it may not always be that way. If you use it for a cross-currency transaction (say dollars to Euros), you get hit with a commission on both exchanges too.

This conversation is making me uncomfortable because I feel like you're forcing me to unfairly criticize Bitcoin by unfairly criticizing Ripple. For Bitcoin to succeed and thrive, people need to accept Bitcoins as a means of exchange. Once Bitcoin inbound gateways are working, you'll be able to pay any merchant who takes fiat currencies in the Ripple system with Bitcoins, they'll get dollars in their account, and you'll get competitive exchange rates with no commission on the exchange.

[1715418541]

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[justusranvier]

This conversation is making me uncomfortable because I feel like you're forcing me to unfairly criticize Bitcoin by unfairly criticizing Ripple. For Bitcoin to succeed and thrive, people need to accept Bitcoins as a means of exchange. Once Bitcoin inbound gateways are working, you'll be able to pay any merchant who takes fiat currencies in the Ripple system with Bitcoins, they'll get dollars in their account, and you'll get competitive exchange rates with no commission on the exchange.

That's not my intention. I really just don't understand the benefits of Ripple if you're not focusing on the personal credit side. I can see applications for currency exchange if you focus on personal credit, if you can solve the bootstrapping problem, frankly because that can effectively bypass the regulatory barriers that hamper a the existing fiat-bitcoin interfaces. If you don't do that, I don't see how those same barriers won't just result in those companies either not using Ripple, or not using its full capabilities.

[JoelKatz]

I really just don't understand the benefits of Ripple if you're not focusing on the personal credit side.

Maybe try looking at it from a merchant's point of view. They pay 2% to take credit cards. That's equivalent to losing 7 days gross revenue a year.

I can see applications for currency exchange if you focus on personal credit, if you can solve the bootstrapping problem, frankly because that can effectively bypass the regulatory barriers that hamper a the existing fiat-bitcoin interfaces.

I don't see the connection you see between personal credit and exchanges. Perhaps you're not aware how complex, expensive, and slow cross-currency payments currently are. It's a huge real-world problem. There's a similar problem with remittances. Maybe you don't have any problems it solves, but there are plenty of people who do.

And, long term, I think personal credit may revolutionize money.

If you don't do that, I don't see how those same barriers won't just result in those companies either not using Ripple, or not using its full capabilities.

They don't have to use its full capabilities from the beginning. It just has to do something important better than they can currently get it done.

[rupy]

I get that bitcoin could profit from this but not how we're supposed to get XRP in the first place?!

Also, this consensus ledger thingy; I don't get that either. If you only use the latest hash of the total sum of ledgers, won't the system be weak to 51% attacks?

[JoelKatz]

I get that bitcoin could profit from this but not how we're supposed to get XRP in the first place?!

OpenCoin will be giving away at least half of the XRP as the system is deployed and scaled. For now, you can post your Ripple address on the Ripple forums, here, in #ripple on Freenode (I think it is) or any number of other places. There are a few people watching for them (I'm not one of them).

[rupy]

Then this sounds like more like a scam... so what happens when all billion XRP run out since thay are destroyed upon every transaction? Also how does giving free XRP prevent flooding the system with bogus 0.00000000000001XXX transactions?

[JoelKatz]

Then this sounds like more like a scam...

Why do you say that?

so what happens when all billion XRP run out since thay are destroyed upon every transaction?

That shouldn't be possible. Should XRP become scarcer, the XRP cost of a transaction can be reduced by consensus. If need be, the divisibility can be increased. (Currently, XRP are divisible into millionths called 'drops'.)

Also how does giving free XRP prevent flooding the system with bogus 0.00000000000001XXX transactions?

When the network is flooded, it raises transaction fees automatically. So anyone who wants to keep the network flooded will have to continue to supply greater amounts of ripples to do it.

Say the network can handle 50 transactions per second. And say you have a very important transaction that you need to get through. To lock you out of the system, an attacker would have to flood the network with 50 transactions per second, each consuming a transaction fee equal to the most you're willing to pay to get your transaction in. Essentially, Ripples serve as something scarce that can be used to auction off transaction slots when the network is busy, whether due to legitimate load or due to abuse.

[miscreanity]

Then this sounds like more like a scam... so what happens when all billion XRP run out since thay are destroyed upon every transaction? Also how does giving free XRP prevent flooding the system with bogus 0.00000000000001XXX transactions?

As XRP are destroyed, those remaining increase in value. That makes transactions cost less in terms of XRP. Like bitcoins, Ripples are infinitely divisible (theoretically, with protocol updates), so smaller and smaller fractions can be used indefinitely.

After initial distribution, market forces will determine the unit value. This will prevent excessive transaction dusting.

I may be mistaken.

[justusranvier]

I can see applications for currency exchange if you focus on personal credit, if you can solve the bootstrapping problem, frankly because that can effectively bypass the regulatory barriers that hamper a the existing fiat-bitcoin interfaces.

I don't see the connection you see between personal credit and exchanges. Perhaps you're not aware how complex, expensive, and slow cross-currency payments currently are. It's a huge real-world problem. There's a similar problem with remittances. Maybe you don't have any problems it solves, but there are plenty of people who do.

The connection is between decentralization and exchanges. Companies in the Bitcoin space aren't always allowed to provide services their customers want because of AML and similar restrictions make providing them uneconomical or illegal. Systems like localbitcoins.com aren't as hampered in some ways either because the transactions fall below legal thresholds or are so numerous and distributed that the regulations are impractical to enforce.

If the focus of Ripple is going to be on gateways instead of personal credit I don't see how you won't run into the same problem of transactions being technically possible, but legally blocked.

[JoelKatz]

If the focus of Ripple is going to be on gateways instead of personal credit I don't see how you won't run into the same problem of transactions being technically possible, but legally blocked.

The Ripple system's rules control the flow of IOUs. You don't have to extend trust to someone to take gateway IOUs from them. You can use gateway IOUs like Bitcoins, handing them around with no concern for the fact that the gateway has withdraw on demand agreements with some people. You can pretend the IOUs just have value because people value them. You don't have to extent trust to anyone but the gateway since you're only exchanging the gateway's IOUs.

Basically, a reliable gateway's USD IOUs act much like Bitcoins except they track the value of the dollar so long as the gateway remains reliable.

(A gateway has the option to restrict who can hold its IOUs to its customers. So you still might need to open an account with the gateway, choose a gateway that hasn't enabled this feature, or use an account "in front of" a gateway that offers 1-to-1 exchange for the gateway's IOUs. This only restricts who can *hold* the gateway's IOUs, it doesn't restrict who can use the gateway in a payment path.)

[Monster Tent]

 ripple seems to be a distributed Mt Gox where you dont have to send anyone your passport just to exchange one currency to another.

http://www.currencyfair.com/  is a site that seems to be a similar thing.

If you can exchange massive amounts of currency p2p without needing KYC or AML paperwork it could cause some interesting friction with governments because of "terrorism" and "money laundering" laws.

[markm]

Yes but if the government cannot trust someone to co-operate in curbing terrorism how comfortable will someone be in trusting that same someone with their money? I guess if you are part of the same bunch of terrorists, maybe, but what if your gang splits up on some ideological grounds leaving some of the "branches" or "gateways" that were part of your gang suddenly in effect a rival gang wanting to seize your money because you don't agree with their variation of your previously common ideology?

A lot of folks just won't trust terrorists, and thats okay, a lot of terrorists probably don't trust them either.

(Lets bear in mind too that some gangs some refer to or treat as governments, or are governed by, might well be terrorists, in at least some folks' eyes.)

-MarkM-

[rupy]

So when will ripple give away ripples? I mean when will the system be usable?

[sounds]

Ripple as a currency is doomed because it is just another fiat currency.

It may be an interesting experiment, but it won't last very long.

[jed]

Ripple as a currency is doomed because it is just another fiat currency.

It isn't anymore fiat than bitcoin is?

[Monster Tent]

Ripple as a currency is doomed because it is just another fiat currency.

It may be an interesting experiment, but it won't last very long.

There is nothing preventing anyone from using bitcoin as a fiat system. There is no way to be sure Mt Gox has full BTC reserves backing all the user balances. In the same way banks issuing paper backed by gold may not have all the gold sitting in the vault but instead will lend out 10 times their reserve.

[justusranvier]

There is no way to be sure Mt Gox has full BTC reserves backing all the user balances.

That's why I only hold bitcoins in addresses whose private key I control.

[misterbigg]

Despite the lack of rigorous papers regarding the Ripple protocol, or any sort of in-depth analysis about the properties of the system, the trusted nexus concept is the one thing that I can easily see having great value. It directly addresses the problem of a decentralized exchange.

Right now there's no reliable way to convert physical fiat (i.e. cash / paper bills) into Bitcoins except perhaps by going to localbitcoins.com or whatever. But Ripple offers the possibility to go into business as a one man local exchange. I certainly plan on doing this in my area (Los Angeles). In addition to fiat exchange, a nexus could also offer conversion to and from precious metals, bypassing the traditional financial system for such transactions.

If you try to go through customs with 250 ounces worth of gold coins, some men in suits with earpieces are probably going to ask you to come with them to a secured room. With Ripple, you could meet your local nexus guy and physically exchange your gold coins for Bitcoins. This is a really good way to do the transaction because no trust is involved. The nexus has the opportunity to observe the coins, and you can verify from your Bitcoin client that you received the payment. Then you take your international flight with no problem, Bitcoins safely stored in the brain wallet.

When you arrive at your destination you consult a local nexus dealer and convert the Bitcoins back into gold coins, without the requirement of trust.

This is just one of many use-case scenarios that the nexus concept enables.

[justusranvier]

Right now there's no reliable way to convert physical fiat (i.e. cash / paper bills) into Bitcoins except perhaps by going to localbitcoins.com or whatever. But Ripple offers the possibility to go into business as a one man local exchange. I certainly plan on doing this in my area (Los Angeles). In addition to fiat exchange, a nexus could also offer conversion to and from precious metals, bypassing the traditional financial system for such transactions.

If you try to go through customs with 250 ounces worth of gold coins, some men in suits with earpieces are probably going to ask you to come with them to a secured room. With Ripple, you could meet your local nexus guy and physically exchange your gold coins for Bitcoins. This is a really good way to do the transaction because no trust is involved. The nexus has the opportunity to observe the coins, and you can verify from your Bitcoin client that you received the payment. Then you take your international flight with no problem, Bitcoins safely stored in the brain wallet.

If I understand correctly that use case will only be practical with a dense web of trust, but that's not what they are going to focus on to start with. So that's why I'm confused, since they aren't going to start out with the most interesting feature.

[JoelKatz]

If I understand correctly that use case will only be practical with a dense web of trust, but that's not what they are going to focus on to start with. So that's why I'm confused, since they aren't going to start out with the most interesting feature.

A dense web of trust is only needed for credit. Otherwise, there just has to be at least one path with enough liquidity for any given transaction.

If you want to setup a local gateway to help your friends get cash into and out of the system, you can. Here's what you can do:

1) You set up your account to trust at least one gateway. Your friends pay you IOUs from any gateway you accept. You hand them cash.

2) Your friends set up their accounts to trust at least one gateway that you do business with. You pay your friends IOUs from any gateway they accept that you support.

The downside of this setup is that it doesn't allow you to grow into more of your own gateway, but it also doesn't require anyone to trust you. If you want more of a growth potential and think people would be willing to trust you, you can do this:

1) You set up your account to trust at least one gateway. You setup 1-to-1 offers between your own IOUs and IOUs at at least one gateway.

2) Your friends give you cash, you pay them with your own IOUs. You require them to trust either you or at least one gateway you support.

3) Your friends can pay you with either your own IOUs or IOUs from any gateway you support.

4) You try to encourage your friends to hold your IOUs rather than the IOUs of an other gateway. You can do this by keeping your transfer fees lower than that of other gateways. You can do this by convincing them that the risk that you, someone they know, will default is low. With your IOUs, they can costlessly switch to the IOUs of any gateway you support (so long as you aren't "out of stock").

You don't need a dense web of trust. All you need is every account to trust at least one major gateway and healthy paths between any two major gateways. And even if you don't have that, unless an account is an island, you'll almost always still be able to find a usable path.