Ripple XRP distribution requires immediate formalization

[nikb]

... forcing the community to use specifically XRP as a means of transaction capability is wrong.

As I've tried very hard to explain, it was mandated by technical reasons. We honestly didn't know any other way to do it. And, to this day, nobody has suggested any. I've explained why Bitcoins don't work, why proof of work doesn't work, why CAPTCHAs don't work, why some mechanism is needed, and why using XRP does work. Please, tell us what the alternative is. It must not require any central authorities once initial distribution is completed. And ideally, it would also be a way that makes it possible for us to make the system free to as many people as possible for as long as possible.

He's not going to answer - it's a hard problem with no good solution except for the approach you guys adopted.

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[bitbully]

Rather the opposite is true I have asked very specific policy questions to no avail. I understand this is all the beginning and maybe even ripple's founders don't really know what their plan is, but so long as the emperor wears no clothes I will be keen to point this out.

I and others have already made multiple suggestions, both for fair XRP distribution policy and non XRP solutions, and there are more to come so long as opencoin is open to change. Yes it is a hard problem, but there are always better solutions and hopefully this topic gains the importance it requires now as opposed to later when it is too late to change.

Let's start a community challenge to find a better solution, preferably with no XRP or currency dependence at all. I would like to start by suggesting to base a user's network priority around their ripple credit network "rating" combined with dynamic proof of work requirements.

[becoin]

A closely related problem is finding a way to move Bitcoins off the main block chain and into another system in such a way that they can be retrieved by their new owners in the Bitcoin block chain without a central authority.

Why do you need to move them off the main chain? Isn't it enough to mark them or color them?
https://bitcointalk.org/index.php?topic=106373.0

[JoelKatz]

A closely related problem is finding a way to move Bitcoins off the main block chain and into another system in such a way that they can be retrieved by their new owners in the Bitcoin block chain without a central authority.

Why do you need to move them off the main chain? Isn't it enough to mark them or color them?
https://bitcointalk.org/index.php?topic=106373.0

Without a central authority, who would control the keys needed to transfer the colored coins?

[becoin]

A closely related problem is finding a way to move Bitcoins off the main block chain and into another system in such a way that they can be retrieved by their new owners in the Bitcoin block chain without a central authority.

Why do you need to move them off the main chain? Isn't it enough to mark them or color them?
https://bitcointalk.org/index.php?topic=106373.0

Without a central authority, who would control the keys needed to transfer the colored coins?

The issuer of the colored bitcoins is in control of the initial offering and the final redemption. There is no central authority needed to transfer colored bitcoins. They are transfered in the same way the colorless bitcoins are transfered.

[JoelKatz]

The issuer of the colored bitcoins is in control of the initial offering and the final redemption. There is no central authority needed to transfer colored bitcoins. They are transfered in the same way the colorless bitcoins are transfered.

Then what does the coloring buy you? This is basically just identical to uncolored Bitcoins. Remember, the ideas was to avoid having to trade on the Bitcoin blockchain.

[becoin]

The issuer of the colored bitcoins is in control of the initial offering and the final redemption. There is no central authority needed to transfer colored bitcoins. They are transfered in the same way the colorless bitcoins are transfered.

Then what does the coloring buy you? This is basically just identical to uncolored Bitcoins. Remember, the ideas was to avoid having to trade on the Bitcoin blockchain.

You don't trade on the block chain!

I'll just re-quote:

By the original design bitcoins are fungible, acting as a neutral medium of exchange. However, by carefully tracking the origin of a given bitcoin, it is possible to “color” a set of coins to distinguish it from the rest. These coins can then have special properties supported by either an issuing agent or a Schelling point, and have value independent of the face value of the underlying bitcoins. Such colored bitcoins can be used for alternative currencies, commodity certificates, smart property, and other financial instruments such as stocks and bonds.

[JoelKatz]

You don't trade on the block chain!

You have to. If you don't trade on the block chain, then the original offeror retains control over the asset, defeating the entire point.

I'll just re-quote:

By the original design bitcoins are fungible, acting as a neutral medium of exchange. However, by carefully tracking the origin of a given bitcoin, it is possible to “color” a set of coins to distinguish it from the rest. These coins can then have special properties supported by either an issuing agent or a Schelling point, and have value independent of the face value of the underlying bitcoins. Such colored bitcoins can be used for alternative currencies, commodity certificates, smart property, and other financial instruments such as stocks and bonds.

Right, but all of this either requires a central authority or trading on the bitcoin block chain. I don't see how this allows you to trade off the blockchain without a central authority. And the proof is this simple: The offeror always retains control over the colored coins unless you trade on the blockchain. So you either need to trade on the blockchain or you need some central authority to decide which offerors can be trusted. (Otherwise, you just wind up with the same solution Ripple has -- each user decides for themselves which offerors to trust, Bitcoins aren't fungible, and you have to find a payment path.)

How does colored coins help? I don't get it.

[becoin]

Right, but all of this either requires a central authority or trading on the bitcoin block chain. I don't see how this allows you to trade off the blockchain without a central authority.

I may not understand what do you mean by "trading on the block chain" but if I understand it right then you may not be aware of what does coloring really mean?

Colored bitcoins can be transfered between different owners just like ordinary bitcoins. There is no need for a central authority to keep transaction records. To check whether a transaction or transaction output is of color RED we need just to find whether we can trace it back to the genesis transaction (the IPO of the issuer). Transaction is of color RED if all of its inputs come from transactions of color RED. Bitcoins of color RED will turn into ordinary bitcoins if they are mixed with anything but color RED.

https://bitcointalk.org/index.php?topic=106449.0
https://bitcointalk.org/index.php?topic=114571.0

[JoelKatz]

Right, but all of this either requires a central authority or trading on the bitcoin block chain. I don't see how this allows you to trade off the blockchain without a central authority.

I may not understand what do you mean by "trading on the block chain"

By trading on the block chain I mean that to transfer an asset, you must perform an operation on the Bitcoin block chain. That's what we want to avoid because it requires access to a Bitcoin server, takes many tens of minutes for confirmations, requires some authority to hold the keys for the Bitcoin transactions, and so on.

but if I understand it right then you may not be aware of what does coloring really mean?

Colored bitcoins can be transfered between different owners just like ordinary bitcoins. There is no need for a central authority to keep transaction records. To check whether a transaction or transaction output is of color RED we need just to find whether we can trace it back to the genesis transaction (the IPO of the issuer). Transaction is of color RED if all of its inputs come from transactions of color RED. Bitcoins of color RED will turn into ordinary bitcoins if they are mixed with anything but color RED.

https://bitcointalk.org/index.php?topic=106449.0
https://bitcointalk.org/index.php?topic=114571.0

That doesn't help you. You still have to trade on the blockchain. The point was to make it possible to trade bitcoins off the blockchain.

To think about the problem another way, try it like this: Suppose I want to "deposit" namecoins into the Bitcoin blockchain, trade them around with Bitcoin transactions, and then let their final owners "withdraw" them from the Bitcoin blockchain back into namecoins. How can I do that? (And the short answer is, without a central authority or everyone deciding who to trust to hold the namecoin keys for themselves and making them non-fungible, you can't so far as we know.)

[becoin]

That's what we want to avoid because it requires access to a Bitcoin server, takes many tens of minutes for confirmations, requires some authority to hold the keys for the Bitcoin transactions, and so on.

But you are not dealing in bitcoins! In Ripple your transactions are in bitcoin tokens (bitcoin IOUs). Bitcoin IOUs require a central authority to issue them. Why transferring bitcoin IOUs should be any different from transferring USD IOUs or EUR IOUs issued by one and the same ripple gateway?

To think about the problem another way, try it like this: Suppose I want to "deposit" namecoins into the Bitcoin blockchain, trade them around with Bitcoin transactions, and then let their final owners "withdraw" them from the Bitcoin blockchain back into namecoins. How can I do that?

I'm not sure why would you need this in Ripple@ But as far as I know there is only one solution to this problem - the blind signatures proposed by Open Transaction. You might need to look at the OT server cash-only mode!

That may help as well:
http://wbl.github.com/bitcoinanon.pdf

[JoelKatz]

But you are not dealing in bitcoins! In Ripple your transactions are in bitcoin tokens (bitcoin IOUs). Bitcoin IOUs require a central authority to issue them. Why transferring bitcoin IOUs should be any different from transferring USD IOUs or EUR IOUs issued by one and the same ripple gateway?

This is the problem we are trying to solve. We're trying to make them different ... better. Bitcoins have different properties from USD -- they can be electronically transferred on the Bitcoin blockchain without anyone having to hold them. The idea is to take advantage of that ... somehow.

For example, say we want Bitcoin to better support nanotransactions. We could withdraw bitcoins from the block chain into a system optimized for microtransactions. Then, when we had a balance we wanted to cash out, we could withdraw back to the bitcoin block chain. The same thing could be done for faster confirmations. However, for this to work, we either have to have a central authority who holds the keys or we have to each pick our own issuer as Ripple does. The question is ... is there a better way?

I can prove it can be done, so it's not impossible. But my proof is a scheme that's not practical.

I'm not sure why would you need this in Ripple@ But as far as I know there is only one solution to this problem - the blind signatures proposed by Open Transaction. You might need to look at the OT server cash-only mode!

That may help as well:
http://wbl.github.com/bitcoinanon.pdf

This doesn't solve the problem either. It still makes it so that one and only one entity can transfer any particular asset. This means that either that entity has to be a central authority everyone trusts or different people pick their own and the assets aren't fungible.

[becoin]

This doesn't solve the problem either. It still makes it so that one and only one entity can transfer any particular asset.

No. Alice withdraws the asset from the Issuer X. She transfers this assets to Bob by signing it with a blind signature. Bob is transferring this assets to Carol by doing the same. Carol transfers it to David. David deposits this assets to Issuer X. Thus Issuer X knows only the withdrawing and the depositing parties - Alice and David. They know nothing about Bob and Carol or how many people were in the chain between Alice and David. This is why it is called cash-only mode in OT server.

[becoin]

For example, say we want Bitcoin to better support nanotransactions. We could withdraw bitcoins from the block chain into a system optimized for microtransactions. Then, when we had a balance we wanted to cash out, we could withdraw back to the bitcoin block chain. The same thing could be done for faster confirmations. However, for this to work, we either have to have a central authority who holds the keys or we have to each pick our own issuer as Ripple does. The question is ... is there a better way?

This is too ambitious. I'm afraid I have to better understand and figure out what you're really trying to achieve? Time to take a walk in the mountain.

[Sunny King]

Guys please stop pitching your 'solution' which requires complete teardown of the current ripple design.

You are missing the little fact that they probably already threw a million dollars on this project, risk has been taken there is no turning back now.

I can attest to the intelligence behind the project even though I think it may have some points of fragility to deal with in the system but they should have a reasonable chance with this design.

If you are truly unhappy about the 50 billion XRP in their hands you are free to fork/copy their system once it's open sourced  

[Meni Rosenfeld]

A few comments...

XRP as a currency.

XRP are not "just" what you use to send Ripple transactions. They are also the only thing you can hold in Ripple which is not an IOU. I think XRP will most definitely be a currency, with a non-negligible total market cap which floats against other currencies. And to understand why you need to look no further than why Bitcoin is/will be a valuable currency.

Bitcoins are valuable because they are in use, and they are in use because they are scarce, durable, portable, fungible and divisible; that is, a good currency. So are Ripple credits:

Scarce - There's an upper bound of 100B XRP.
Durable - You can store credits as private keys, back them up and encrypt them.
Portable - You can send them easily anywhere using the Ripple system.
Fungible - I don't know enough about Ripple but I'll guess all credits are the same.
Divisible - There are a total of 100 quadrillion drops in the system.

XRPs have all it takes to become a good currency, and I believe it will be used as such. A currency also needs to be current, and here psychological factors play a large role - the fact that many of the early adopters don't perceive it as a currency might slow down the process, but it won't stop it.

The fact that, in addition, XRP are what you use to send transactions in Ripple, will help them gain value as Ripple becomes in greater demand.

OpenCoin distribution model.

That said, there are issues with the distribution model that will either:
1. Enrich the creators above and beyond their fair share for their contribution, or
2. Slow down the adoption as a currency, as people are wary of #1.

In Bitcoin, the distribution model was democratic from the start. Anyone who would listen was able to take a part in the distribution and be equal to the creator and everyone else. Distribution is based on computational work which is measurable and unfakable. People have profited purely based on their belief in Bitcoin and their foresight to understand it. Knowing this is what gives me the power to overcome my envy for those who came before me.

But with Ripple, the creators get all the credits to begin with (some personally, some as part of OpenCoin). This means that the "creators are enriched by people using the system" factor is much more pronounced.

As far as OpenCoin's distribution plan - the fact that they have a plan, that is, that a centralized body is deciding where the credits should initially go to, is a problem in itself for a decentralized system. Also, I doubt a good plan can be come up with.

It will also be difficult for OpenCoin to prove they're not faking anything and "distributing" the credits back to themselves.

I don't think you can do much better than proof of work. You can use consensus for transaction synchronization, and a Bitcoinesque inflation schedule and PoW-based distribution (it would be like mining blocks without any transactions). If it was this way from the start Ripple could have truly been said to be decentralized.

I think that when they "run out of ripples" the price will start floating and if it just so happens their "friends" bought 50 billion then xrp becomes a manipulable and valuable asset.

I don't really care about what will happen to network after the point when I sold my XRP 100B holdings. Maybe I will start another one.

That's good for you, but if I'm going to use the system, I do care what will happen to it after the flood. That's the point - with all due respect to the founders' business model, we are questioning the ability of this system to act in a sustainable, decentralized way.

[bitbully]

+1 Meni

[becoin]

XRPs have all it takes to become a good currency

So is the dollar, the euro, the pound, the yen. Well, until the moment when the corresponding central authorities decided to print new trillions of these "good" currencies. How is XRP different? Oh, the central authority promised not to print more than 100 billion? Is that what makes XRP a good currency?

Transaction fees have to be paid either in BTC or Ripple IOUs (as per BTC/IOU exchange rate). Introducing XRP is what will kill the whole idea of Ripple. XRP is just another private currency like AmazonCoin!

[Meni Rosenfeld]

XRPs have all it takes to become a good currency

So is the dollar, the euro, the pound, the yen. Well, until the moment when the corresponding central authorities decided to print new trillions of these "good" currencies. How is XRP different? Oh, the central authority promised not to print more than 100 billion? Is that what makes XRP a good currency?

Um, no.

Dollars are not scarce, the Federal reserve can print as much as it wants. (OpenCoin didn't "promise" not to print more, it is impossible by protocol)
Dollars are not durable, they can be easily lost and stolen.
Dollars are not portable, they need to be physically carried around, and in large quantities have significant physical volume and mass. (I'm assuming physical notes, if you consider bank balances as dollars they are slightly more portable but less scarce and durable.)
Dollars are not as divisible as Bitcoin / Ripple credits.

[becoin]

XRPs have all it takes to become a good currency

So is the dollar, the euro, the pound, the yen. Well, until the moment when the corresponding central authorities decided to print new trillions of these "good" currencies. How is XRP different? Oh, the central authority promised not to print more than 100 billion? Is that what makes XRP a good currency?

Um, no.

Are you sure? Think about "Print" not as a printing press but about the "Print' button on you keyboard!