Ripple: A pre-mine? Does it matter?

[shamaniotastook]

I think we should also provide possible solutions and ask why they don't choose to do it.

For example, they could giveaway 99,9% of the XRPs. Why only 80%? And how can we prove that there are really doing that?

one simple question: does xrp have value or not? some say it's an anti-spam device, but others argue that such is not feasible unless the xrp has value, to which others again reply that xrp does have value, and on and on in circles...

either 1: if xrp is valueless, why even bother discussing this silly concept if there is no value
or 2: if xrp does have ANY value, then it's absolutely ludicrous to let even george washington or abraham lincoln themselves from being in charge of 'distributing' 80% (in a purely fair way, of course--as mark m will all too eagerly assure you), while retaining a whopping 20% for developers...absolutely insane...we'd hang a banker for that kind of talk!

[Zangelbert Bingledack]

^ Exactly.

OpenCoin's scheme boils down to one simple, logically irrefutable fact: either XRP have significant market value, or they do not. They can't have it both ways. It cannot be both a disincentive to spam and at the same time worthless. They cannot retain 20% to pay off their business costs if they are worthless.

The only possibilities are that the company and its paid shills are ignorant of basic economics and logic, or they are running a sophisticated "soft-scam" (not illegal, but designed primarily to make them money off the original Ripple idea they bought from Fugger).

[Zangelbert Bingledack]

http://www.reddit.com/r/Bitcoin/comments/19a1nj/introducing_ripple_a_detailed_look_at/

The end goal is nice, but starting with all the money in the company's hands and keeping "maybe" 20% (of the net worth of the whole world?!) to pay for their very closed-sounding development with undisclosed employee names and numbers, with the promise that the centralization is just there to kickstart things, after which the centralization will fall away...reminds me how Marx tried to sell Communism. "We need all the power now so that we can give it away equitably to everyone and the state will simply fall away."

It looks like a businessman took a look at Bitcoin's early adoption and decided he wanted a piece of that kind of massive price growth, asking, "How can we turn that into a business?" Well you have to centralize it, but sell it as a system that will "eventually" decentralize. You get other businesses in on it and pay off the bitcoiners to make them happy they have their cut, get prominent bitcoiners to support you and argue for you, maybe even arguing for changes that would help cripple Bitcoin, then you proceed.

Nice business model; terrible model for open-source spontaneous order. Or if not, worst PR ever. But the very fact that PR is relevant should be a giant red flag that this is primarily about making a profit off the cryptocurrency movement without understanding the fundamentals. What kind of asshole says they're going to have all the control because it's "simpler that way"?

This looks like some jaded Coca-Cola exec's idea of scooping up the latest trendy grassroots movement and shoehorning it into a business model, set up to secure their bottom line as first priority. "We start off with all the cash because hey, that's just the way it's setup. Nothing we can do about it."

EDIT: I want to make clear that the concept itself sounds fascinating and very useful, especially as a complement to Bitcoin, but it looks like it was co-opted into a traditional centralized business model.

[shamaniotastook]

http://www.reddit.com/r/Bitcoin/comments/19a1nj/introducing_ripple_a_detailed_look_at/

The end goal is nice, but starting with all the money in the company's hands and keeping "maybe" 20% (of the net worth of the whole world?!) to pay for their very closed-sounding development with undisclosed employee names and numbers, with the promise that the centralization is just there to kickstart things, after which the centralization will fall away...reminds me how Marx tried to sell Communism. "We need all the power now so that we can give it away equitably to everyone and the state will simply fall away."

It looks like a businessman took a look at Bitcoin's early adoption and decided he wanted a piece of that kind of massive price growth, asking, "How can we turn that into a business?" Well you have to centralize it, but sell it as a system that will "eventually" decentralize. You get other businesses in on it and pay off the bitcoiners to make them happy they have their cut, get prominent bitcoiners to support you and argue for you, maybe even arguing for changes that would help cripple Bitcoin, then you proceed.

Nice business model; terrible model for open-source spontaneous order. Or if not, worst PR ever. But the very fact that PR is relevant should be a giant red flag that this is primarily about making a profit off the cryptocurrency movement without understanding the fundamentals. What kind of asshole says they're going to have all the control because it's "simpler that way"?

This looks like some jaded Coca-Cola exec's idea of scooping up the latest trendy grassroots movement and shoehorning it into a business model, set up to secure their bottom line as first priority. "We start off with all the cash because hey, that's just the way it's setup. Nothing we can do about it."

EDIT: I want to make clear that the concept itself sounds fascinating and very useful, especially as a complement to Bitcoin, but it looks like it was co-opted into a traditional centralized business model.

+1 and can i get an amen?

[Zangelbert Bingledack]

Although the above problem is fatal for the legitimacy of OpenCoin's Ripple implementation and there's no need to go deeper, it gets even worse. The delusions about distributing the 80% of the market cap "fairly" - the part they AREN'T keeping for themselves -  are either the most naive central planning Soviet-era bullshit or - more likely - an opportunistic scheme for bribing bitcoiners and others who would otherwise object to what is, objectively viewed, an obvious pie-in-the-sky scam. I think the creators get this, but to them it's "just the way business works."

The XRP are refered to as an afterthought because they wanted to sneak in this little "worthless anti-spam token" to make sure they made the big bucks. Well they fucked up, the secret's out. The little "chits" took on a market value earlier than the schemers were expecting, so all plausible deniability is lost from here on.

The original Ripple will be a casualty, hopefully to rise again in proper form some day. It's really genius how they bought the idea from Fugger so they could use the name and website, so that anyone attacking this bastardized form of Ripple would be seen as attacking the original great idea that Ripple was. Imagine if someone had done this to Bitcoin? Messed with its structure so as to make it so there is no real choice but to default to giving all the coins to one group at the start. It'd have destroyed the project in its cradle. It would be unforgiveable.

[misterbigg]

It's really genius how they bought the idea from Fugger so they could use the name and website, so that anyone attacking this bastardized form of Ripple would be seen as attacking the original great idea that Ripple was.

Who is Fugger? I would like to learn more about the origins of Ripple and how the domain was transferred, can you provide references please?

[Zangelbert Bingledack]

Ryan Fugger, the original creator. http://news.ycombinator.com/item?id=5254737

.. group would like to take over the Ripple project and call their system "Ripple". They have offered me xx for this, which would give them ownership of all Ripple software I've written...[and] ripplepay.com domains... I could continue my work independently, but I would need to give it a different name.

Piggybacking on the name to buy the legitimacy that people had contributed in their comments about the old Ripple and earn the confidence of bitcoiners for this switcheroo'd version bastardized to suit their business needs rather than the open source community. Brilliantly executed, until these little play tokens started betraying the economic reality that scarcity + usefulness = value.  

[Zangelbert Bingledack]

Let me say, though, that I've been a little to quick to jump to conclusions attributing malice. It may just be that OpenCoin sees it as a win-win situation: they get to bootstrap Ripple into being quickly and equitably, while profiting handsomely for their service to the cmmunity.

I just don't think this can work, despite the best of intentions. Power corrupts even the best of people, does it not?

[ploum]

All boils down to one question: Why inventing "XRPs" while bitcoins would have been enough? What are the properties of XRP that Bitcoin doesn't have?

[jtimon]

Who is Fugger? I would like to learn more about the origins of Ripple and how the domain was transferred, can you provide references please?

The old wiki is still out there. IT has a link to the old mailing list too:

http://archive.ripple-project.org/

All boils down to one question: Why inventing "XRPs" while bitcoins would have been enough? What are the properties of XRP that Bitcoin doesn't have?

They're inside the ripple system. You can't use bitcoin for antispam within the ripple network because btc will always have an issuer in ripple and thus btc IOUs in ripple aren't fungible.

[markm]

The source code will supposedly become available at some point.

Maybe by that time we should have a distribution list or something ready so we can immediately make a new RIpple network, immediately distributing all of its Ripples "equitably" ?

-MarkM-

[duckbillp]

The source code will supposedly become available at some point.

Maybe by that time we should have a distribution list or something ready so we can immediately make a new RIpple network, immediately distributing all of its Ripples "equitably" ?

-MarkM-

Even so, the question of  how would probably swamp up any democratic efforts.

[markm]

Yeah but maybe we could at least get 100 or 1000 or whatever people who complain that the current system is not fair, give them each 1/100 or 1/1000 of all the Ripples in the new fairer one, and they can each distribute their portion in accordance with their proposed fairer method, so at least the fraction they get can be done fairly in accordance with their idea of what is fair.

There'd be lead-time, anyone who really thinks the current system is unfair could make sure to get onto the list of people who will be "fairly" doling out the new system's Ripples. Each of the proposed fairer systems would each have an equal fraction of the total to give out, though maybe they still might claim an equal share is not a fair share I suppose...

-MarkM-

[misterbigg]

The more I read, the more it seems like Ripple was designed from the ground up to enrich the authors. The shady way they bought the domain, code, and technical assets from the original author. The 100 billion XRP. The measured responses to the public regarding inquiries into the protocol.

But most importantly, the LACK of answers from JoelKatz when asked specific questions regarding the usage of XRP as currency.

[Ripple Labs]

Yes XRP is a currency and can be used as such.

Yes we will open source the ripple software. We understand that that is essential if the system is ever to gain adoption.

We are open to suggestions about how to distribute the coins. We are going to try to be as fair as possible but after the distribution will it really matter how we did it? A currency's distribution method doesn't really impact its usefulness.

[misterbigg]

Yes XRP is a currency and can be used as such.

Thank you for a straight answer. Now we can move forward honestly and state with no uncertainty that XRPs are a currency, with the founders acting as the centralized banking authority.

Yes we will open source the ripple software. We understand that that is essential if the system is ever to gain adoption.

I never doubted this. I do have some doubts about the technical aspects but my assumption is that these will be addressed in reasonable time with mathematical rigor. These issues are minor in comparison to the enormous pre-mine. At current valuation, the XRPs held in reserve by the authors are worth around $60,000,000 (sixty million USD).

We are going to try to be as fair as possible but after the distribution will it really matter how we did it? A currency's distribution method doesn't really impact its usefulness.

It absolutely does. Just look at every fiat currency. The currency distribution is controlled by the central bank. You're saying that the fiat money reserve system's centralized control doesn't impact it's usefulness? Of course it does. The problem with having one or more individuals with control over such a large fraction of the currency is that they can effectively set a ceiling on the price. It was stated in the wiki that one hundred billion XRP should be enough for "thousands of years" worth of transactions and account reserves.

It has been repeated often that the gateways can set the transaction fees. This is true up to a certain point. At 10 "drops" per transaction, the most they can lower the fees is by 90%. Further reduction in fees would then only be possible with a change in the protocol to add more decimal places to XRP units. If Ripple takes off, those who own the bulk of the XRPs can simply hoard them to drive up the price. This would put pressure on gateways to lower the transaction fees due to artificial scarcity of XRP. But the most they could lower the price is by a factor of 10. Once the controllers of the XRP hoard drive the gateway transaction fee down to 1 drop (the lowest it can be) they now have complete control over the price. Hoard, to make it go up, and sell to make it go down.

There is grave concern about the centralized control over the XRPs. This concern is legitimate.

We are open to suggestions about how to distribute the coins.

Unfortunately as you have pointed out, this is a difficult problem to solve. I do not believe it can be solved perfectly. Well, there is a dramatic solution:

Biometrics. Each individual is uniquely identified by a biometric marker (DNA or facial recognition?). Individuals would be eligible for a one time 1,000XRP distribution after providing biometrics at a physical redemption location. Their biometric information is hashed and stored in a database to prevent multiple distributions.

There's something else that OpenCoin can do:

Give away the entire undistributed balance of XRPs to one or more separate organizations not associated with the development of the Ripple software. Each organization can come up with its own rules for voting in its board members and distributing the XRPs. Here are some ideas:

- A "commerce board" with 13 council members that distributes a billion XRPs through votes.

- A "citizen board" that distributes a billion XRPs to individuals who display aged Bitcoin balances.

- A "public board" where anyone can join if they provide personal information (to prevent duplicates), and each person can nominate recipients for XRP grants and everyone can vote.

- Commercial entity like MtGox can transparently grant initial blocks of XRP to any of its account holders. Since people opening accounts on MtGox have to provide unique personal information the problem of duplicates and shills is avoided. This can be scaled to any traditional business that complies with AML.

- Commercial entities like MtGox can form an organization where they agree to share a database of hashed personal information on all their customers to reliably identify duplicates, this provides a fair path for giving out XRPs to people who already have opened accounts with companies that comply with "Know Your Customer" laws.

And so on and so forth. Each organization should be as public as possible. The greater the transparency, the more confidence will be inspired.

Taking some of distribution out of the hands of the founders and putting it into the hands of public people who have demonstrated wisdom, fairness, and intelligence would definitely help (although there's no perfect answer). How about Bitcoin foundation distributing some of the XRP? They could certainly keep some in reserve to fund their operations.

Now that we accept that XRPs are a form of currency and that there is a market for it, the most fair way I can think of to distribute them would be to divide the 100 billion hoard into one thousand equal portions, and give them to a thousand independent governing bodies so they can compete with each other, and let the market distribute them. This should keep the price from skyrocketing and also prevent any one person or group from controlling the market.

I think that to fund the development of the software it would be reasonable for the founders to hold some XRP in reserve. Five billion. The rest should be distributed in large blocks to independent third parties as soon as possible.

Politically separating the development of the software from the distribution of the XRPs seems the way to give Ripple the best chance of adoption.

[JoelKatz]

It has been repeated often that the gateways can set the transaction fees. This is true up to a certain point. At 10 "drops" per transaction, the most they can lower the fees is by 90%. Further reduction in fees would then only be possible with a change in the protocol to add more decimal places to XRP units. If Ripple takes off, those who own the bulk of the XRPs can simply hoard them to drive up the price. This would put pressure on gateways to lower the transaction fees due to artificial scarcity of XRP. But the most they could lower the price is by a factor of 10.

There is grave concern about the centralized control over the XRPs. This concern is legitimate.

I have to admit that this is a concern that never occurred to me. But it seems implausible in the extreme. There are a hundred billion XRP, or a hundred quadrillion drops. Let's say 1/10th of a penny per transaction is small enough that nobody need be concerned about it being a limiting factor. For one drop to be worth 1/10th of a penny, the total value of all XRP would have to be one trillion dollars.

If that ever did happen though, the divisibility of XRP could be changed by consensus. Alternatively, we could use a scheme where you prepay for a number of transactions and then can perform transactions without a fee until the account's "transaction credits" drop to zero. The number of transaction credits you got for one drop could be adjusted by consensus.

[misterbigg]

I have to admit that this is a concern that never occurred to me. But it seems implausible in the extreme. There are a hundred billion XRP, or a hundred quadrillion drops. Let's say 1/10th of a penny per transaction is small enough that nobody need be concerned about it being a limiting factor. For one drop to be worth 1/10th of a penny, the total value of all XRP would have to be one trillion dollars.

Your example is flawed. You say that the transaction fee will be only 1/10 of a penny. What happens if Ripple grows and new XRPs are not handed out in the system? The value of XRPs will go up without bound. Especially because, once an account is funded the XRPs are "locked in." From an analysis perspective they are effectively destroyed since they can't leave the account. That means that the rate of deflation is many orders of magnitude greater than the rate of XRP destruction due to transaction fees. "Implausible in the extreme" is only true if no one controls the bulk of the XRP supply.

If that ever did happen though, the divisibility of XRP could be changed by consensus. Alternatively, we could use a scheme where you prepay for a number of transactions and then can perform transactions without a fee until the account's "transaction credits" drop to zero.

I keep hearing about how easy it is to change the transaction fee through the consensus mechanism. But no one has explained exactly what criteria a gateway will use to determine if the fee needs to be adjusted. How do you implement these functions:

Code:

bool shouldTransactionFeesDecrease (NetworkState s);

For that matter, how do we implement this function:

Code:

bool isTransactionSpammy (Transaction t);

But I think this is a discussion best left in another thread. The bigger issue is the XRP distribution.

[JoelKatz]

Your example is flawed. You say that the transaction fee will be only 1/10 of a penny. What happens if Ripple grows and new XRPs are not handed out in the system? The value of XRPs will go up without bound. Especially because, once an account is funded the XRPs are "locked in." From an analysis perspective they are effectively destroyed since they can't leave the account. That means that the rate of deflation is many orders of magnitude greater than the rate of XRP destruction due to transaction fees. "Implausible in the extreme" is only true if no one controls the bulk of the XRP supply.

50 billion XRP will be given away by Opencoin. But it still doesn't matter. So long as there are enough XRP in circulation to perform transactions, XRP still won't limit the ability of people to perform transactions. Over a quadrillion drops have already been given away, and consensus can change the base transaction fee to less than a drop.

I keep hearing about how easy it is to change the transaction fee through the consensus mechanism. But no one has explained exactly what criteria a gateway will use to determine if the fee needs to be adjusted.

The primary criterion will be what they believe the transaction fee should be. The secondary criterion will be what they believe they can get a consensus on.

I believe I explained the mechanism in more detail in another thread, but here's a summary:

1) Validators add to specific validations an indicator of what they think the transaction fee should be.

2) Validators look at other validations to see whether there's a sufficient consensus for moving the transaction fee up or down.

3) Validators then add pseudo-transactions to change the fee.

4) If a pseudo-transaction gets voted into the consensus transaction set, fees change as of the next ledger.

A similar mechanism is used to make logic changes, except nodes won't themselves vote yes on a change unless they see it has a supermajority or if they are specifically configured to treat the change is urgent.

There is no specific check for spammy transactions. If it has the correct fee, it will be processed. If the network is overloaded, slow nodes will bow out of the consensus process and the transaction fee will rise to maintain stability.

[misterbigg]

Validators add to specific validations an indicator of what they think the transaction fee should be.

Right. We have good pseudo-code for "how" the fee is changed. But no examples for what criteria are used to calculate "what they think the transaction fee should be." For example, how does a gateway implement this function:

Code:

int desiredFeePerTransaction (NetworkState s);

Do they raise the fee if "too many" transactions go through? Or do they raise if a lot of spam is coming through? For that matter, how do you identify a transaction as spam? The rationale given for the necessity of XRP is that it is "to prevent spam." I agree that spam is an issue. The first thing I would want to do is create a thousand self issued currencies called "BIGDIK" with an incrementing numbed appended to the end. How do we prevent this? How does a gateway recognize this as spam? Is it a manual process performed by the gateway operator poring over server logs? Is there a community website that gateway operators visit to hear the latest and greatest on how to combat spam?

A lot of talk has been given on the consensus model and the need for XRPs to prevent spam but nothing has been said on the exact methodology that a gateway will use to determine what an appropriate transaction fee will be, or even if the fee needs to change.

There is no specific check for spammy transactions. If it has the correct fee, it will be processed. If the network is overloaded, slow nodes will bow out of the consensus process and the transaction fee will rise to maintain stability.

Are you saying that bandwidth is the sole criteria for determining the fees? I don't see how that prevents spam at all.