ClosedCoin: Why is OC's Ripple Closed-Source?

[CIYAM]

Although there has been a lot of fuss (and interest) from Bitcointalk I really don't see any *normal* people are going to be signing up to Ripple as it stands now.

It seems not much simpler to use than Bitcoin (which I think we all know is really only usable by nerds).

CIYAM Open is looking at Ripple closely but so far I don't see anyone that wants to be paid via Paypal changing to this (if you think that this isn't so then how about you get people from freelancer.com to work for it).

[Beepbop]

Regular users shouldn't be using Ripple as we've been using them on Bitcointalk though. The regular users should be trading IOUs with their friends, or buying gateway IOUs. They don't need to touch an XRP to do the latter - the cost of aquiring XRP would be part of the fees for the payment gateway. It would be up to the payment gateway to get the required XRPs on the open market, or by collecting XRP as fees themselves.

Everyone should be aware that XRP are merely future transaction fees in Ripple - that is their inherent value. You're welcome to use them to pay others, as you could pay somebody in frequent flier miles or McDonnalds vouchers, but rather than the counterparty risk you face that a gateway or friend won't give you your USDs, XRPs carries with them the risk of the entire Ripple system not being as popular as you think it will be.

[CIYAM]

Really - are you from Mars?

No regular person even just understood a word that you said - and *this* is the problem that it seems so many here just don't get.

Answer: unless Ripple can be understood by a *moron* it will be a failure (not necessarily to its founder who seems to be rather clever at making money).

[Zangelbert Bingledack]

If they succeed I'll be jealous that they are wealthy, but happy that Ripple exists. A company is entitled to as much profit as it can possibly get. The problem is that this is doomed to fail because people won't get on board with such a ridiculously unfair allocation. They're killing Ripple in the cradle in a misguided attempt to turn it into a business by taking advantage of the open-source cryptocurrency community. "Open" = open source, "Coin" is supposed to make you think of Bitcoin. It's ridiculously brazen.

But hey if they can get people to trust them by some super-PR then maybe they can bootstrap Ripple into existence. That would be wonderful. But this crew doesn't even seem to understand economics or even Bitcoin really, and the whole thing feels very opportunist and shady, so I am extremely skeptical they will get people to go along with it.

[misterbigg]

Everyone should be aware that XRP are merely future transaction fees in Ripple - that is their inherent value.

That you believe this is a testimony to how effective the OpenCoin FUD campaign has been in hoodwinking the public into believing that XRPs are not a currency.

As both me and others have explained (including the Ripple wiki) XRPs are quite suited to function as a currency. XRP are the only currency in Ripple that have no counterparty risk. I explain this in detail[/url].

XRPs carries with them the risk of the entire Ripple system not being as popular as you think it will be.

This is true. But if / when Ripple reaches critical mass then this systemic XRP risk will disappear, unjustly enriching the founders.

[HostFat]

This is true. But if / when Ripple reaches critical mass then this systemic XRP risk will disappear, unjustly enriching the founders.

LOL

[CIYAM]

Personally if the guys become billionaires I couldn't care less - the important thing is to create a system that *works* full stop.

(if it works and the freelancers will accept it then I will be using it)

[Zangelbert Bingledack]

It's not a matter of what is just or unjust to us. It's a matter of what the average person will think. If Satoshi had 10.5 million bitcoins and left miners to mine the rest (or worse, allocated them at his own discretion), do you realize how many people wouldn't dare touch Bitcoin? It would destroy its legitimacy. Sure, if it succeeded in spite of that, Satoshi would be the most powerful man in the world and it might be a great world, but the problem is getting there. People only invest in Bitcoin because they can believe in it. Why would anyone invest in Ripple, except a few people who will try any old cryptocoin for kicks or random growth possibilities?

[CIYAM]

It's not a matter of what is just or unjust to us. It's a matter of what the average person will think.

Finally - a nugget of gold!

[Beepbop]

No regular person even just understood a word that you said - and *this* is the problem that it seems so many here just don't get.

That post was meant for bitcointalk readers. A regular user would just see Ripple as this:
- Yet another - perhaps cheaper and easier - checkout option on a web store.
- A way to pay with an idirect IOU among friends of friends.

If the Ripple people can keep that the focus of their system, and leave worrying about XRP to the payment processors and nerdy users, then they might be on to something. Unfortunately, I think Bitcoin-like thinking might be Ripple's biggest problem. Too much focus on XRP in their wiki for example.

That you believe this is a testimony to how effective the OpenCoin FUD campaign has been in hoodwinking the public into believing that XRPs are not a currency.

As both me and others have explained (including the Ripple wiki) XRPs are quite suited to function as a currency. XRP are the only currency in Ripple that have no counterparty risk. I explain this in detail[/url].

That is a very insightful thread, IMO, but Ripple itself is the counterparty for XRP, and they don't have any obligation to give you USD or other currency for it - they only have a vague promise that you can use it to process transactions in the future. It's as if I issued IOUs for backrubs for the rest of my lifetime, or if the postal service issued 1st class air mail stamps that are good for all eternity (actually the Norwegian postal service does this - which might get interesting in 100 years).

XRPs are like the non-denominated 1st class stamps in Ripple. I like that analogy.

That some people prefer to hold XRP and do transactions in it right now is - I think - a result of this being introduced to Bitcoiners first. Bitcoin long position people tend to value worthless strings of bits over real money, but if Ripple gets moving and people who value IOUs for fiat (or gold, or whatever) from friends and reputable gateways, I think we'll move away from this initial dynamic.

This is true. But if / when Ripple reaches critical mass then this systemic XRP risk will disappear, unjustly enriching the founders.

If it succeeds, I think they deserve to be paid for that, but unlike the pre-mined Bitcoins,* which presume to represent the global value of all economy for all eternity, the purchasing power of all XRPs really just represents what Ripple will charge for their services. If they over-charge, some kind of competitor will be chosen by the market. And if they throw around those 1st class stamps too wildly, they might end up with a liability of unperformed transactions that somebody will cash in in the future.

Finally - a nugget of gold!

I agree 100%.
And
* To every new potential adopter of Bitcoin, the previously mined Bitcoins will seem just as bad as they were all premined by one person.
Ripple "pre-mining" XRPs, is just like the post office pre-printing stamps. It's Ripple's IOU to you, saying they owe you to process some transactions. A Bitcoin doesn't represent that anyone owes you anything.

[Zangelbert Bingledack]

That last statement doesn't jive with OpenCoin's claim that they will use XRP to pay their staff. If it were really only an IOU  from the company, you're saying that any gateway can also issue XRP?

[Beepbop]

Paying staff in XRP is almost exactly like paying them in stock options in their own company, or paying in company scrip. That's not strange at all.

Gateways will have to buy their XRPs, except for whatever the founders give the gateways as a gift. Of course gateways will pass on this cost to their customers, but this just means that the cost of being part of the Ripple network gets paid. It could also have been done by gateways paying license fees to be part of the network, or license fees for the software, but using XRP are an interesting way to solve it.

Maybe some of the founders are hoping that XRP will become the currency of the future and hoard it - but that would mean killing their company by pricing transactions to high.

[duckbillp]

Maybe some of the founders are hoping that XRP will become the currency of the future and hoard it - but that would mean killing their company by pricing transactions to high.

This seems to be nothing but speculation. There is no clear reason why transactions would be too high just because the owners kept all their XRP, unless you think that the rest (50 billion) would be consumed very quickly. If every transaction costs a thousandth of an XRP, there would be a total of 5 * 10^13 possible transactions even without the founders' XRP. Transactions would be expensive if the supply of XRP were scarce, but it wouldn't be scarce just because the founders kept half of the supply.

[misterbigg]

Maybe some of the founders are hoping that XRP will become the currency of the future and hoard it - but that would mean killing their company by pricing transactions to high.

This seems to be nothing but speculation.

The stated monetization strategy for the Ripple system is to hold some XRP and hope they increase in value. The optimal execution of this strategy is to balance the opposing goals of wide adoption versus XRP price maintenance. It is against their economic best interests to price transactions too high.

The easiest way to stabilize transaction cost is to use the hoard of XRP to fix the price relative to another currency (e.g. Bitcoin).

[duckbillp]

The stated monetization strategy for the Ripple system is to hold some XRP and hope they increase in value. The optimal execution of this strategy is to balance the opposing goals of wide adoption versus XRP price maintenance. It is against their economic best interests to price transactions too high.

Yes, quite right. And that monetization strategy is where this whole project is rotten. Even so, if they manage to keep a balanced transaction cost it may well succeed (~ make the founders extremely rich).

The easiest way to stabilize transaction cost is to use the hoard of XRP to fix the price relative to another currency (e.g. Bitcoin).

Keeping a currency's exchange rate fixed is not cheap, and considering that they're starting out with a hoard of XRP that's not worth much (for a currency), it would be hard to keep it up. Well, it depends on how quickly XRP are destroyed and bound to new accounts. Perhaps they could keep it up for a while.

[moocowpong1]

Maybe some of the founders are hoping that XRP will become the currency of the future and hoard it - but that would mean killing their company by pricing transactions to high.

This seems to be nothing but speculation.

The stated monetization strategy for the Ripple system is to hold some XRP and hope they increase in value. The optimal execution of this strategy is to balance the opposing goals of wide adoption versus XRP price maintenance. It is against their economic best interests to price transactions too high.

The easiest way to stabilize transaction cost is to use the hoard of XRP to fix the price relative to another currency (e.g. Bitcoin).

Do you really think the transaction cost has any risk of becoming "high" in the foreseeable future? And do you think price fixing is really easier than lowering the transaction cost by consensus? The XRP cost of a transaction is intentionally minuscule, because it isn't paying for anything. At $1000/XRP, the cost of a transaction would still be small.

[misterbigg]

Keeping a currency's exchange rate fixed is not cheap, and considering that they're starting out with a hoard of XRP that's not worth much (for a currency), it would be hard to keep it up.

If I believe this statement, then I must also believe that the numerous people who have invested 20+ man-years of development in the Ripple system did not think through their decision on how to monetize their invention and are taking an enormous risk that the entire effort will have been for nothing.

[misterbigg]

Do you really think the transaction cost has any risk of becoming "high" in the foreseeable future?

Nope, and transactions will probably never be "high" in cost. On the order of a penny or a couple of pennies.

On the other hand, the price for opening a new account (reserve of 200 XRP required) and creating / listing self issued currency pairs (50 XRP I believe) will be more substantial. It is not the cost of individual transactions that will make XRPs scarce but rather, the reserve requirements.

[duckbillp]

Keeping a currency's exchange rate fixed is not cheap, and considering that they're starting out with a hoard of XRP that's not worth much (for a currency), it would be hard to keep it up.

If I believe this statement, then I must also believe that the numerous people who have invested 20+ man-years of development in the Ripple system did not think through their decision on how to monetize their invention and are taking an enormous risk that the entire effort will have been for nothing.

But they don't have to keep the exchange rate fixed to some given currency, they will profit anyway as long as enough people start using Ripple. If the transaction costs are a major hurdle in getting people to start using Ripple then can push down the cost / spread out more XRP, but unless the major use of Ripple is to hold XRP as a store of value or make transactions in XRP, keeping the XRP rate fixed relative to some other currency shouldn't be all that important. Users won't want the transaction cost to fluctuate orders of magnitude overnight, but that goes for holders of any currency.

[misterbigg]

...If the transaction costs are a major hurdle in getting people to start using Ripple...Users won't want the transaction cost to fluctuate orders of magnitude overnight, but that goes for holders of any currency.

It is a very common misconception to view the marginal XRP costs of a transaction as important (right now transactions cost 10 XRP). The real cost is the cost of opening a new Ripple account, which is 200 XRP. This is orders of magnitude greater.

Transaction costs are not particularly relevant to average users. In fact, Ripple transaction costs are orders of magnitude less than even Bitcoin! I think it would really help clarify things if people just forgot about Ripple's transaction costs and focused on the bigger effect of how new accounts get funded with their 200 XRP allocation.