How the Ripple payment network and XRP are different from Bitcoin

[alexkravets]

Thanks for posting this misterbigg !!!

You're welcome but was it really necessary to quote the entire post     

No it was not, but I am forum lurker not a frequent poster (until recently) so apologies for my lack of proper forum netiquette :-)

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[misterbigg]

I am forum lurker not a frequent poster (until recently) so apologies for my lack of proper forum netiquette :-)

It's not to late to "Edit post"

[alexkravets]

MisterBigg's big "revelation" post does clear up a lot of uncertainty and various suspicions of nefarious motives on the part of OpenCoin, Inc's founders, however there does remain one fly in the ripple ointment, so to speak.

I call it "Systemic Risk" or perhaps a better name would be "Flood Risk", i.e. the for whatever reason (divorce, lawsuit, law passed by some unnamed legislative body, kidnapping with torture, whatever)  

The retained 50% of XRPs under direct or indirect founder control are partially or fully flooded onto the network after the initial period of the giveaway AND after the network has grown to rely on a more or less stable equilibrium BTC/XRP and USD/XRP exchange rate (hopefully ?).

I believe it's possible to come up with a post giveaway distribution / sale strategy such that:

A. Flood Risk is eventually eliminated while
B. Eventual total financial gain by founders is maximized, and
C. Ripple's growth rate is not stifled by XRP's becoming too costly to open new accounts.


Here's a sketch of a proposal, let's call it OpenCoin, Inc.'s Sunset Schedule:

1. Large enough remaining portion of the 50% (but not necessarily all of it, let's say 48 to 49% of it) is put up as one giant moving bid wall where a huge amount of XPRs are offered for sale at a small enough price not to stifle the rate of growth of the network that has been observed until that moment.  
That growth could be measured in various ways: percentage of the total world-wide monetary base, or percentage of world-wide GDP transacted on the network, etc (this is where some professional economists could really help).

2. The wall will effectively create a gradually increasing ceiling on the price of XRPs but with the rate of the ceiling increase (or decrease ?) varying to allow total eventual realized gains from the sale of the remaining 48% to be maximized while not endangering the growth rate due to continual presence of the Flood Risk or due to price of XRPs rising too rapidly to where it inhibits adoption by new users relative to the currently prevalent consensus account funding requirement.

3. Eventually the Fort Knox of XRP (except for some residual "retained forever" part which is small enough not to worry about Flood Risk gets emptied of all XRPs, but by that point in time, the price of each XRP should be high enough to prevent any other entity ( including printing central banks !!! ) from being able to seize a large enough fraction of the total XRP money supply to corner the XRP market.
That price might take the XRP way, way beyond parity with USD, $1000 USD per XRP ? Who knows...

This type of schedule could be publicly pre-announced and committed to by OpenCoin, Inc and henceforth can be monitored by world financial press and blogosphere.


Comments, improvements, criticisms are all welcome.


Cheers ...

[sublime5447]

Set me straight If I am not understanding any of this.

I would love a video of exactly how ripple is intended to work. Though I would suspect it would be hard to create a video explaining that 4 guys are going to create a currency give 50 percent away then hold the other 50 percent in the hopes that it gains in value. Then convince people that they should use it and even though 50 percent of them were given away for free! and the other 50 percent are held by the 4 oligarchs of digital currency! that they are valuable! 
So basically you have designed what could become the worlds most centralized currency with 4 members issuing and controlling the distribution of said currency oh and you have this little problem too

* Since OpenCoin's business model is to "hold XRP and hope they appreciate", we know that no proposals for fully decentralized distribution (e.g. "proof of work") can possibly be taken seriously.

So we know that you cant be trusted because of the nature of your business model.

Does anyone else see this ending in a repeat of the facebook fiasco between these guys all four of them in court suing one another over who did what and who owns what?

Let me know if i am missing something.
   

[poly]

Set me straight If I am not understanding any of this.

I would love a video of exactly how ripple is intended to work. Though I would suspect it would be hard to create a video explaining that 4 guys are going to create a currency give 50 percent away then hold the other 50 percent in the hopes that it gains in value. Then convince people that they should use it and even though 50 percent of them were given away for free! and the other 50 percent are held by the 4 oligarchs of digital currency! that they are valuable! 
So basically you have designed what could become the worlds most centralized currency with 4 members issuing and controlling the distribution of said currency oh and you have this little problem too

* Since OpenCoin's business model is to "hold XRP and hope they appreciate", we know that no proposals for fully decentralized distribution (e.g. "proof of work") can possibly be taken seriously.

So we know that you cant be trusted because of the nature of your business model.

Does anyone else see this ending in a repeat of the facebook fiasco between these guys all four of them in court suing one another over who did what and who owns what?

Let me know if i am missing something.
   

This is the first time I actually agree with you, sublime.

[sublime5447]

I have seen you are ripping ripple a new asshole all over bitcoin forums. Communism huh? I see why you would say that. I dont like its structure and i dont see a mechanized release of the coins held my OpenCoin as a solution to the problem, it just cant be transparent enough for me. 

[sublime5447]

I mean dont get me wrong i sighed up for the free ripple give away and got my free ripples 

[Monster Tent]

I mean dont get me wrong i sighed up for the free ripple give away and got my free ripples 

lol

Paypal started by giving everyone $5 free credit.

[Deprived]

If you want to speculate on the future value of XRP: What is a reasonable price customers can be expected to pay to fund a new Ripple account? One dollar? 50 millibitcents? What?

Well that's already answered on the Ripple site.

They say the cost of a transaction is about $0.0001 - 1/100th of a cent.
And we know the default cost of a transaction is 0.00001 XRP 1/100,000th of an XRP

So if 1/100th of a cent is 1/100,000th of an XRP then 1 cent is 1/1000th of an XRP and an XRP is worth $10.

So the cost for a ripple account will be about $2k.  Either that or one of the ripple site (giving the cost per transaction in USD) or the ripple wiki (giving the cost in XRP) are wrong.  This seems surprisingly high to me.  But the cost per transaction can't really be much lower (in USD) and still deter spam - forwarding of 10,000 transactions for $1 isn't going to deter anyone who is making any profit from them (and those trying to just flood the network don't need to pay XRP to do it anyway ).

The obvious conclusion to me is that the default cost per transaction (in XRP) is set far too low in comparison to the account opening fee.  This leads to either the cost per transaction being too low to be any kind of deterrent OR (as is the case at present) the value of a new account being stupidly high.

Put another way, IF the value of XRP is such that their website's claim of 1/100th a cent per transaction is true (at the default fee of 0.00001 XRP) then the 40k ripple they give away in the freebie thread are worth $400k and everyone should be busy trying to buy forum accounts.

Or have I, somewhere, got my decimal places horribly wrong? Either I have - or OpenCoin has.

[Deprived]

If you want to speculate on the future value of XRP: What is a reasonable price customers can be expected to pay to fund a new Ripple account? One dollar? 50 millibitcents? What?

Well that's already answered on the Ripple site.

They say the cost of a transaction is about $0.0001 - 1/100th of a cent.
And we know the default cost of a transaction is 0.00001 XRP 1/100,000th of an XRP

So if 1/100th of a cent is 1/100,000th of an XRP then 1 cent is 1/1000th of an XRP and an XRP is worth $10.

So the cost for a ripple account will be about $2k.  Either that or one of the ripple site (giving the cost per transaction in USD) or the ripple wiki (giving the cost in XRP) are wrong.  This seems surprisingly high to me.  But the cost per transaction can't really be much lower (in USD) and still deter spam - forwarding of 10,000 transactions for $1 isn't going to deter anyone who is making any profit from them (and those trying to just flood the network don't need to pay XRP to do it anyway ).

The obvious conclusion to me is that the default cost per transaction (in XRP) is set far too low in comparison to the account opening fee.  This leads to either the cost per transaction being too low to be any kind of deterrent OR (as is the case at present) the value of a new account being stupidly high.

Put another way, IF the value of XRP is such that their website's claim of 1/100th a cent per transaction is true (at the default fee of 0.00001 XRP) then the 40k ripple they give away in the freebie thread are worth $400k and everyone should be busy trying to buy forum accounts.

Or have I, somewhere, got my decimal places horribly wrong? Either I have - or OpenCoin has.

Keep in mind that all these parameters will evolve an converge dynamically through gateway consensus, so not much to worry about here ...

True - we don't need to worry about getting any details right, as consensus can solve that later.

[Beepbop]

Once the reserve value comes down, the apparently high cost of having an account will be less, but consider that one person only needs to have one Ripple account in ones lifetime (plus any business accounts), while one would potentially conduct hundreds of thousands of transactions in ones lifetime. Now the transaction cost doesn't look so small next to having an account, does it?

Think of it like the early days of gMail right now, when you had to beg people for account referrals instead of just signing up.

How OpenCoin will monetize XRP

Vinnie:  ...What's the OpenCoin business model?
Jed:  ...we hold xrp and hopefully they gain value

They can't just sit around hoping. Then they would fail. The only sustainable way to make XRP worth something is that people use Ripple for actual IOU transactions, so they had better keep working to promote Ripple if they want that XRP to be worth something.

The other - unsustainable - way is that Bitcoiners speculate in XRP and nobody uses Ripple, but then the people who hold XRP also have an incentive to promote Ripple so that XRP becomes worth something to other people.

Just be aware that XRP in the end only is guaranteed to pay for Ripple services, and if Ripple fails it's worth 0.

* XRP is designed to function as a currency

The designers say so, and it can be used for buying and selling stuff in, but it's more like buying and selling in frequent flier miles or indeed non-denominated stamps. Look up Canadian Tire Money for example.

* XRP value is beyond a mere "stamp". People who believe they have trivial value because they are "just used to prevent spam" are misguided, and the founders have implied as such.

They are indeed like stamps, if you needed 200 stamps to have a mailbox. As the founders have indicated, they only prevent spam in the way that those who create useless transactions would have to pay the same transaction cost as those who conduct gainful transactions.

If people want to use their "mail service" to send bricks to themselves just for wasting resources, the transaction processors still get paid the same as if it was used to send gold or electronics. It brings up the transaction cost for those using the service for gainful transactions too, but that will only persist while the trolls are sending rocks in the mail. (Did you see my link about the whole building that was send by post in Utah?) But as long as the transaction processors get paid their market rates, they don't care if they're shipping rocks or ASICs.

* Since OpenCoin's business model is to "hold XRP and hope they appreciate", we know that no proposals for fully decentralized distribution (e.g. "proof of work") can possibly be taken seriously.

Agreed. XRP, rather than being a "proof of work" representing wasted electricity, are a "proof of work" representing both past work (that they made Ripple) and future work (will process your transactions in the future if Ripple still works). If people buy XRP to reward the Ripple creators, that's more like a donation or kickstarter, but if people buy XRP to use Ripple that's more like buying stamps or gift cards since they're redeemable for something.

Note that the users will still indirectly bear the cost of new account creation (and accompanying enrichment of the founders) through slightly higher prices passed on to them by merchants.

This is an astute observation. As people only need one Ripple account though, I think the reserve will need to come down after a while and merchants might just "give away" some XRP.

In the beginning, the trivial user of Ripple shouldn't have to even deal with XRP beyond the reserve - the payment gateways would be aquiring the required XRP (maybe with some special agreement with Ripple founders as you indicated) and just bake that transaction cost into the USD-denominated transaction costs that their customers see.

[comboy]

My 2 cents. The general idea is interesting (except no explicit protocol and sources still), but.. current price. People seem to ignore the fact that there's 100 billion XRP and only 21 million BTC (actually not even yet). So parity is not when 1XRP = 1BTC but when 5000XRP = 1BTC. And as I'm writing it, best bid is 24,000XRP per BTC, which could suggest it gained 1/6th of bitcoin price (popularity and usefullness). So early adopters may possibly be disappointed after 50 billions are actually given away. But that of course is just my personal speculation.

[markm]

Starting with account and trust-line reserves that are relatively high compared to the cost of a transaction could help people to retain a bunch of XRP even in the face of offers to buy them from them with bitcoins.

The lower these reserves the more of their free XRP people would be likely to sell. As it is now even if they only set up one account trusting only one gateway for one currency type, they nonetheless will have quite a lot of XRP left so at some point when reserves get lower - which they will have to do if RIpple succeeds - they will again have enough XRP to do lots of transactions.

Starting with lower reserves would likely have just caused people to part with more of their initial free allocation of XRP.

-MarkM-

[misterbigg]

The "ideal" distribution mechanism is where every human being on the planet is uniquely identified and has a Ripple account created with exactly the reserve requirement. This way every living person can participate in Ripple (maximum audience) and no one will be able to sell XRPs (since they don't have any above the reserve). This gives OpenCoin maximum control over the exchange rate of XRP. They can set the price of opening a new account with total precision.

[Beepbop]

If they could biometrically identify every account holder, they wouldn't need a reserve at all I think. I think the Reserve exists because they want to avoid one person holding hundreds of accounts and sending money between them to generate false trust records and overload the system.

Even with a reserve, it would make sense to give out a few freebie transactions so that new users were able to use the service. "First 10 rolls free" or something like that. But, you might ask, won't that just entice non-users to sell off all their XRP to those who want to use Ripple? Well, that would require the non-users to join and actually release the funds from their account, which means even if they might have started out intending to just sell off their XRP to the highest bidder or some conman who will fleece them with just 10% of market rates, they'll have signed up and know what Ripple is.

Some fraction of the XRP in the market would have been free ones, thus slightly reducing the market price of XRP sold by the founders, but this is simply a cost of marketing.

Indeed, giving new users something for free (if you're a Bitcoin fanatic think of it as a proof of work for signing up at all), is a pretty good marketing strategy if you can prevent it from being abused.

Biometric or other proof that you are one particular person is hard though, and even if it's done just one way with a hash, it would destroy anonymity in some circumstances.

[misterbigg]

Even with a reserve, it would make sense to give out a few freebie transactions so that new users were able to use the service. "First 10 rolls free" or something like that. But, you might ask, won't that just entice non-users to sell off all their XRP to those who want to use Ripple? Well, that would require the non-users to join and actually release the funds from their account

Actually, that's not possible. OpenCoin will probably hand out smaller and smaller amounts of XRP until they are giving out just barely enough to cover the reserve requirement (300 XRP currently, I believe). When someone gets these free XRPs they can't send them out of the account since they have no surplus above the reserve.

Biometric or other proof that you are one particular person is hard though, and even if it's done just one way with a hash, it would destroy anonymity in some circumstances.

Yeah, it was simply a thought experiment. I'm not suggesting that the biometric system is the way that it will be done, I'm just saying that in the best of all possible worlds if OpenCoin can figure out a way to give each unique individual exactly the reserve requirement worth of XRP that is the most optimum way to hand out the "freebies." It keeps XRPs as scarce as possible while still allowing the user base to grow as high as it needs to grow to meet demand.

[DPony13]

I'm trying the giveaway for a second time,

if it works, then it seriously will be over powered xD

[alexkravets]

Far far into the future, can XRPs become a world reserve currency ?

Seems like whatever currency is the unit of denomination of the deepest and most liquid capital markets ends up becoming the world reserve currency

http://tribune.com.pk/story/499408/pernicious-influence-the-world-reserve-currency--root-of-all-evil/

Can XRP trading against all the other IOUs inside ripple (national fiat, Bitcoin, etc) make it the most deep and liquid "meta-currency" ?

Time will tell ... but this outcome cannot be ruled out a priory for XRPs, but it CAN be ruled out for Bitcoin.  Bitcoin's p2p network limitations and slow confirmations inhibit the velocity of its secure flows, therefore in the long run it should not be able to replace USD as the "the intermediary" currency the way XRPs can.

Cheers ....

[Monster Tent]

Far far into the future, can XRPs become a world reserve currency ?

Seems like whatever currency is the unit of denomination of the deepest and most liquid capital markets ends up becoming the world reserve currency

http://tribune.com.pk/story/499408/pernicious-influence-the-world-reserve-currency--root-of-all-evil/

Can XRP trading against all the other IOUs inside ripple (national fiat, Bitcoin, etc) make it the most deep and liquid "meta-currency" ?

Time will tell ... but this outcome cannot be ruled out a priory for XRPs, but it CAN be ruled out for Bitcoin.  Bitcoin's p2p network limitations and slow confirmations inhibit the velocity of its secure flows, therefore in the long run it should not be able to replace USD as the "the intermediary" currency the way XRPs can.

Cheers ....

The world banks already have a ripple like system for transferring money around. Its called Fedwire.

http://en.wikipedia.org/wiki/Fedwire

 

[jtimon]

If they could biometrically identify every account holder, they wouldn't need a reserve at all I think. I think the Reserve exists because they want to avoid one person holding hundreds of accounts and sending money between them to generate false trust records and overload the system.

Reserves requirements exist because accounts, trust-lines and offers occupy space in the ledger (which all validators need to store).

Far far into the future, can XRPs become a world reserve currency ?

We need a free monetary market, not a world "reserve" currency.

Time will tell ... but this outcome cannot be ruled out a priory for XRPs, but it CAN be ruled out for Bitcoin.  Bitcoin's p2p network limitations and slow confirmations inhibit the velocity of its secure flows, therefore in the long run it should not be able to replace USD as the "the intermediary" currency the way XRPs can.

Many people claim that soon gold will be the world "reserve" again, taking the usd out of its current privileged position.
It will NOT be because gold is transferred faster than usd.