Ripple: A Distributed Exchange for Bitcoin

[mmeijeri]

Also even if I have highly trusted BTC IOUs in Ripple and I want to buy something at Merchant-X I need to exchange these BTC IOUs to something this merchant accepts (e.g. Amazon-USD-IOUs), I can't buy directly. Maybe Ripple will do conversion at an integrated exchange module on the spot in the future?

The same is true of BTC. If you want to pay through Ripple with BTC IOUs, you can do so, provided the merchant accepts them. But if the merchant accepts BTC directly (and why wouldn't he if he does accept BTC IOUs?), you can simply transfer the BTCs from Ripple to your favourite wallet and bypass Ripple completely. To you Ripple would then simply be a distributed and more resilient Mt Gox, only used for exchanging between BTC and fiat currencies.

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[Ares]

One of the great advantages of Bitcoin is it's ability to send money to anyone anywhere with little to no cost.


Would ripple give this same benefit to fiat, thus making that aspect of Bitcoin no longer an advantage?

[Sage]

Ripple currently is not open source, and it's not truly decentralized yet.

[virtualmaster]

Ripple is very difficult to understand and therefore is difficult to argument against it.
But what I understood it is centralized and not open source.
Another problem is that it needs gateways like exchanges by bitcoin and actually there only one gateway.
Without gateways to fiat you cannot transfer fiat money just Ripple.
So the problem which exists by bitcoin with exchanges by Ripple is even worse at the moment it is just hidden by the complexity of the system which is difficult to understand.

[JoelKatz]

Ripple is very difficult to understand and therefore is difficult to argument against it.
But what I understood it is centralized and not open source.
Another problem is that it needs gateways like exchanges by bitcoin and actually there only one gateway.
Without gateways to fiat you cannot transfer fiat money just Ripple.
So the problem which exists by bitcoin with exchanges by Ripple is even worse at the moment it is just hidden by the complexity of the system which is difficult to understand.

This is pretty much all true. But none of these things are fundamental about Ripple. It's just the difference between where we are and where we are going. You basically just summarized our priority list right now.

[mmeijeri]

Ripple is very difficult to understand and therefore is difficult to argument against it.

Unfortunately, that much is true, for Ripple as well as for Bitcoin.

But what I understood it is centralized and not open source.

The architecture is decentralised, but there are only a few servers right now if I understand it correctly. There are instructions for the Ripple server (rippled) on the Ripple wiki, but I haven't been able to download any binaries. I'm not sure if they have been released yet, and I know the source code hasn't been. I imagine the binaries haven't been released yet because the system is still in flux.

Another problem is that it needs gateways like exchanges by bitcoin and actually there only one gateway.
Without gateways to fiat you cannot transfer fiat money just Ripple.

You can also "ripple" IOUs in any currency through your private trust network. Eventually gateways will become hubs that will connect everybody easily, but you can get started without them. It's a pity the existing gateways only accept IOUs for the USD and not for other real world currencies.

So the problem which exists by bitcoin with exchanges by Ripple is even worse at the moment it is just hidden by the complexity of the system which is difficult to understand.

As far as the mechanics of the payment system go it is better than Bitcoin, but it suffers from the same lack of adoption by real world merchant. However, I expect it to grow much more quickly since it can provide cheaper and more convenient payment services than traditional systems in any currency. The extreme volatility of BTC is a major impediment to its adoption as a payment system. Ripple allows you to avoid that risk by using fiat currencies. Adoption of XRP might also be easier because I've heard they are trying to stabilise the exchange rate, which they can do to a degree because they hold the bulk of all XRP that exist and because XRP reserves are needed to activate accounts and use their functionality.

But the killer app for Bitcoin users is as a decentralised exchange for BTC.

[notig]

i've read through the website and just have a couple questions... it says the fee will be a fraction of a ripple. It also says the fee will cost a fraction of a cent. Does that mean ripples will be worth about a cent each? Is that going to be deflationary since they are slowly destroyed? Will the fee to send in ripples ever adjust if the ripples themselves change in value?

[CasinoBit]

Seems to me they are riding one of the carts on the "decentralized" train uninvited.

What exactly makes them distributed besides them claims so a hundred times through the website?

[notig]

I see a fundamental flaw as the risk of people defaulting.  Its like Bitcoin but using IOU's, and we all know you don't have Bitcoins if someone says they owe you some; you have Bitcoins if they're sitting in your wallet.  They want you to only use trusted people of course, but this whole IOU system seems tough when you actually need to collect from someone.

Keep in mind that you are already using IOUs today. When you deposit money at MtGox, you get USD IOUs which are just an entry in their database. When you buy Bitcoins using the MtGox trading platform, you spend your USD IOUs and receive Bitcon IOUs which again are just entries in the MtGox database. It is only when you "settle", by requesting either that actual dollars or Bitcoins be sent to you from MtGox, that you have something tangible.

Ripple works exactly like this, except the IOUs are more explicit and they can be cryptographically stored, sent, and received in a safe and efficient fashion between any participants.

mr bigg I find that a pretty keen insightt. Weren't you originally a ripple hater?

[JoelKatz]

i've read through the website and just have a couple questions... it says the fee will be a fraction of a ripple. It also says the fee will cost a fraction of a cent. Does that mean ripples will be worth about a cent each? Is that going to be deflationary since they are slowly destroyed? Will the fee to send in ripples ever adjust if the ripples themselves change in value?

The transaction fee can be adjusted by consensus. We expect the fee to remain very low, but we can't tell you for sure any more than the Bitcoin developers can tell you what Bitcoin transaction fees will be in a decade.

What exactly makes them distributed besides them claims so a hundred times through the website?

Like Bitcoin, the design requires no central authorities other than possible coordinated failure scenarios or design improvements. The operating Ripple payment network is not distributed now, and we agree that it needs to be.

[mmeijeri]

The operating Ripple payment network is not distributed now, and we agree that it needs to be.

Aren't there 12 servers right now? But all owned by you and your gateway partners?

[JoelKatz]

The operating Ripple payment network is not distributed now, and we agree that it needs to be.

Aren't there 12 servers right now? But all owned by you and your gateway partners?

Right now, there are six servers run by Opencoin handling client requests, pathfinding, validating, and so on. Two gateways, I think, are also running their own servers to track the network. There are a collection of other servers run by various people for testing purposes. 12 servers is probably pretty close to the right figure. (Not counting test or isolated networks.)

[Sukrim]

Also even if I have highly trusted BTC IOUs in Ripple and I want to buy something at Merchant-X I need to exchange these BTC IOUs to something this merchant accepts (e.g. Amazon-USD-IOUs), I can't buy directly. Maybe Ripple will do conversion at an integrated exchange module on the spot in the future?

The same is true of BTC. If you want to pay through Ripple with BTC IOUs, you can do so, provided the merchant accepts them.

That's one of my main issues with ripple still:
There are no "BTC-IOUs"!
I can issue Sukrim-BTC on ripple right now without any issues. Even more than currently exist! In that regard ripple is far more decentralized than btc since there is not one central currency.
No sane merchant would accept my btc however, or if they did, they would immediately ask for settlement here and now.

The nice thing however is if I find somebody who for example exchanges up to 5 btc from anyone to 99 bit cents each in well trusted MtGox BTC, this person might make a profit, will still settle with me immediately and another link in the chain might exchange MtGox BTC to AmazonUSD which the merchant then gets in the end. I see problems with exchanging within the same currency based on trust (10 USD from my bank are worth more than 10 USD that you promise to send via mail) but if there are enough players, it should even out.

Still I fear that a central bank scenario with one or few highly trusted gateways for major currencies is one of the possible and maybe even likely endgame scenarios.

If people then don't settle immediately (e.g. payout fees and the gateway is highly trusted anyways) there's a higher and higher risk of catastrophes. Just imagine MtGox having a cypriotic instead of polish bank account right now. Also once you are highly trusted you can start to gradually discourage settlement by introducing fees, KYC policies etc.

All on all: the higher the trust, the lower the need for settlement or debts and the higher the risk. The lower the trust,the higher the need for settlements and still the higher the risk of getting money that can't be settled.

[mmeijeri]

That's one of my main issues with ripple still:
There are no "BTC-IOUs"!
I can issue Sukrim-BTC on ripple right now without any issues. Even more than currently exist! In that regard ripple is far more decentralized than btc since there is not one central currency.
No sane merchant would accept my btc however, or if they did, they would immediately ask for settlement here and now.

Sane merchants could easily accept Bitstamp-issued BTC IOUs. And private individuals could accept payments through their trust network.

Still I fear that a central bank scenario with one or few highly trusted gateways for major currencies is one of the possible and maybe even likely endgame scenarios.

Who knows, but in the meantime we'll still have a much better exchange for BTC than Mt Gox.

[virtualmaster]

Another problem is that it needs gateways like exchanges by bitcoin and actually there only one gateway.
Without gateways to fiat you cannot transfer fiat money just Ripple.

You can also "ripple" IOUs in any currency through your private trust network. Eventually gateways will become hubs that will connect everybody easily, but you can get started without them. It's a pity the existing gateways only accept IOUs for the USD and not for other real world currencies.

A virtual currency based on USD or EUR already exists. Liberty Reserve (USD and EUR) is easier than Ripple and it is also centralized but at least you don't need to install a closed source software where could be anything.
Ripple is an overkill for this purpose.
A total decentralized virtual USD could be constructed with the bitcoin technology with colored coins on the top of bitcoin or namecoin.

Thrust network:
If you thrust in somebody then why do you need Ripple to intermediate ? If you friend or your neighbor want to borrow 1.000 $ from you why would you need Ripple for it ?
A more complex thrust network for an organization or a religious group  can be built more reliable with colored coins on the bitcoin or namecoin network as stated above.

So the problem which exists by bitcoin with exchanges by Ripple is even worse at the moment it is just hidden by the complexity of the system which is difficult to understand.

As far as the mechanics of the payment system go it is better than Bitcoin, but it suffers from the same lack of adoption by real world merchant. However, I expect it to grow much more quickly since it can provide cheaper and more convenient payment services than traditional systems in any currency. The extreme volatility of BTC is a major impediment to its adoption as a payment system. Ripple allows you to avoid that risk by using fiat currencies. Adoption of XRP might also be easier because I've heard they are trying to stabilise the exchange rate, which they can do to a degree because they hold the bulk of all XRP that exist and because XRP reserves are needed to activate accounts and use their functionality.

But the killer app for Bitcoin users is as a decentralised exchange for BTC.

I am not sure if it would be more decentralized than a Liberty Reserve - Bitcoin exchange. As long as Ripple is controlled by somebody he can be forced to cooperate with the authorities.

[mmeijeri]

Thanks for mentioning Liberty Reserve, I hadn't heard of that before. I'm all for a Bitcoin-based alternative, all I'm trying to say is that we shouldn't shun Ripple. It would make a great alternative to Mt Gox.

[misterbigg]

mr bigg I find that a pretty keen insightt. Weren't you originally a ripple hater?

In a manner of speaking yes. This was my progression of emotion towards Ripple:

1. Denial: "This can't possibly work. Who needs it when we have Bitcoin?"

2. Anger: "These guys gave themselves all the coins! This is another pre-mine / ponzi scam."

3. Acceptance: "Ripple solves important problems, and is well designed."

I studied Ripple for a while and asked many questions. It is much more complex than Bitcoin, that is certain. But also holds the promise of doing much more. Ripple doesn't replace Bitcoin but rather, complements it. A lot of people making objections in this thread simply don't understand Ripple and haven't thought long enough about it to see the implications.

One of Ripple's prime advantages over Bitcoin is that the development of the software and promotion of the related gateway services is run by a for-profit company instead of a group of neckbeards. You might think this is a bad thing but actually, it aligns the financial interests with the interests of the users. There's a financial incentive to write clean software, document it extensively, and work on the features that users actually want. Compare this with Bitcoin: if a user wants a feature that the developers don't find exciting to work on, the usual answer is "you don't pay our salary, Bitcoin is Open Source, if you want that feature then write it yourself."

The OpenCoin team is already up to 20 people I think. They are all getting a salary, and there is a level of management which guides the development. They have actual deadlines, and investors to be held accountable to. Compare this with Bitcoin, which still hasn't had a 1.0 release in over four years. Unlike Bitcoin, the Ripple protocol specifications are being written at the same time that the code is being written. Ripple should not experience the problem that Bitcoin has, where the protocol specification is changed on a whim at the pleasure of a few developers who have commit access to the Github repository.

OpenCoin's primary stated means of generating revenue is to "hold XRPs and hope they go up in value." That means they have a financial interest in making XRPs useful, and keeping their value stable (to the extent that they are able to do so, which will be very limited once they are all given away and sold). People need not worry that the rippled software is not open source yet, it will definitely be open sourced some time this year. Because otherwise, XRPs will be essentially worthless since no one would trust a closed system.

Because OpenCoin needs Ripple to be successful in order for them to make money, they can do things that Bitcoin can't realistically do. Like hire a PR firm to brand the Ripple product and promote it to the masses in a commercialized way. Compare this with Bitcoin, which only recently underwent a revision to the main website. The attitude of the Bitcoin developers and principals is that they don't want Bitcoin to grow too fast, and that it is still experimental beta software. OpenCoin, on the other hand, is aggressively courting partners to make Ripple provide as much utility as possible in a short time.

I had the pleasure of going to the Ripple meetup in San Francisco in March. I met with David Schwartz (JoelKatz), Stefan, Jed, Arthur, and a few others. After talking to these guys, the impression is that they are smart. I found a group of friendly, motivated workers in their Mission District office with a bunch of computers at desks. They come in to work, there's whiteboards, and a lot of activity. It looks just like any other promising startup. There's a CEO, and they have an impressive panel of investors and backers. People who dismiss Ripple, do so at their own peril. OpenCoin has a lot of momentum, plenty of smart people, and a bulging war-chest of investment capital.

Ripple is already an impressive pieces of working software. You can go into your Ripple wallet right now and trade Bitcoins for US dollars, Euros, and XRPs, in the distributed order book. You can deposit and withdraw money at both Bitstamp and WeExchange. The Ripple beta solves the problem we recently experienced with the denial of service and MtGox lag. When Ripple opens its doors to the public, the first thing it will do is provide profoundly deep liquidity for Bitcoin. It will make the process of depositing money at an exchange a distributed process, since deposited funds can be used to purchase bitcoins in ANY order book not just one. Withdrawal of funds will be similarly distributed. If an exchange has a $10,000 monthly withdrawal limit you could just open an account at another exchange and withdraw from there as well. If MtGox can't verify users quickly enough, anyone could deposit money at a different Ripple-enabled exchange that has a smaller queue. In fairly short order, the fees exchanges charge for trades will be forced downwards due to the perfect competition that Ripple enables. Going beyond Bitcoin, Ripple will easily integrate into traditional payment networks like debit cards or checking accounts, allowing vendors to unknowingly accept Ripple payments through their already existing systems. Since Ripple IOUs correspond naturally to fiat currencies, these integrations will be far more convenient and functional than their Bitcoin counterparts.

Ripple is poised to be the next big thing during the crypto-currency revolution.

[Calavera]

Why could you not have released a version that doesn't partake in a consensus?  i.e. your server(s) don't have to pay attention to whatever other servers are out there just because they exist.

If we opt not to create a consensus with people, then we will be intentionally creating network splits. This would be irresponsible behavior that would be devastating to the reliability of the network. It would be like if Bitcoin had gone public before 21 million Bitcoins was established as the number of coints.

I don't think I agree with this.  You can't really stop specific computing power from taking part in building the BTC block chain, but Ripple is based on designated trust.  I'm not suggesting that you promote people actually running their own servers, but if they did then clients would be mad to trust them at this point and the whole system is based on people rationally assigning their trust.

Anyway, that's almost beside the point.  I really think you need to go through all the documentation and change "is open source" to "will be open source".  That's all that's required.  As things stand at the moment people are disappointed because they're reading one thing and finding out that it isn't true.

I've only started reading about ripple but my initial thoughts are that it won't gain any real traction as a community credit system, as people aren't going to want to hassle their friends for money when they weren't one of the end parties of the transfer.  I can see this being acceptable to a business with contracts in place but not socially.

I would have said the similar things about Facebook and texting. But I agree, social/community credit is not realistic in the short term.

Texting and interacting with their friends vs accruing debt?

That brings me to the other claim on your website: "free(ish)".  As Gateways and the intermediaries will be for-profit entities, I don't see how this will be free(ish) at all, even if the base XRP cost is near-free everybody else will charge money.  It will possibly be cheaper than other ways of sending money, but I don't even see how that's guaranteed.

It's not guaranteed. That's a forward looking statement. We expect transaction fees to be very low for the foreseeable future. And we expect that much of the time, once there's real liquidity in the network, you'll be able to do many things at no premium because you'll be helping people who want to move in the other direction. We're hopeful competition and volume will bring down the transfer fees. It doesn't cost a gateway anything to have its IOUs transferred, that's just a way to cover their costs. So more volume should bring that down.

This is similar to the open source thing.  I read your site and I see free(ish) and $0.0001 and 0.00001 XRP, "While Ripple does not charge a typical fee for profit", all of which sounds reasonable.  Then I start thinking about whether that's realistic and I notice an link called "Transit Fees" whereas we were talking about "Transaction Fees" before.  Now, everything on that Transit Fees page makes perfect sense, in fact it was exactly what I was trying to describe (and more, I didn't envision a Transfer fee), but it isn't free or free(ish).  It's simply more open which will hopefully result in it being cheaper than what we have at the moment.  However, again I feel like I was initially mislead into thinking there would only be Transaction Fees and had to dig further to find the truth.

Technical Q: It says the Transfer Fee will be stored in the addresses root node.  I haven't got that far into the ledger yet, but it seems important to me that this figure can never be changed once set.  Is that the implication?

Anyway, I'm starting to like Ripple a lot.   I think XRP is the weakest part of it though, at least with regards to XRP being a fully-fledged currency rather than just oil for the system.

[mmeijeri]

Well said.

You can go into your Ripple wallet right now and trade Bitcoins for US dollars, Euros, and XRPs, in the distributed order book.

There aren't any gateways that issue EUR IOUs yet, are there?

[virtualmaster]

Thanks for mentioning Liberty Reserve, I hadn't heard of that before. I'm all for a Bitcoin-based alternative, all I'm trying to say is that we shouldn't shun Ripple. It would make a great alternative to Mt Gox.

The intentions of Ripple could be great and I have nothing against it.
Once in the future could become a very good alternative to the actual exchange systems. Or not.
But what fact is that at the moment it cannot present a real alternative. All the dream-like properties are still wishes.
However if you don't try you never succeed. So keep on developing it.