Ripple or Bitcoin

[SamS]

Another ripple thread in the wrong forum?

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[mmeijeri]

If nobody trusts nobody except for the gateways, Ripple would be a centraliazed financial manager of funds in different gateways.

Not centralised at all, much more distributed than Mt Gox, though less distributed than Bitcoin. Not at all a problem if you either want to buy or sell BTC with fiat. And if you use XRP as a currency, then it is just as distributed as Bitcoin.

But if i trust any user, even if he is my dad, then I am at risk of belonging to an endless truted pathways network, just by my dad setting a trustline with a friend of him.

What risk are you afraid of? The only counterparty risk you would be exposed to would be with your dad.

So, the question remains: why the hell would someone grant trust to a common user? To avoid paynig 0.00001 XRP or save some IOUs tranfer fees?

For reciprocal access to each other's network, in order to make discreet payments.

[misterbigg]

I dont understand why users would trust each others in the ripple network. The confusion is all about that....So, the question remains: why the hell would someone grant trust to a common user? To avoid paynig 0.00001 XRP or save some IOUs tranfer fees?

I agree. I never thought that the peer to peer model of self-issued credit would be workable (although I could be wrong).

I call people who cling to this idea "community credit fetishists." It's a nice idea in theory but it seems to have practical problems.

[SamS]

I dont understand why users would trust each others in the ripple network. The confusion is all about that....So, the question remains: why the hell would someone grant trust to a common user? To avoid paynig 0.00001 XRP or save some IOUs tranfer fees?

I agree. I never thought that the peer to peer model of self-issued credit would be workable (although I could be wrong).

I call people who cling to this idea "community credit fetishists." It's a nice idea in theory but it seems to have practical problems.

I quite agree with that point. So, does the whole crypto-currency idea -- forget Bitcoin and Ripple for a moment -- ultimately resolve back to a decentralized system where large players occupy the Crypto/Fiat interface because there are a) controls on them and b) they have an incentive to provide the service as they "make bank" providing FX services? If so, then other than the transaction fee issue, how is a crypto-currency really all that useful as a payment processing solution? Forget the anonymity idea as any large scale Crypto/Fiat node is going to be regulated...

[timeofmind]

So ultimately, all ripple is good for is a method to link the exchanges with one another?

There seems to be a consensus here that people will only be linked to gateways through IOUs.

There seems to be a consensus that the only gateways will be managed by reputable organizations, basically operating as exchanges.

So ultimately, if all the existing exchanges now, were to link with one another though an agreed upon api in order to allow all the members on every exchange to be able to trade with one another... we would have a ripple alternative?

Am I missing something here?

[timeofmind]

The thing is, this ripple trust network, relies on trust between the central players. So these gateways/exchanges will have to trust one another, right? Are bitcoin exchanges that trust-worthy now? Do you think Mt. Gox would be willing to trust other newer exchanges? and to accept bid/ask calls from those exchanges, as well as fulfillment from those exchanges? Why would an established player expose itself to this kind of risk?

Am I accurate in describing ripple as basically a network to connect all the major exchanges? What motivation is there for these exchanges to want to connect with one another?

[SamS]

So ultimately, all ripple is good for is a method to link the exchanges with one another?

There seems to be a consensus here that people will only be linked to gateways through IOUs.

There seems to be a consensus that the only gateways will be managed by reputable organizations, basically operating as exchanges.

So ultimately, if all the existing exchanges now, were to link with one another though an agreed upon api in order to allow all the members on every exchange to be able to trade with one another... we would have a ripple alternative?

Am I missing something here?

Beats me. I'm still trying to understand how Ripple is different than the current system to be honest -- other than the claim that it is one protocol where many exist now.

[mmeijeri]

The thing is, this ripple trust network, relies on trust between the central players. So these gateways/exchanges will have to trust one another, right?

There's no reason why gateways must trust each other. In order to function they need to be trusted by others, they don't have to trust anyone themselves. That said, it's possible gateways will accept IOUs issued by some of their larger and more reliable competitors, possibly at less than face value.

Am I accurate in describing ripple as basically a network to connect all the major exchanges?

Note that gateways and exchanges aren't the same thing, though a gateway could easily choose to be an exchange and vice versa. Ripple isn't really a network to connect either exchanges or gateways. It serves as a distributed exchange all by itself, and the gateways serve to connect the other nodes in the network, the network doesn't serve to connect the gateways.

[Mitzplik]

So ultimately, all ripple is good for is a method to link the exchanges with one another?

There seems to be a consensus here that people will only be linked to gateways through IOUs.

There seems to be a consensus that the only gateways will be managed by reputable organizations, basically operating as exchanges.

So ultimately, if all the existing exchanges now, were to link with one another though an agreed upon api in order to allow all the members on every exchange to be able to trade with one another... we would have a ripple alternative?

Am I missing something here?

I disagree. In ripple you dont link exchanges, you link people who is linked to an exchange (gateway). But the gateways cant be linked to one another because the risk would be huge, and this gateway would be untrustworthy, and more vulnerable (as far as i can see).
I would think gateways are like banks today, and ripple would be a client in which you could access different banks, trade, see statements, send money (for people in the same gateway/bank).

[timeofmind]

Note that gateways and exchanges aren't the same thing, though a gateway could easily choose to be an exchange and vice versa. Ripple isn't really a network to connect either exchanges or gateways. It serves as a distributed exchange all by itself, and the gateways serve to connect the other nodes in the network, the network doesn't serve to connect the gateways.

Of course a gateway is the same as an exchange... What on earth would you use a gateway for other than to exchange your money for another currency? OK, sure, you just want to send dollars to someone, so you go to "gateway"... the gateway exchanges the dollars to some electronic currency... the recipient collects in dollars at some gateway close to them.... the money is being "exchanged". Every gateway is definitely an "exchange".

I disagree. In ripple you dont link exchanges, you link people who is linked to an exchange (gateway). But the gateways cant be linked to one another because the risk would be huge, and this gateway would be untrustworthy, and more vulnerable (as far as i can see).

My argument for ripple being delegated as a network to link exchanges, is because there already seems to be a consensus here that people will not trust one another enough to link to one another. So which is it? Will this be a giant network of people linked to one another through IOU's? Or will it be a network of "gateways" linked to one another through IOU's and people only linking directly to individual "gateways"? Which one is the expected topology here? You have to have one or the other, otherwise ripple will be worthless, as there will be not enough IOU links to bring the network together into one.

[timeofmind]

misterbigg envisions ripple as a network that links "gateways" to one another, and links individuals, only directly to gateways. He states:

I agree. I never thought that the peer to peer model of self-issued credit would be workable (although I could be wrong).

I call people who cling to this idea "community credit fetishists." It's a nice idea in theory but it seems to have practical problems.

Then we have Mitzplik, who envisions the exact opposite topology for Ripple. He states:

In ripple you dont link exchanges, you link people who is linked to an exchange (gateway). But the gateways cant be linked to one another because the risk would be huge

If both the assumption that linking people-to-people would be impractical, as per misterbigg, and the assumption that linking gateway-to-gateway would be too risky, as per Mitzplik, then who links to whom? The entire system would be broken! So which is it?

[timeofmind]

Note that gateways and exchanges aren't the same thing, though a gateway could easily choose to be an exchange and vice versa. Ripple isn't really a network to connect either exchanges or gateways. It serves as a distributed exchange all by itself, and the gateways serve to connect the other nodes in the network, the network doesn't serve to connect the gateways.

Of course a gateway is the same as an exchange... What on earth would you use a gateway for other than to exchange your money for another currency? OK, sure, you just want to send dollars to someone, so you go to "gateway"... the gateway exchanges the dollars to some electronic currency... the recipient collects in dollars at some gateway close to them.... the money is being "exchanged". Every gateway is definitely an "exchange".

It should be noted, that presently, in order to send money accross the globe to your friend, you simply go to an exchange, change your money into bitcoin, and then send it to your friend who exchanges the money back to his currency of choice. This is done completely using exchanges. In Ripple, you could argue that this money is sent by IOU. But still... come one... this IOU thing is still basically what currency is in the first place... ultimately, in ripple you have two new currencies introduced, ripples, and IOUs...

[mmeijeri]

Of course a gateway is the same as an exchange...

No, it isn't, let alone obviously so. Before you start pontificating, perhaps you should read up on Ripple. What a gateway does is to issue and redeem fiat IOUs. That's what makes it a gateway. The distinction between a gateway and an ordinary user is a bit fuzzy, since anyone can issue and redeem IOUs, but a gateway is a party that does so professionally.

What on earth would you use a gateway for other than to exchange your money for another currency? OK, sure, you just want to send dollars to someone, so you go to "gateway"... the gateway exchanges the dollars to some electronic currency... the recipient collects in dollars at some gateway close to them.... the money is being "exchanged". Every gateway is definitely an "exchange".

The gateway itself need not be an exchange. The Ripple network itself maintains an order book, and trades you make inside the Ripple network are not handled by the gateway issuing the IOUs that are being exchanged, but by the whole network. Note that you could easily be trading USD IOUs issued by Weexchange for EUR IOUs issued by Bitstamp. Some gateways like Bitstamp also offer their own order book, outside the Ripple system, but I don't know if all of them do, and in the long run I'd expect so see a degree of specialisation, with some gateways focusing on just being a gateway.

[SamS]

Note that gateways and exchanges aren't the same thing, though a gateway could easily choose to be an exchange and vice versa. Ripple isn't really a network to connect either exchanges or gateways. It serves as a distributed exchange all by itself, and the gateways serve to connect the other nodes in the network, the network doesn't serve to connect the gateways.

Of course a gateway is the same as an exchange... What on earth would you use a gateway for other than to exchange your money for another currency? OK, sure, you just want to send dollars to someone, so you go to "gateway"... the gateway exchanges the dollars to some electronic currency... the recipient collects in dollars at some gateway close to them.... the money is being "exchanged". Every gateway is definitely an "exchange".

It should be noted, that presently, in order to send money accross the globe to your friend, you simply go to an exchange, change your money into bitcoin, and then send it to your friend who exchanges the money back to his currency of choice. This is done completely using exchanges. In Ripple, you could argue that this money is sent by IOU. But still... come one... this IOU thing is still basically what currency is in the first place... ultimately, in ripple you have two new currencies introduced, ripples, and IOUs...

To my mind somewhat true. The Ripple website notes that XRP's can be used as a currency -- page down to the XRP section. I think calling IOU's a currency is a bit tougher -- mostly due to how one defines a currency.

https://ripple.com/how-ripple-works/

[misterbigg]

Wow...there is a lot of really good discussion on page 10 of all this! Every post deserves an answer!

[timeofmind]

Of course a gateway is the same as an exchange...

No, it isn't, let alone obviously so. Before you start pontificating, perhaps you should read up on Ripple. What a gateway does is to issue and redeem fiat IOUs. That's what makes it a gateway. The distinction between a gateway and an ordinary user is a bit fuzzy, since anyone can issue and redeem IOUs, but a gateway is a party that does so professionally.

What on earth would you use a gateway for other than to exchange your money for another currency? OK, sure, you just want to send dollars to someone, so you go to "gateway"... the gateway exchanges the dollars to some electronic currency... the recipient collects in dollars at some gateway close to them.... the money is being "exchanged". Every gateway is definitely an "exchange".

The gateway itself need not be an exchange. The Ripple network itself maintains an order book, and trades you make inside the Ripple network are not handled by the gateway issuing the IOUs that are being exchanged, but by the whole network. Note that you could easily be trading USD IOUs issued by Weexchange for EUR IOUs issued by Bitstamp. Some gateways like Bitstamp also offer their own order book, outside the Ripple system, but I don't know if all of them do, and in the long run I'd expect so see a degree of specialisation, with some gateways focusing on just being a gateway.

Sounds like a meaningless argument over semantics.  You can call the "gateways" whatever you like. The function they serve is to exchange currency in someone's hand for IOUs, ripples, bitcoins, etc. Whatever it is taken out as at another gateway (which must be linked to all the other gateways though trust, whether it be through individual users, or gateways directly). Yes, the ripple network maintains an order-book, the same way an network of exchanges would maintain an order-book together if they were to all start trusting one another and setting up backend-api's through which they could all communicate with one another. So what is the difference? This brings me back to my initial question... what would be the difference between a network of online exchange who decide to open up api's to one another and allow cross-trading between them, and the ripple network itself? What is the difference?

Is Ripple just a fancy abstraction for a interlinked network of exchanges? How is it any different?

[timeofmind]

If MtGox, BTC-e, CaVirtEx, etc. all started opening up all their data with one another, and allowing buy orders on one exchange to be fulfilled across this whole network of exchanges, would that not serve the function that ripple is now trying to fulfill? In that scenario, anyone could go to any of these exchanges to change their money to any currency supported by any of these exchanges... would we not then gain the same functionality as Ripple, but without IOUs or Ripples?

[misterbigg]

I'm going to try to address every single point brought up.

But if i trust any user, even if he is my dad, then I am at risk of belonging to an endless truted pathways network, just by my dad setting a trustline with a friend of him.

In Ripple, you can never get stuck with IOUs that you don't directly trust. Payments are atomic. If you trust issuers A and B, then you can only ever receive IOUs issued by A and B. Just because another user is in the path doesn't mean that you'll end up holding their IOUs if you don't trust them directly.

does the whole crypto-currency idea -- forget Bitcoin and Ripple for a moment -- ultimately resolve back to a decentralized system where large players occupy the Crypto/Fiat interface because there are a) controls on them

Yes, exactly. All the problems come up when you need to deal with fiat. MtGox, BTC-e, BitInstant, etc... If you can conduct your business entirely in Bitcoins for example on Silk Road that solves a lot of problems of trust in entities that deal with fiat.

The word "gateway" in Ripple is totally appropriate. It is a business that acts as Ripple's "gateway" to the fiat world.

other than the transaction fee issue, how is a crypto-currency really all that useful as a payment processing solution? Forget the anonymity idea as any large scale Crypto/Fiat node is going to be regulated...

Because third parties can step in as market makers and allow balances from one gateway to be used as payments to anyone at any other gateway.

Imagine if you could send your US Dollar MtGox balance to a Bitstamp user. One obvious and immediate application would be arbitrage. Very quickly under such a system liquidity for all assets would go up. Bitcoin would immediately benefit.

So ultimately, all ripple is good for is a method to link the exchanges with one another? There seems to be a consensus here that people will only be linked to gateways through IOUs.

In my opinion, yes. Although I can't speak for OpenCoin.

There seems to be a consensus that the only gateways will be managed by reputable organizations, basically operating as exchanges.

In a fashion yes. You should never trust a gateway unless they are licensed, and reputable. Would you put your money into an exchange that was operated anonymously over Tor? I wouldn't!

So ultimately, if all the existing exchanges now, were to link with one another though an agreed upon api in order to allow all the members on every exchange to be able to trade with one another... we would have a ripple alternative?

It would certainly offer part of Ripple's functionality. It would be difficult to convince MtGox to join such a scheme since they are the market leader. And then there's the problem of implementation.

this ripple trust network, relies on trust between the central players. So these gateways/exchanges will have to trust one another, right?

No. A gateway that extends trust to another issuer is exposing themselves to risk. I would not want my money parked at a gateway that was exposed to external risk.

Intra-gateway IOU liquidity is provided by market makers. These are typically bots which post bid and ask walls in the appropriate order books. They take a small fee for converting between IOUs. Since anyone can become a market maker, intense competition drives the fees down to very small values.

Are bitcoin exchanges that trust-worthy now? Do you think Mt. Gox would be willing to trust other newer exchanges? and to accept bid/ask calls from those exchanges, as well as fulfillment from those exchanges? Why would an established player expose itself to this kind of risk?

They wouldn't.

Am I accurate in describing ripple as basically a network to connect all the major exchanges? What motivation is there for these exchanges to want to connect with one another?

Ripple let's smaller exchanges become more competitive. They can compete on things other than market share. For example they might offer better customer service. They can be more local to their customers (i.e. in the same state or legal jurisdiction). Ripple can break the stranglehold that exchange market leaders have.

Of course a gateway is the same as an exchange... What on earth would you use a gateway for other than to exchange your money for another currency?

Gateways can do much more than just convert between currencies. One strong possibility is that gateways will offer their own custom wallet interface so that users dont have to learn the obtuse reference client. A gateway could offer bill payment services, a credit card, subscriptions, and deals with merchants. Ripple would let you use any currency you wanted. So you could use your bitcoins to pay any bill, even if they only take credit cards or checks.

If both the assumption that linking people-to-people would be impractical, as per misterbigg, and the assumption that linking gateway-to-gateway would be too risky, as per Mitzplik, then who links to whom? The entire system would be broken! So which is it?

There are two ways that people can "link" together. One is for an intermediary to self-issue credit and become trusted by others. This is the "community credit" model, and one that I feel is not fully thought out or ready for public use.

The other way that someone can link gateways together is by placing bids and asks in the appropriate order book. They don't self-issue IOUs but instead they trust two separate gateways and make offers to exchange one gateway's IOUs for another. All the risk falls on that person. Someone who uses this liquidity path can never get stuck holding IOUs they dont want because payments are atomic. They either go through at the advertised price, or fail.

[misterbigg]

If MtGox, BTC-e, CaVirtEx, etc. all started opening up all their data with one another, and allowing buy orders on one exchange to be fulfilled across this whole network of exchanges, would that not serve the function that ripple is now trying to fulfill? In that scenario, anyone could go to any of these exchanges to change their money to any currency supported by any of these exchanges... would we not then gain the same functionality as Ripple, but without IOUs or Ripples?

There would still be "IOUs" because gateways have to trust each other not to abuse the API. Typically this is done by each gateway holding a balance at each other gateway but you can see how that would quickly become prohibitive from both a cost and an administrative perspective.

[timeofmind]

If MtGox, BTC-e, CaVirtEx, etc. all started opening up all their data with one another, and allowing buy orders on one exchange to be fulfilled across this whole network of exchanges, would that not serve the function that ripple is now trying to fulfill? In that scenario, anyone could go to any of these exchanges to change their money to any currency supported by any of these exchanges... would we not then gain the same functionality as Ripple, but without IOUs or Ripples?

In the case of all these exchanges working together, you'd basically have IOUs happening between them... just as Ripple purposes now.