PSA: 'Bitcoins' in Ripple are not Bitcoins. They are not real, can be seized.

[Rampion]

would pirate have loved ripple  

Of course, I can foresee some epic scams based on Ripple. Just check this thread: https://bitcointalk.org/index.php?topic=145896.0

People is just granting trust to anonymous people on the interwebz like there's no tomorrow. Yes, this is just for "test" purposes. But if the system does not change radically, the incentive to build a huge network of trust is too big for scammers. They will think about this as a money Facebook, with the particularity that being trusted allows you to create money out of thin air (which is actually the business model of the "old" banking system). Thus, we will see huge scams, spirals of debt collapsing, and the only thing reliable in the Ripple system will be XRP's - anyhow, we all knew that fiat money is shit, and that's why we love Bitcoin - isn't it?

I'm testing Ripple hard, and finally I understand it. What I really can't get is how it's possible that all XRP's have been premined and controlled by Opencoin. That's a joke. Do we know how many XRP's have been "given away" until now? How many Ripples will OpenCoin hold to? 50 billion? 30 billion? That's some crazy shit if you ask me. They just removed one of the best things in Bitcoin - mining - and they introduced the very first characteristic of a scam coin - premining.

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[cypherdoc]

i had a direct conversation with Chris Larson after the Alt chain session.

during the session he claimed that Ripple has no counterparty risk.  the obvious thing that popped into my mind immediately was this ability for OpenCoin to print more XRP's.

so i approached him at the end and mentioned that claim and then gave him the example of how many of us feel the USD has counterparty risk in the form of inflation via the Fed.  he nodded in agreement and then i asked him why wouldn't XRP fall into that same category.

he immediately retorted that OpenCoin will not ever print anymore XRP once the code is released and that it would be hard coded that way.

i then pointed out that if that was true then the value of the remaining XRP's in circulation would certainly go up in value over time with OpenCoin having the most to gain since they held the largest share.  he nodded in agreement and said that was their business model.

knowing those facts, i should've pushed him to wall by asking the following questions but i didn't want to embarrass him too much as he seemed already very uncomfortable:

1.  if XRP's are being destroyed with every tx and there is only ever going to be the fixed supply, then what happens to Ripple when all the XRP have been destroyed?
2.  as the value of XRP gets pushed higher and higher via destruction, won't tx fees eventually become so huge as to be uneconomical for funding tx's?
3.  won't OpenCoin eventually perform a dump of their XRP holdings to cash out? (he acknowledged that)

Larson can't have it both ways.  if he allows XRP's to eventually all be destroyed, the system will fail.  if he changes the rules and allows more XRP's to be printed then effectively he is no better than the Fed.

they are caught in a contradiction.

[ahbritto]

he immediately retorted that OpenCoin will not ever print anymore XRP once the code is released and that it would be hard coded that way.

i then pointed out that if that was true then the value of the remaining XRP's in circulation would certainly go up in value over time with OpenCoin having the most to gain since they held the largest share.  he nodded in agreement and said that was their business model.

To be clear, OpenCoin does not promote XRP as investment. OpenCoin hopes XRP goes up in value to fund the business.

1.  if XRP's are being destroyed with every tx and there is only ever going to be the fixed supply, then what happens to Ripple when all the XRP have been destroyed?

People lose XRP by the thousands (lost password or other error). The loss due to transaction fees is insignificant. The world need not worry about running out of XRP, because, XRP is divisible to 6 digits which can be increased to more digits.

2.  as the value of XRP gets pushed higher and higher via destruction, won't tx fees eventually become so huge as to be uneconomical for funding tx's?

Transaction fees are currently 10 drops (1,000,000 drops = 1 XRP). The transaction fee can be adjusted so 1 drop = lots of transactions if needed.

3.  won't OpenCoin eventually perform a dump of their XRP holdings to cash out? (he acknowledged that)

There must of have been some misunderstanding.  It makes no sense.  The company is "dumping" (selling) XRP to fund the company. As far as I know, there are no plans for OpenCoin to dump in bulk (as you imply).

[CurbsideProphet]

This is outside of the scope of Ripple as Ripple itself but it is perfectly reasonable, when offering credit to someone, to demand something in return for it, like collateral or signing a document or something.

Of course it's reasonable, but it's not practical in the Ripple system.  In fact it's not possible.  It's a pure trust-based system.  You would need to go outside of the Ripple system to make this transfer of debt legally binding.   

I won't even justify this with an answer unless you clarify that you care about other people as human beings, and their interests and rights and human dignity.

That was an odd tangent.  You said debt can last forever, and I said, I don't care if debt can last forever, I care if debt is collectible.  What's the use of debt with no maturity date?  Because I don't want to extend evergreen loans to people, I somehow no longer care about human rights?  Give me a break.

The difference between Prosper and Ripple is that Prosper is about profit.  It isn't about getting to learn about how people around you use their money, and helping them, as a group, use it more effectively.  Transparency is good, and it should be something that comes along with any credit, really, as much as possible.

Uh, no.  OpenCoin will make money by selling XRP.  They're hoping that Ripple will become widely adopted thus increasing the value of XRP, which they hold the lion's share, which they will then sell on the open market.  Stop making it look like this is a charity or non-profit organization.  They're in it to make money.  There's nothing wrong with that, but cut the Kumbaya bullshit.

[bbit]

He has a point.

[misterbigg]

OpenCoin will make money by selling XRP.  They're hoping that Ripple will become widely adopted thus increasing the value of XRP, which they hold the lion's share, which they will then sell on the open market.  Stop making it look like this is a charity or non-profit organization.  They're in it to make money.  There's nothing wrong with that, but cut the Kumbaya bullshit.

Fully agree lol

[CurbsideProphet]

But the thing is -- all you need is the trust between individuals.  In practice, that is all all of our societies run on, as is, really.  Trust aggregates and scales in practice.

No, a society without rules and consequences result in anarchy.  There is no society that runs solely on trust.

We all know Chris Larsen was co-founder of Prosper and is now a co-founder of OpenCoin.  We've been through the whole trust experiment before, it does not work. 

First, I think we need to agree that trust is broken when a debtor does not repay a creditor.  In this case, trust is broken when one does not fulfill their obligation to the other.  If that is the case, your utopian society should have a minimal amount of people defaulting on their loans.

Here's reality, a list of Prosper loans while Mr. Larsen headed the company that are late and/or defaulted:

http://www.wiseclerk.com/reporting-a-late_loans-l-late_loans-m-all.html

[nameface]

First, I think we need to agree that trust is broken when a debtor does not repay a creditor.  In this case, trust is broken when one does not fulfill their obligation to the other.  If that is the case, your utopian society should have a minimal amount of people defaulting on their loans.

People will default. But what does that really matter when we all have the freedom to choose to whom we extend trust?

[Rampion]

First, I think we need to agree that trust is broken when a debtor does not repay a creditor.  In this case, trust is broken when one does not fulfill their obligation to the other.  If that is the case, your utopian society should have a minimal amount of people defaulting on their loans.

People will default. But what does that really matter when we all have the freedom to choose to whom we extend trust?

You may well end up trusting a gateway which is exposed to bad debt, and you will see is the same problem you can have in meatspace, as many of the US and EUR banks are a) surviving covering holes with more debt or b) defaulting

And when the debt chain collapse the guys who played magic tricks with others people money are rich for life, while the average joe pay the bills

BTW, americans should know something about rescuing banks with their money

And that's one of the many reasons why BTC was created

[CurbsideProphet]

First, I think we need to agree that trust is broken when a debtor does not repay a creditor.  In this case, trust is broken when one does not fulfill their obligation to the other.  If that is the case, your utopian society should have a minimal amount of people defaulting on their loans.

People will default. But what does that really matter when we all have the freedom to choose to whom we extend trust?

You can only choose who you directly extend trust to.  You have no choice in who or what your trusted Ripple group does.  Do you know why the derivatives market almost collapsed the financial markets?  It wasn't because of a breach of trust between A and B.  It was because A and B entered into an agreement but parties C, D, E, and F also made side bets on that agreement.  It becomes an incredibly complicated web to untangle and people can be easily deceived as TradeFortress pointed out rather easily with his BTC IOU giveaway.

I'm not saying Ripple is a scam or doomed to fail, all I'm saying is I still see some very fundamental issues with their business model, especially knowing the history of their founders.  Ripple is still in beta so I'm willing to see what they have in store but I feel its better to bring these issues to light now so either they can be addressed or people can be aware.  

[nameface]

Good points in above two posts ^

But in Ripple there is so much more transparency then in the current banking system. Isn't it a whole new ballgame when we can see what's going on?

[Frozenlock]

Good points in above two posts ^

But in Ripple there is so much more transparency then in the current banking system. Isn't it a whole new ballgame when we can see what's going on?

I send you 100 ripple-BTC. Can you tell if I really have the 100 BTC?

[cypherdoc]

I'm not saying Ripple is a scam or doomed to fail, all I'm saying is I still see some very fundamental issues with their business model, especially knowing the history of their founders.  

please explain further.

i understand Chris Larson founded Prosper.  how well did that go?

[CurbsideProphet]

I'm not saying Ripple is a scam or doomed to fail, all I'm saying is I still see some very fundamental issues with their business model, especially knowing the history of their founders.  

please explain further.

i understand Chris Larson founded Prosper.  how well did that go?

Correct.  Chris Larsen was co-founder of Prosper and I was able to meet him in the very early stages of Prosper's launch (commonly known as Prosper 1.0).  Since then, Prosper has undergone a major transformation so I cannot speak about its current incarnation but from what I can gather, the new Prosper is even less transparent than the original.  With the original Prosper you were able to get much more information out of borrowers.

Despite all this information, it was more or less a massive failure for lenders due to the sheer number of defaults by borrowers.  Even with a diversified portfolio, a small number of defaults will kill your ROI.  I've posted this elsewhere but this is a list of default loans (no longer updated but it proves my point):

http://www.wiseclerk.com/reporting-a-late_loans-l-late_loans-m-all.html

As you can see, everyone from an "A" rated borrower to a "HR (high risk)" borrower would default.  This was partly due to the fact that loans were unsecured.  The best recourse a creditor had was to allow Prosper to send a collection agency against the borrower with next to no success.  And of course if they filed bankruptcy, that was the end of it.  But these were legally binding loans with terms and conditions including maturity date.

Enter Ripple.  To me, Ripple is founded on the same failed business model, peer-to-peer lending/trust.  Except now, there is even less transparency and legal recourse.  IOUs are essentially unenforceable and as we have seen with TradeFortress, without terms of repayment.  Ripple does not shy away from the fact that people will default but like Prosper, touts diversification as a way to mitigate risk. However, Prosper has already shown that it is difficult to mitigate risk with diversification because in these types of extension of credit, risk cannot be properly assessed.  Yes, if you trust one or two reputable gateways it's essentially the same counterparty risk as trusting Gox, Coinbase, etc.  However, their business model appears to be on a much grander scale than each person trusting only one of two gateways.  As Ripple scales, I see an increase in risk that is not mitigated by potential reward.

As I mentioned, this is my personal apprehension and my personal concerns due to my past experiences with Chris Larsen.  At this point in time, I do not see sufficient evidence that he has learned from his mistakes with Prosper.  Given that Ripple is still in beta, I believe he deserves the benefit of the doubt, however, at the same time, he has not earned my trust yet.

[mmeijeri]

I still don't understand why that matters if all you want to do is to buy or sell BTC, rather than trying to lend money.

[Rampion]

I still don't understand why that matters if all you want to do is to buy or sell BTC, rather than trying to lend money.

You will need to trust gateways because you are not buying or selling BTC, you are buying or selling BTC IOUs

If your gateway is exposed to bad debt, it can default. Everybody can default in Ripple, because everything you are exchanging is debt (except XRPs) - pretty much like in the "normal" banking system

[mmeijeri]

Of course, but that involves small amounts for short periods.

[Rampion]

Of course, but that involves small amounts for short periods.

It can involve small amounts for short periods or big amounts for long periods. It really depends on how you use it.

I guess we all agree that trusting a third party with too much money for too long is a big problem which is very difficult to address when dealing with fiat money. And that's why we have Bitcoin

I don't see how XRP is a solution to the trust problem, as it is a premined cryptocurrency controlled exclusively by a private corporation.

[Sukrim]

Good points in above two posts ^

But in Ripple there is so much more transparency then in the current banking system. Isn't it a whole new ballgame when we can see what's going on?

I send you 100 ripple-BTC. Can you tell if I really have the 100 BTC?

If they are issued by you I don't accept them, if they are issued by Bitstamp I do. You will either have to find someone who trades your own BTC (or any other of the currencies in your account) to BitstampBTC directly or via a path or you won't be able to send me any. If there is a path I don't care if you have 100 BTC, 1 BTC or 1 million BTC - I only care that Bitstamp will pay me upon request as these will be the only BTC I can receive.

To receive 100 BTC issued by you, I have to trust you for that amount and I won't do that.

Feel free to send me 1 10 BTC on Ripple right now, my address is in the giveaway thread.

[🏰 TradeFortress 🏰]

Good points in above two posts ^

But in Ripple there is so much more transparency then in the current banking system. Isn't it a whole new ballgame when we can see what's going on?

I send you 100 ripple-BTC. Can you tell if I really have the 100 BTC?

If they are issued by you I don't accept them, if they are issued by Bitstamp I do. You will either have to find someone who trades your own BTC (or any other of the currencies in your account) to BitstampBTC directly or via a path or you won't be able to send me any. If there is a path I don't care if you have 100 BTC, 1 BTC or 1 million BTC - I only care that Bitstamp will pay me upon request as these will be the only BTC I can receive.

To receive 100 BTC issued by you, I have to trust you for that amount and I won't do that.

Feel free to send me 1 10 BTC on Ripple right now, my address is in the giveaway thread.

LOL I can't wait in a couple of months till Bitstamp shuts down ala Bitcoin24, Bitcoinica, BitcoinMarket, Bitmarket.eu, Aqoin, ExchangeBitCoins.com, Bitcoin7, TradeHill, btcex.com, Crypto X Change ..

I have to say you are a retard if you keep your bitcoins in a third party service instead of a private key.