Ripple explained for Bitcoiners!

[virtualfaqs]

This is a waiting game. If you put money into Ripple at this time, you are risking that OpenCoin never open sources or simply disappears. Speaking as an investor in XRP, I am well aware of this. As with any investment, use your head, think about the risks. Never risk more than you can afford. Don't listen to people on forums, make up your own opinion.

Of course you'd figure once OpenCoin becomes open source the Ripple price will go up... But it has already gone up. Way da hell up. 52 XRP / $1. Something is wrong when a Bitcoin Talk account is worth $200.

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[ihsotas]

This is a waiting game. If you put money into Ripple at this time, you are risking that OpenCoin never open sources or simply disappears. Speaking as an investor in XRP, I am well aware of this. As with any investment, use your head, think about the risks. Never risk more than you can afford. Don't listen to people on forums, make up your own opinion.

Of course you'd figure once OpenCoin becomes open source the Ripple price will go up... But it has already gone up. Way da hell up. 52 XRP / $1. Something is wrong when a Bitcoin Talk account is worth $200.

At that price, the total XRP pool is worth almost 2B USD, and OpenCoin's share is already worth 500M (albeit in a very illiquid/fragile market). I bet they're not raising money at that valuation from investors, though.

[virtualfaqs]

This is a waiting game. If you put money into Ripple at this time, you are risking that OpenCoin never open sources or simply disappears. Speaking as an investor in XRP, I am well aware of this. As with any investment, use your head, think about the risks. Never risk more than you can afford. Don't listen to people on forums, make up your own opinion.

Of course you'd figure once OpenCoin becomes open source the Ripple price will go up... But it has already gone up. Way da hell up. 52 XRP / $1. Something is wrong when a Bitcoin Talk account is worth $200.

At that price, the total XRP pool is worth almost 2B USD, and OpenCoin's share is already worth 500M (albeit in a very illiquid/fragile market). I bet they're not raising money at that valuation from investors, though.

It's based on the scarcity of the currency... which isn't scarce at all. But this obviously won't stop speculators.

I had another random question.
Let's say I have a "John Doe - $5 USD" IOU pending. John Doe does not have $5 USD in the gateway, but he does have 5 dollars worth of BTC in a gateway. Will the gateway automatically sell John Doe's BTC to pay me $5?

[dexX7]

Here are my questions so far.


1. Account management & centralization

I only used ripple.com, so far and I have a wallet login and within that wallet one public address, so I guess, this address is linked to my wallet account. For creating an semi-offline wallet, one suggested to use ripple.com/client, create an account there and write down the info. So it seems, I have no way to participate without using ripple.com and I'm completely dependent on ripple.com. (edit: ripple.com seems to be the interface to the "ledger/shared database similar to the blockchain" - tell me more, I don't see anything shared right now and I'd like to know how it works).  If they go down, my account is lost. Or another concern: if they don't like me, they could easily lock me out. Is that correct? I know Gox could do the same, but I'm asking, to understand the underlying system.

2. The role of XRP

They weren't intended as currency-to-use at all, why do we need them and what is their role? Fees could be charged in a different way and the system "ripples" through the books anyway, so you don't need it as inter-currency.

3. Toxic IOUs

Let's say you have two or three larger networks of trustful people in which users trust each other and there are connections between those networks and the system "ripples" orders, so [person A], which belongs to [trusted network 1], which is somehow connected through trust to [trusted network 2], which is somehow connected to [trusted network 3], could get an IOU from [person B], who belongs to [trusted network 3]. What happens, if [person B] now gives trust to villain [person C], which has many many toxic IOUs which aren't backed up by anything (i.e. TF BTCs). Wouldn't that compromise all three networks? Is there a way to see, if a IOU is toxic or was issued from a legit gateway? Is there a way to prevent the system to "ripple"?

4. Trust & gateways

As it seems, gateway IOUs are the only legit source of IOUs so far. Talk about that a bit please and I'm also interested in knowing who decides that a gateway is trustful and who can become a gateway.


I'm looking forward to some answers.

[misterbigg]

The XRPs used to pay for transactions are destroyed (this might seem counter intuitive but trust me its the right thing to do).

And why is that? Just curious.

I'm not going to pretend to understand it as well as David Schwartz but the way that he explained it is that the alternatives create the wrong incentives. For example, if the server who first hears the transaction claims the fee then they could spam. Validators could split the fee, but then there is an incentive for people to become validators just to claim the fee. Having lots of random validators doesn't help Ripple. Having reputable validators (where reputation is defined as "not colluding with a significant fraction of other validators) does.

OpenCoin doesn't receive the fee. If they did, it would also create the wrong incentive because then they could spam. To which account would it go? Anyway that sort of change would never be accepted, and whoever gets the source code might just change it to go to their own address.

Bitstamps can borrow BTC to pay back everyone else. I'm not saying they will, but that is an option. Most likely they'll be able to trade their debt for Ripple XRP until they can get back on their feet. Ripple founders and OpenCoin have a lot to lose if Bitstamp defaults.

Gateways can and will default, sometimes for reasons out of their control. MtGox customers just experienced a partial default with any funds held in the Dwolla account. MtGox is still holding onto the Bitcoinca funds due to the lawsuit, this is another form of default. In both cases MtGox is breaking the settlement agreement.

[misterbigg]

I understand this, I get this, I think it's a brilliant idea.. . the natural next evolutionary step in exchange..  

But right now, I think it is serious issues..  the creators holding so many 'coins',  it's not decentralised.. makes this incredibly risky.

I'm wondering whether to moderate this post or not....I guess I will leave it here but you are repeating information already stated so your post is mostly noise. From now on any more repetitions from anyone will be moderated.

[Rampion]

Having lots of random validators doesn't help Ripple. Having reputable validators (where reputation is defined as "not colluding with a significant fraction of other validators) does.

Who decides who is a reputable validator and who is not?

[qxzn]

3. Toxic IOUs

Let's say you have two or three larger networks of trustful people in which users trust each other and there are connections between those networks and the system "ripples" orders, so [person A], which belongs to [trusted network 1], which is somehow connected through trust to [trusted network 2], which is somehow connected to [trusted network 3], could get an IOU from [person B], who belongs to [trusted network 3]. What happens, if [person B] now gives trust to villain [person C], which has many many toxic IOUs which aren't backed up by anything (i.e. TF BTCs). Wouldn't that compromise all three networks? Is there a way to see, if a IOU is toxic or was issued from a legit gateway? Is there a way to prevent the system to "ripple"?

I posed this question to a Ripple employee at the Bitcoin Conference this weekend. He told me that you can indeed prevent the system from "ripple"ing, but the option is not in the current client (and it's on by default). So my followup question is, does ripple still work in practice if this default is switched to "off"?

[misterbigg]

Having lots of random validators doesn't help Ripple. Having reputable validators (where reputation is defined as "not colluding with a significant fraction of other validators) does.

Who decides who is a reputable validator and who is not?

I'm not exactly sure to be honest. One of the Ripple developers can probably explain it well.

But from my understanding, you want to make sure that you know who the validator is. They might have a domain, registered corporation, signed SSL key with company information, the company owners might maintain a public social networking profile, etc...

For example, I'm running a validator here:

http://opengroin.com

You can see my ripple.txt configuration file here:

http://opengroin.com/ripple.txt

I still have to get the SSL certificate and also form a corporation.

Even if a validator colludes, the worst they can do is deny users access to the network. They can't drain account balances or discover your private key.

[misterbigg]

does ripple still work in practice if this default is switched to "off"?

Whether you "ripple" or not isn't an explicit setting in the client, nor should it be. Rippling happens when you extend trust to more than one issuer for the same type of currency. If you don't want to "ripple", don't extent trust twice for the same currency.

I opened an bug issue asking for an explicit warning in the client when you extend trust the second time:

https://github.com/rippleFoundation/ripple-client/issues/682

[ihsotas]

does ripple still work in practice if this default is switched to "off"?

Whether you "ripple" or not isn't an explicit setting in the client, nor should it be. Rippling happens when you extend trust to more than one issuer for the same type of currency. If you don't want to "ripple", don't extent trust twice for the same currency.

I opened an bug issue asking for an explicit warning in the client when you extend trust the second time:

https://github.com/rippleFoundation/ripple-client/issues/682

How do you get a copy of rippled (the binary, not the source) and run a validator?

[ArticMine]

If I understand this correctly what Ripple provides is a very efficient mechanism for the issuance, trading and redemption of IOUs. The best analogy I can think of is bank notes issued by individual private banks, as opposed to central banks, against their reserves. These notes become a bearer instrument and are then used as currency. At one point in the early 20th Century this was common but it is now rare. A good example that remains is Scottish pounds https://en.wikipedia.org/wiki/Banknotes_of_the_pound_sterling. A similar example in Canada is Canadian Tire money http://en.wikipedia.org/wiki/Canadian_Tire_money In this case the currency is backed by store credit at Canadian Tire and it has been used as currency outside of Canadian Tire.

Just as the examples above Ripple IOUs are only as good as the credit of the issuer, and in order for them to become liquid and easy to trade one needs an issuer large enough to have very good credit in the marketplace. The dangers with Ripple are in reality the very same dangers that are present in world banking. In particular when IOUs are used as collateral for the issue of more IOUs there is the ever present danger of overall collapse if the credit of a significant portion of the IOUs becomes questionable. In addition if the underlying asset is Bitcoin or gold rather than say USD, EUR etc then it is not possible for a central banker to come to the rescue by printing more USD, EUR etc.

My take is that the issuers of Ripple IOU's are going to be subject to the same type regulation as banks and the likes of Paypal etc., because that is what they are in reality. I expect that the financial regulators will, quite unlike the situation with Bitcoin, have a field day with Ripple, since it is debt based and regulating debt is their primary mandate.

[Brunic]

I think that if your intention is to explain Ripple to Bitcoiners, you should also link to the TradeFortress "Ripple gone wrong" experiment. He didn't cheated the system, he used it as it is designed and was able to create that big mess that is now currently in some threads around the forum. It's important to explain the system as it is, with the pros and cons.

[misterbigg]

I think that if your intention is to explain Ripple to Bitcoiners, you should also link to the TradeFortress "Ripple gone wrong" experiment. He didn't cheated the system, he used it as it is designed and was able to create that big mess that is now currently in some threads around the forum. It's important to explain the system as it is, with the pros and cons.

That's quite alright, I think he's gotten enough publicity. In any event, the client needs to warn users when they extend trust twice for the same currency.

[qxzn]

does ripple still work in practice if this default is switched to "off"?

Whether you "ripple" or not isn't an explicit setting in the client, nor should it be. Rippling happens when you extend trust to more than one issuer for the same type of currency. If you don't want to "ripple", don't extent trust twice for the same currency.

Huh? But what if I want to hold more than one type of USD IOU? Are you saying everyone should just use a single gateway? Surely there are valid reasons to trust more than one. For example, it becomes more convenient to deposit with a new bank, though you still hold an account at your previous bank.

And I'm still searching for an answer to my question:

does ripple still work in practice if this default (free "liquidity providing") is switched to "off"?

Misterbigg, do you know the answer?

[qxzn]

does ripple still work in practice if this default is switched to "off"?

Whether you "ripple" or not isn't an explicit setting in the client, nor should it be. Rippling happens when you extend trust to more than one issuer for the same type of currency. If you don't want to "ripple", don't extent trust twice for the same currency.

I opened an bug issue asking for an explicit warning in the client when you extend trust the second time:

https://github.com/rippleFoundation/ripple-client/issues/682

How do you get a copy of rippled (the binary, not the source) and run a validator?

I was able to get access to the source by asking in person. Perhaps a phone call or very courteous email is all it would take.

[misterbigg]

How do you get a copy of rippled (the binary, not the source) and run a validator?

I was able to get access to the source by asking in person. Perhaps a phone call or very courteous email is all it would take.

Same here.

[ihsotas]

How do you get a copy of rippled (the binary, not the source) and run a validator?

I was able to get access to the source by asking in person. Perhaps a phone call or very courteous email is all it would take.

Same here.

[/quote]

Cool, I'll ping them then. I wasn't sure if I was missing some obvious link on Ripple.com or something.

[misterbigg]

what if I want to hold more than one type of USD IOU? Are you saying everyone should just use a single gateway? Surely there are valid reasons to trust more than one. For example, it becomes more convenient to deposit with a new bank, though you still hold an account at your previous bank.

I think trust lines have a "quality" setting, which is the ratio for converting between one type of IOU and another type of IOU. The client doesn't let you set it but you can issue a raw RPC command with JSON in it that sets it. I expect in the future this option will be provided.

does ripple still work in practice if this default (free "liquidity providing") is switched to "off"?

I am not 100% certain but it would have to be implemented in a way that says "ignore everything but order books when computing paths." I believe Ripple would still work in practice with this change.

[misterbigg]

Let's say I have a "John Doe - $5 USD" IOU pending. John Doe does not have $5 USD in the gateway, but he does have 5 dollars worth of BTC in a gateway. Will the gateway automatically sell John Doe's BTC to pay me $5?

Gateways don't automatically do anything. What you want to ask is whether or not Ripple can find a path that allows John Doe USD IOUs to be converted into Gateway BTC IOUs. If Ripple finds an appropriate offer in the respective order book or order books (considering all combinations of conversions) then yes.