Ripple explained for Bitcoiners!

[Cryptoman]

Is there a Compare/Contrast between Ripple and OpenTransactions? They seem to be doing the same thing.

http://www.reddit.com/r/Bitcoin/comments/1e3s82/anyone_that_has_read_about_opentransactions_got/

See the link to stackexchange and also the discussion by FellowTraveler about half way down the page.

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[misterbigg]

Great thread misterbigg!  You have objectively outlined all the facts about Ripple in a friendly and easy to read manner.

Thanks!

The problem with Open Transaction is that it is confusing as all hell, and the software is nearly impossible to set up and run.  I'm fairly techie and after numerous attempts have still yet been able to install and run OT.  Even when the software loads I cant figure out how it works.

FellowTraveller has stated that he wishes other users to pick up the OT library and develop other software with it, but it really needs an easy to use GUI to showcase its potential ( I think there is even a bounty for it).

And this is exactly why I prefer that Ripple is developed by a for-profit company that can pay developers. They also have a strong financial incentive to ship their product in a complete state instead of having it drag on for years by someone who has to work a full-time job elsewhere to pay bills.

I don't mean this to sound like I'm bashing Open Transactions; There are a lot of really nice innovations and solutions in there. Its just that it didn't put the pieces together the right way.

[slothbag]

It looks like FellowTraveller is raising funds and developing OT in a more commercial manner at the moment, sounds like there will be some IOS apps a GUI clients etc coming out soon.  Of course this will probably mean closed source apps and proprietary protocols etc if some company is doing the funding and wants a profit..

So out of the 3 projects, all looking for funds we have:

* Bitcoin - Bitcoin foundation begging for donations, potentially skewing the bias of future development towards what the donators want
* Ripple - XRP reserve to fund OpenCoin for continued development
* OpenTransactions - Closed, proprietary add-ons, clients, systems to the free opensource OT library.

Everyone's gotta make a living

Edit: Seems like Satoshi was the only true altruistic developer

[misterbigg]

That liquidity goes for the XRP part, but the other currencies are tied to the gateway as an IOU afaik. That's why I would think there will be inertia and natural monopolies will emerge, and also because some gateway will be most trusted, like MtGox is.

Yes there can be a most trusted gateway (i.e. the one that manages to attract the largest total amount of deposits across all currencies). But those deposits can be used to exchange for balances at any other gateway. I'll give you an example, with two hypothetical gateways "Bitstamp" and "Foobit", that each issue both BTC and USD. Bitstamp is the big gateway and Foobit is the tiny one.

First recognize that there are 20 order books in this scenario (!!!):

BTC.Bitstamp -> XRP
BTC.Bitstamp -> USD.Bitstamp
BTC.Bitstamp -> BTC.Foobit
BTC.Bitstamp -> USD.Foobit
BTC.Foobit    -> XRP
BTC.Foobit    -> BTC.Bitstamp
BTC.Foobit    -> USD.Bitstamp
BTC.Foobit    -> USD.Foobit
USD.Bitstamp -> XRP
USD.Bitstamp -> BTC.Bitstamp
USD.Bitstamp -> BTC.Foobit
USD.Bitstamp -> USD.Foobit
USD.Foobit    -> XRP
USD.Foobit    -> BTC.Bitstamp
USD.Foobit    -> USD.Bitstamp
USD.Foobit    -> BTC.Foobit
XRP              -> BTC.Bitstamp
XRP              -> BTC.Foobit
XRP              -> USD.Bitstamp
XRP              -> USD.Foobit

Now imagine that someone places BTC up for sale in the BTC.Foobit -> USD.Foobit order book. How can someone who is holding USD.Bitstamp purchase these bitcoins? First recognize that we want to send Bitstamp USD and receive Bitstamp BTC. Now consider one possible path:

USD.Bitstamp -> USD.Foobit -> BTC.Foobit -> BTC.Bitstamp

Ripple will look at these order books to calculate the depth and price:

USD.Bitstamp -> USD.Foobit
USD.Foobit -> BTC.Foobit
BTC.Foobit -> BTC.Bitstamp

It is unlikely that gateways will maintain walls in these books, because it would expose them to counterparty risk. Instead, liquidity providers (I plan on being one) will use software to keep automated bid and ask walls in the appropriate order books. For example, I will accept Bitstamp USD and give you Foobit USD. I will need to charge a small premium, which I will build into the offer. I might give you 1 Foobit USD for every 1.03 Bitstamp USD that you give me.

Repeat the process for each order book and now Ripple can supply you those Bitstamp BTC in exchange for Bitstamp USD, even though the best prices and depth are in a different issuer's order book.

As you can imagine, the number of combinations of order books across all issuers and currencies will explode in number. An alternative is that liquidity providers can maintain bids and asks for issuers currencies in conversion to XRP. The path in the previous example could also be written this way:

USD.Bitstamp -> XRP -> USD.Foobit -> BTC.Foobit -> XRP -> BTC.Bitstamp

or this way:

USD.Bitstamp -> XRP -> USD.Foobit -> XRP -> BTC.Foobit -> XRP -> BTC.Bitstamp

These examples show how XRP can be used as a "bridge" currency. By the way, this is all in the wiki.

Wouldn't this give you IOUs of different issuers? So that to redeem them, you would have to create an account with each issuer.

You don't need an account at each issuer. That's the whole point of Ripple. You deal with a gateway that you trust, to handle deposit and withdrawal, and then you can access everything on the Ripple network no matter who the issuer is.

If you are holding the currency of a gateway that you don't have an account with, Ripple can easily exchange it for something that you would prefer to have by automatically going through order books and "rippling" through people who have extended trust to multiple gateways for the same currency.

This is the distributed exchange Bitcoiners have been dreaming of!

[JaredR26]

<snip>

Ripple is definitely not trying to be Bitcoin. Instead, it is trying to take concepts that we are already familiar with like exchanges holding our fiat money and cryptocurrency for us, and make it more explicit and functional using a decentralized cryptographically secure accounting system.

You know what Ripple reminds me of?  Google wave.  It was neat, it had lots of potential, it was geeky, the few people who got it were really excited, and it ended up being totally worthless.

[JaredR26]

To clarify my comment, the reason why I think this is because it seems like Ripple is trying to replicate some of the things Bitcoin can do and some of the things it can't.  But in the process of designing it, they ruined everything that made Bitcoin ingenious.  Bitcoin provides everyone, from the top to the bottom, everywhere, reasons and motivations to use it.

Ripple provides no motivations for anyone to use it until it reaches critical mass.  Which it will never do, because people have no reason to start using it to push it to critical mass.

Just like Google wave.  It *was* cool.  It did lots of neat things.  But no one was motivated to use it, at all.  So it died.

[SGExodus]

Now imagine that someone places BTC up for sale in the BTC.Foobit -> USD.Foobit order book. How can someone who is holding USD.Bitstamp purchase these bitcoins? First recognize that we want to send Bitstamp USD and receive Bitstamp BTC. Now consider one possible path:

USD.Bitstamp -> USD.Foobit -> BTC.Foobit -> BTC.Bitstamp

Ripple will look at these order books to calculate the depth and price:

USD.Bitstamp -> USD.Foobit
USD.Foobit -> BTC.Foobit
BTC.Foobit -> BTC.Bitstamp

It is unlikely that gateways will maintain walls in these books, because it would expose them to counterparty risk. Instead, liquidity providers (I plan on being one) will use software to keep automated bid and ask walls in the appropriate order books. For example, I will accept Bitstamp USD and give you Foobit USD. I will need to charge a small premium, which I will build into the offer. I might give you 1 Foobit USD for every 1.03 Bitstamp USD that you give me.

This is no different from the person with USD.Bitstamp to withdraw the USD, and deposit the USD into BTC.Foodbit to buy the BTC.  There is zero advantage in adding another intermediary in the transaction, especially one with Ripple, where the transitional currency is also open to price manipulation.

And why use hypothetical example where people kept their wealth on gateways?

Most people will keep their crypto currency on their local wallet, and their cash in the bank.  

It is fairly easy to deposit/withdraw both of these with a local exchange.     For international exchanges, depositing/withdrawing will be harder, but this will be the same problem face by the liquidator in Ripple network.      No problem being solved by Ripple.

What is the value proposition to the end-users for going through this added hassle of using Ripple?

What is the value proposition to the exchanges for them to federate with Ripple?

[misterbigg]

This is no different from the person with USD.Bitstamp to withdraw the USD, and deposit the USD into BTC.Foodbit to buy the BTC.

The difference is like night and day! With Ripple you do it with the click of a mouse. The other way you have to do wire transfers, talk to your bank, etc...

[SGExodus]

This is no different from the person with USD.Bitstamp to withdraw the USD, and deposit the USD into BTC.Foodbit to buy the BTC.

The difference is like night and day! With Ripple you do it with the click of a mouse. The other way you have to do wire transfers, talk to your bank, etc...

This was what you posted on first page about Selling 1 BTC for USD.

1) Open an account at a gateway (Bitstamp.net for example)
2) Deposit your BTC at the gateway
3) Withdraw the BTC as a BTC IOU in Ripple
4) In the Ripple client send a payment to yourself in USD
    The client will show you the price, you can accept it or cancel
5) Deposit the USD back into the gateway
6) Withdraw the USD from the gateway to your bank account

How are these any easier than:

Open account with Bitstamp
Deposit your BTC at Bitstamp
Sell the BTC on Bitstamp
Withdraw USD to Bank

Why the need for Ripple?

[fellowtraveler]

The problem with Open Transaction is that it is confusing as all hell, and the software is nearly impossible to set up and run.  I'm fairly techie and after numerous attempts have still yet been able to install and run OT.  Even when the software loads I cant figure out how it works.

Yet another Ripple thread centered on Open-Transactions...

How to get free support for OT:  irc.freenode.net  #opentransactions

How to build OT from scratch:  https://github.com/FellowTraveler/Open-Transactions/blob/master/docs/INSTALL-Debian_Ubuntu.txt

How to install OT via apt-get:  http://www.openwallet.org/downloads/

FellowTraveller has stated that he wishes other users to pick up the OT library and develop other software with it, but it really needs an easy to use GUI to showcase its potential ( I think there is even a bounty for it).

Coming soon (screenshots): http://ft.vm.to/files/screenshots/

(There are other clients in the works, but that's just an example.)

There's also, of course, the test GUI, from which people can copy sample code: https://github.com/FellowTraveler/Moneychanger

It looks like FellowTraveller is raising funds and developing OT in a more commercial manner at the moment, sounds like there will be some IOS apps a GUI clients etc coming out soon.

This is half-correct.

Open-Transactions is an open-source project, not a commercial project.

Similar to Bitcoin itself: there will be commercial projects built on top of it, from various entities.

So OT will be used by commercial projects, including my own, but OT itself is not being developed as a commercial project.

Of course this will probably mean closed source apps and proprietary protocols etc if some company is doing the funding and wants a profit..

I can see how you'd make this assumption, but Monetas (my commercial effort) has no plans to use closed-source.

We don't even really believe in intellectual property, and we will be releasing the code for our products when those products themselves are released.

(And yes, we know how to monetize our products regardless.)

* OpenTransactions - Closed, proprietary add-ons, clients, systems to the free opensource OT library.

Seems like Satoshi was the only true altruistic developer

This is a mischaracterization.

Open-Transactions is free and open-source.

Monetas will also release its products open-source.

The protocol is not proprietary whatsoever.

Everyone's gotta make a living

I was fortunate enough in my previous career, to be able to work for several years full-time on OT, at no benefit to myself.

I paid my own bills.

[slothbag]

...

Thanks fellowtraveler for the clarifications.. my apologies for my many incorrect assumptions about OT.

Truth is, I think all 3 projects are doing great things for financial freedom.  And actually I think all developers would continue to work on them even without monetary reward, but its also nice to sometimes get paid doing it, particularly if it means you can work on it full time.

Anyway, look forward to seeing what goodies OT brings to the table.. its a very exciting time.

[AceCoin]

mmmmm it's all wonderful, but i will not use ripple until they will implement google authenticator or yubikey.

[misterbigg]

May I respectfully ask why my reply to "Este Nuno" was deleted? Is his post useful in this debate, but mine not?

Yes you may ask. No his post wasn't particularly useful, I just forgot to remove it. Both of the posts in question are repetition of item #11 in the "Just The Facts" post (first reply to the OP).

[jmw74]

Not sure if this was mentioned already - i know MisterBigg said he expects that a real bank will eventually be a gateway on ripple.

Would that mean you could theoretically open an account at that bank, get your paycheck direct deposited there, and buy bitcoins on Ripple instantly, without all the hassle of moving your dollars in and out of an exchange?

[misterbigg]

Not sure if this was mentioned already - i know MisterBigg said he expects that a real bank will eventually be a gateway on ripple.

Would that mean you could theoretically open an account at that bank, get your paycheck direct deposited there, and buy bitcoins on Ripple instantly, without all the hassle of moving your dollars in and out of an exchange?

Yes. Not only that, but you could keep a bitcoin balance in your bank account and spend it anywhere that takes your debit card.

[//v]

Thanks for this interesting thread.

Maybe it's just because it's late and I need to get to sleep, but I feel like after reading this and other threads I'm more confused about how bitcoin will coexist with ripple. I came to this forum because I was interested in learning more about ripple. Personally I don't have too much use for bitcoin as it is currently implemented, but perhaps one day I might see the value in it. However, if ripple were to become widespread, why would I hold bitcoins when I could just hold xrp? I've read your explanation as to how the two can coexist, but it seems like that explanation is predicated upon the assumption that the person would see a value to holding wealth in bitcoin. I can't think of a situation where that might be true for a newcomer to cryptocurrencies. Can you provide an example? If you already did and I just didn't read carefully enough, I apologize. I'll go back and try to find an explanation.

[rebuilder]

I'll admit I'm still quite fuzzy about exactly what Ripple does and does not enable. Here's an outline of my high-level impression, I'd appreciate it if anyone could point out inaccuracies:

Ripple essentially makes it easy to extend and receive credit  (debt). The debt can be passed on, according to a set of rules. It can also be realized into currency taken out of the system.

That's how I've understood it so far, and based on that, I'm not comfortable with Ripple. With currency, increased velocity is good because it increases the usefulness of that currency. With debt, increased velocity seems to me to increase risks. It's all well and good to remind people IOUs are not the same as actually holding currency, but isn't Ripple as a system intended to encourage people to hold and trade IOUs?

What systemic safeguards are there in Ripple against meltdown resulting from a masking of risks as people become accustomed to treating IOUs as currency? This is something that happens with debt, and the results can be quite ugly, as we're seeing in the "real world" now.

[Sukrim]

What systemic safeguards are there in Ripple against meltdown resulting from a masking of risks as people become accustomed to treating IOUs as currency? This is something that happens with debt, and the results can be quite ugly, as we're seeing in the "real world" now.

The main safeguard in my opinion is that you can choose whom you give credit up to which limit and when you settle it with this entity.

Ripple handles the whole rest (converting currencies/IOUs).

In reality to make any kind of trade that is beyond barter trade in person settled in cash (or trading 10 chicken for 1 cow) will involve IOUs. Sometime quite explicit (MtGox balance), sometimes quite implicit ("you go first, then I immediately will send my funds"). Sometimes for a longer (ASICMINER shares) and sometimes for a shorter (SatoshiDice) amount of time.

Still, the only thing you can receive for BTC are either other BTC or IOUs. There is no system in place in Bitcoin that lets you receive anything else than other ledger entries in the block chain that you can spend with your private key.

If you accept absolutely 0 IOUs or debt ever, then you cannot use Bitcoin as well, as the only way to use it within itself is to get other BTC. You can mine them without owing anyone, but then you're stuck.

Especially with the characteristics of Bitcoin (easy and fast to send + script, irreversible) it makes it easy in combination with Ripple to decrease the exposure to IOUs to a minimum. Instead of sending a balance to Paypal in advance and having it sit there for days/weeks, you can fund your Ripple wallet on the go and also withdraw any incoming payments as soon as they arrive in BTC/LTC/whateverelseyouwant.

Bitcoins are in some sense the ideal fiat money - they have no intrinsic value (they have utility and usefulness though, no doubt!) and are created out of thin air just to exist as money. They can be 100% "owned" (if you keep the private keys safe, yada yada).
IOUs on the other hand exist to be destroyed, either (ideally) by being settled/redeemed or (in the case of TradeFortressBTC) by being deemed useless/worth 0.

Current fiat currencies (USD, EUR etc.) are a mixture between being IOUs (they cover about 1-10% of the economy they represent) and just existing as a useful token. Bitcoin only exists as a useful token, Ripple (as I understand it) tries to exist as far on the other end of the scale as possible.
As much as Bitcoin has useful characteristics to be a money system, Ripple has useful characeristincs to be an IOU trading engine.

[misterbigg]

Thanks for all the constructive comments!

[zeroday]

Ok. Thanks for this thread, I hope I finally understood what Ripple is

In simple words it's trading platform based on a ledger inside crypto-blockchain (like bitcoin), where it stores all exchange/trade history and keeps balances which reflect debts (IOUs) of any type (btc,usd,artists shit, etc) issued by pre-approved vendors named "Gateways". Ripple system doesn't guarantee safety of traded debts. if "Gateway" defaults, you lose value of all its IOUs, so it's matter of trust to "Gateway".
Ripple transactions are final and cannot be manipulated as it's protected by math/crypto formula similar to bitcoin.
Transaction fees are in XRP, which is pre-mined crypto currency and at the moment these fees are almost free because small amounts of XRP coins are being given away to everyone.
OpenCoin company expects making profits by manipulating XRP prices in future, when Ripple trading becomes common and widely adopted.

Am I correct ?