The True Explanation of Ripple for Bitcoiners

[smoothie]

Why is it that Blitz can act like a civil human, but smoothie and cypherdoc act like asshats? Is this what happens when teenagers take to the forums?

So that explains you PMing me and judging me on my stated age? Which is in fact not my true age?

The fact that you would put my maturity to be tied to a number speaks volumes about your character, not to mention your stance on manipulation.

Keep telling yourself that we are "asshats" because you are the ass-sombrero.  

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[jgarzik]

Why is it that Blitz can act like a civil human, but smoothie and cypherdoc act like asshats? Is this what happens when teenagers take to the forums?

smoothie's 'ignore' button is colored for a reason. 

[oakpacific]

Guess what? I can create a Ripple in a day's time.

I just adjust the block generation time to 20 seconds(yeah, a lot of orphaned blocks and a lot of wasted computing power, but you guys will figure it out yourself right? In the end one branch will win, it's called consensus! )

And just to make sure that no one gets harmed because of their discarded blocks, I will just generate all the coins(XOPs I call them  ) in the genesis block, and reward them to whichever validators that please me most.

Job done!

[misterbigg]

smoothie's 'ignore' button is colored for a reason. 

Yeah but I'm sitting in a glass house...

[smoothie]

Why is it that Blitz can act like a civil human, but smoothie and cypherdoc act like asshats? Is this what happens when teenagers take to the forums?

smoothie's 'ignore' button is colored for a reason. 

Jeff while your implications that I can be an ass are sometimes true, most of the time people ignore me simply because they can't handle the truth.

You seem like a very blunt person so I think you would understand.

[N12]

Well that's not quite right. There will always be a "most popular gateway", where popularity is measured by the amount of funds on deposit. But since anyone can be a "liquidity provider", competition will create the situation where it doesn't much matter which gateway you deposit your funds at, or which order books you use to get your bitcoins.

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. In the Bitcoin system, it is already the case that Bitcoins can move freely (well, awaiting a few confirmations), and yet MtGox is king after years.

A future version of the reference client will show order books that are a composite of multiple issuers, so when you buy Bitcoins using your USD balance your order can be filled from multiple exchanges at the same time.

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

I think that's actually a fair point. For sure, Ripple could have been presented better. It's quite confusing as it is.

Perhaps you could contribute some improvements to the presentation and explanations?

Just don't hide that XRP are an alternative currency/store of value. There's already a VPN that accepts them.

[cypherdoc]

Why is it that Blitz can act like a civil human, but smoothie and cypherdoc act like asshats? Is this what happens when teenagers take to the forums?

your behavior as a used car salesman here on the forum is what irks me.

[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!

[smoothie]

Why is it that Blitz can act like a civil human, but smoothie and cypherdoc act like asshats? Is this what happens when teenagers take to the forums?

your behavior as a used car salesman here on the forum is what irks me.

Off topic (sorry): Mr. Bigg claims I am making all the inflammatory comments and yet he comes into the non-moderated thread and calls me an asshat lol. So on top of everything else he even contradicts himself. Good job!

[🏰 TradeFortress 🏰]

Why is it that Blitz can act like a civil human, but smoothie and cypherdoc act like asshats? Is this what happens when teenagers take to the forums?

your behavior as a used car salesman here on the forum is what irks me.

Off topic (sorry): Mr. Bigg claims I am making all the inflammatory comments and yet he comes into the non-moderated thread and calls me an asshat lol. So on top of everything else he even contradicts himself. Good job!

Yeah, it's pretty sad that the forum is getting into BTC-e trollbox levels :/

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.

Please take a look in what has being happening for the past few days. This feature is not an advantage in all cases.

[Stampbit]

Ripple is what your rectum will do when you find out all your money is gone

[Rogue Star]

Do we really need 6 topics about Ripple in the main forum? Namecoin only has one and I have way more respect for it than the ripple guys trolling the trolls. I motion that a mod move all ripple threads be moved to Service Discussion/Alt. Currencies as appropriate.

[N12]

Thanks for that post, I didn't realize exchanging IOUs was possible. Now things get complicated and I have to think.

Say I exchange my USD.Bitstamp for USD.Foobit. Now the appropriate balances on my Ripple account and the Ripple accounts of my counterparties have changed. How do Bitstamp and Foobit reflect this on their account balances? I assume they would be saying I own 1 USD.Foobit and 0 USD.Bitstamp. Then, I go to Bitstamp and send my USD.Bitstamp from my Ripple address to theirs and they update my balance to 1 USD.Bitstamp.

For this system to work, the balances at Gateways need to be linked to the balances on Ripple, and the sync time must be smaller than the time it takes to make a withdrawal from the exchange interface, or otherwise they lose money. Is that the case with Bitstamp today?

[🏰 TradeFortress 🏰]

Thanks for that post, I didn't realize exchanging IOUs was possible. Now things get complicated and I have to think.

Say I exchange my USD.Bitstamp for USD.Foobit. Now the appropriate balances on my Ripple account and the Ripple accounts of my counterparties have changed. How do Bitstamp and Foobit reflect this on their account balances? I assume they would be saying I own 1 USD.Foobit and 0 USD.Bitstamp. Then, I go to Bitstamp and send my USD.Bitstamp from my Ripple address to theirs and they update my balance to 1 USD.Bitstamp.

For this system to work, the balances at Gateways need to be linked to the balances on Ripple, and the sync time must be smaller than the time it takes to make a withdrawal from the exchange interface, or otherwise they lose money. Is that the case with Bitstamp today?

This happens when you try to send 100 USD.Bitstamp to someone who only trusts USD.Foobit. Ripple will find someone who trusts both (or trusts one and trusts someone else who trusts the other one, et cetra), and the person you sent to gets USD.Foobit.

This also means that some random Ripple user has just got his 100 USD.Foobit converted into 100 USD.Bitstamp or 100 USD.OtherTrusted, which may be a bad idea especially if it was just announced that Bitstamp got their bitcoin wallets seized. Or if USD.Bitstamp is actually a bond issued by Bitstamp that won't be repaid until four months later.

Quoting Deprived again:

For one thing, before we can distinguish between the two sample responses you give we need a defined point in time at which the IOU issuer is obliged to give a response at all (a settlement date).

IOUs (taken as meaning any acknowledgement of debt) don't necessarily EVER have to be redeemed.  For example perpetual bonds are never intended to be redeemed - yet are debt.

Thanks for your valuable arguments. You might be right and I think I understand now why theymos said IOU is not a binding contract. But now I feel totally confused. What is debt then, if it is doesn't ever have to be repaid?

Debt is something that you owe - a claim someone else has against you.  Not all debts are created with the intention of being repaid (e.g. loans that are made for tax reasons without either party to the loan having an intention of there ever being a repayment).  Perpetual bonds are another example of debt that will never be repaid (talking RL ones not the pretend mining ones on here).  The bond issuer borrows money that will never be repaid - paying interest (a dividend) on it regularly.  The only way to get your cash back is to sell it to someone else.

That's why debt/IOUs with no agreed terms is worthless.

Maybe an example will help - for the examples below the assumption to be made is that I WILL honour any commitments I made (in practice all debt should be discounted in value based on your confidence that I'd repay):

If I said I'd owe you 20 BTCs to be settled in a week in return for 10 BTCs from you now then (IF you had total trust in me) you could reasonably value those 20 ripple BTCs at similar value to 20 actual BTCs.

If I said I'd owe you 20 BTCs to be settled in 5 years in return for 10 BTCs from you now then (IF you had total trust in me) you would STILL have to value them at a lot less than 20 actual BTCs (as they'd generate no revenue in the meantime and were illiquid).

In ripple BTCs of each of the above scenarios are treated as being interchangeable (whether its 2 sets from same issuer or from 2 different issuers) - despite the fact they have very different actual value.

Now consider a third scenario (equivalent to perpetual bonds):

I say that if you give me 10 BTC now I'll owe you 10 BTC on ripple.  I will never repay those BTC but on the first of each month I'll send 0.01 BTC for each BTC owed to whoever currently holds them.  Again - to ripple those are just BTC - and swappable with anyone else's BTC (provided someone trusts both me and the other issuer).  These BTC may have more or less value than the other ones - depending on how people value 1% interest/month against liquidity.  But I'll never repay them - and am NOT a scammer for issuing them.

Now the final case.  I say if you give me 10 BTC now I'll owe you 20 BTC on ripple but will only ever repay them if I win the lottery.  What are those BTC worth?  Nearly nothing (even ignoring the fact that I don't play the lottery).

Do you see how the value of a debt/IOU is defined by the TERMS that apply to it - not by its face value?  But ripple treats them all based on face value.

TF's ones were pretty much explicitly worthless.  In the absence of terms the only way to reasonably assess value of something is to look at what consideration was given in return for them - and assume a similar value.  Nothing was given - so their value is gong to be around zero.

[misterbigg]

Thanks for that post, I didn't realize exchanging IOUs was possible. Now things get complicated and I have to think.

A proper response to this really belongs in the Other Thread. I copied my original reply.

[🏰 TradeFortress 🏰]

Thanks for that post, I didn't realize exchanging IOUs was possible. Now things get complicated and I have to think.

A proper response to this really belongs in the Other Thread. I copied my original reply.

Not when you keep deleting responses that you don't agree with.

[cypherdoc]

Thanks for that post, I didn't realize exchanging IOUs was possible. Now things get complicated and I have to think.

Say I exchange my USD.Bitstamp for USD.Foobit. Now the appropriate balances on my Ripple account and the Ripple accounts of my counterparties have changed. How do Bitstamp and Foobit reflect this on their account balances? I assume they would be saying I own 1 USD.Foobit and 0 USD.Bitstamp. Then, I go to Bitstamp and send my USD.Bitstamp from my Ripple address to theirs and they update my balance to 1 USD.Bitstamp.

For this system to work, the balances at Gateways need to be linked to the balances on Ripple, and the sync time must be smaller than the time it takes to make a withdrawal from the exchange interface, or otherwise they lose money. Is that the case with Bitstamp today?

once again, licensed money transmitters or banks are the only ones that are going to be allowed to perform these activities.  these are critical for the Ripple system to work.  absent that, its inferior to Bitcoin as it won't even be able to function as it depends on trust.

[🏰 TradeFortress 🏰]

Thanks for that post, I didn't realize exchanging IOUs was possible. Now things get complicated and I have to think.

Say I exchange my USD.Bitstamp for USD.Foobit. Now the appropriate balances on my Ripple account and the Ripple accounts of my counterparties have changed. How do Bitstamp and Foobit reflect this on their account balances? I assume they would be saying I own 1 USD.Foobit and 0 USD.Bitstamp. Then, I go to Bitstamp and send my USD.Bitstamp from my Ripple address to theirs and they update my balance to 1 USD.Bitstamp.

For this system to work, the balances at Gateways need to be linked to the balances on Ripple, and the sync time must be smaller than the time it takes to make a withdrawal from the exchange interface, or otherwise they lose money. Is that the case with Bitstamp today?

once again, licensed money transmitters or banks are the only ones that are going to be allowed to perform these activities.  these are critical for the Ripple system to work.  absent that, its inferior to Bitcoin as it won't even be able to function as it depends on trust.

Bearer instruments, yada yada.

[smoothie]

Do we really need 6 topics about Ripple in the main forum? Namecoin only has one and I have way more respect for it than the ripple guys trolling the trolls. I motion that a mod move all ripple threads be moved to Service Discussion/Alt. Currencies as appropriate.

+1

[🏰 TradeFortress 🏰]

Do we really need 6 topics about Ripple in the main forum? Namecoin only has one and I have way more respect for it than the ripple guys trolling the trolls. I motion that a mod move all ripple threads be moved to Service Discussion/Alt. Currencies as appropriate.

+1

but but but... that breaks opencoin inc's "steal bitcoin marketshare" corporate strategy!

THINK OF THE BANKS, ERM, GATEWAYS THAT WILL BE MISSING OUT ALL THEIR 0.2% 0.5% FEES!