Why Ripple has failed.

[DumbFruit]

Please tell me in your words what is the difference between me depositing btc at inputs.io and at a ripple gateway and where the loan terms etc of inputs are.

Hi Sukrim.
I don't think there is any big difference between inputs.io and a Ripple gateway, besides the platform on which it does its exchanging.
However, my criticism with Ripple is with the Liquidity Provider mechanism that Gateways do not participate in.

I contend that Gateways are not Liquidity Providers because the problems I mentioned become grossly obvious at that scale, but the problems exist just as tenaciously and corrosively among the user base.

I don't have any disagreement with you if you say people can exchange in Ripple in a lender/borrower relationship, because that is the same thing as removing the Liquidity Providers from the system.

1. The only person/gateway you could reliably trust with USD in Ripple is the Fed. The only gateway you could trust with EUR is the ECB. You cannot trust any other parties. If you trust "some-shitty-gateway" with USD, they would be able to exchange *your* Fed-USD for some-shitty-gateway-USD. Some-shitty-gateway-USD are much much worse than Fed-USD.

Yep. Inevitably the most trusting individuals in the system get bad IOU's dumped on them. They didn't fix this problem by making Gateways not Liquidity Providers, they just distributed that risk among the user base.

2. Because of (1), you cannot reliably transfer USD, EUR or BTC within Ripple. The Fed does not participle in the Ripple system, and there is *NO* BTC gateway that would be fundamentally reliable, because BTC is not centrally issued. Playing with debt money is just asking for disaster, that will eventually happen.

I disagree that it's impossible to transfer IOU's reliably. If Liquidity Providers are removed, then the system would be a way to transfer Certificates of Deposit. There's nothing intrinsically impossible about that task.
It's true that Gateways have varying reliability, but users can evaluate the risk and factor that into the price of the IOU.
It's also true that there will be disasters in the system, but that's just a reflection of the fact that debt is inherently risky.

Short version: Ripple is only good for DumbFruit to issue DumbFruit-dollars. Nothing else.

Yep.

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[QuantPlus]

Ripple in its standard idea would work like this community credit approach. Opencoin ripple is different in its most likely use case.

This is also already now the most common use case, as you can see from the public ledger. There is a small network from the villages.cc community, most of the other users don't do real community credit.

OC Ripple exists because Ripple Classic went nowhere.

The whole LETS, community credit thing is "a solution in search of a problem"...
Functional, working adults in a modern urban center don't need/want anything like this.

If there is a place for this in the Third World... then move it to the Third World.

[murraypaul]

The whole LETS, community credit thing is "a solution in search of a problem"...
Functional, working adults in a modern urban center don't need/want anything like this.

You know that is exactly how many people would (accurately) describe Bitcoin?
A solution in search of a problem that the average man on the street doesn't need.

[QuantPlus]

The whole LETS, community credit thing is "a solution in search of a problem"...
Functional, working adults in a modern urban center don't need/want anything like this.

You know that is exactly how many people would (accurately) describe Bitcoin?
A solution in search of a problem that the average man on the street doesn't need.

The difference is that Bitcoin is a solution for criminal activity and online gambling...
It's FASCINATING for the tech and Zero Sum Game crowd (web traffic, trading, poker, etc)...  
And it also became "hip" within "urban hipsters enclaves" = $1.5 billion Cap...
While LETS, cc, and freaking Bob&Alice just bores the shit out of everyone = $0.

[DumbFruit]

You know that is exactly how many people would (accurately) describe Bitcoin?
A solution in search of a problem that the average man on the street doesn't need.

As QuantPlus pointed out there are novel problems that Bitcoin solves that nothing else can touch, but it also performs as a medium of exchange, store of value, and unit of account better anything else ever invented.

Even the last person that joins the Bitcoin economy will benefit directly from the aforementioned qualities.

Ripple (as initially imagined) was based on a whimsical idea of aggregate debt that doesn't mesh with the real world. If they can salvage it and build a open source distributed exchange, I could see some value in that, but it barely qualifies as novel.

Therefore the objection that Ripple is a solution looking for a problem does not apply to Bitcoin in equal measure. I just don't see it.

[Coinseeker]

Therefore the objection that Ripple is a solution looking for a problem does not apply to Bitcoin in equal measure. I just don't see it.

Then you're not looking.  Bitcoin's ridiculous 7 transaction/sec limit is enough to usher in Ripple to save the day, allowing off block transactions in mass.  And what about waiting an hour for a transaction to go through.    Bitcoin in it's current state is a boutique commodity.  Not even a currency.  As has been said repeatedly, Bitcoin can't even match Visa's transaction/sec limit, let alone being a legitimate world currency.  Ripple, can make that possible and also nullify the negative baggage of Bitcoin (drug trafficking, child porn, gambling, ideological nuckledraggers and the rest of Bitcoin's PR failures) by allowing merchants to refuse to accept BTC (as they clearly are doing) and stick with fiat, while you the buyer can still pay in BTC or any other currency.  It's a win-win.  Unfortuantley, like any "bible-thumper" (religious or otherwise), some are too busy shoving their own beliefs down everyones throats to see or even care what's in the best interest of the masses.

[graceza]

>>>>In this way, highly risky loans make their way to asset holders through Liquidity Providers without any warning or determination being made by the lender.<<<<

There is no way for me to end up with your IOU's unless I trust you directly no matter how many connections there are between you and me. What I can end up with are dollar denominated IOU's you might have owned from a gateway that we both trust. If I trust Bitstamp for $10 and you trust Bitstamp for $10, I could end up with $10 that you initially deposited into Bitstamp or bought in trade.

If you send your buddy a $10 IOU, not from a gateway, but your "personal" IOU and even if that same buddy of yours sends me his $10 IOU via Ripple there is no way I'll ever have your IOU in my wallet unless I specifically set the trust for you in my client to $10. Right now your trust line in my client is set to zero and I wouldn't change that even if a friend asked me to.

I would never do this because I don't know you. What I would do is set $10 trust for our mutual friend, so the debt is between him and me, I own his IOUs, not yours. In order to use Ripple safely all you have to remember is don't trust strangers, something your mother taught you when you were 4 years old.

The real way the trust lines work is not unlike dollar credit balances from my regular business clients. I run a biz which is a B2B operation. My customers order work from me on credit that I extend to them. I extend them credit basically to pay for work that they are ordering for delivery to their business client and so on. The payment terms between me and my clients are not in any way dependent on their getting payment from their customer. I have every legal right to sue them for money they owe me regardless of whether or not their client pays them.

In the real world this is not to say that a bad player using credit going bust can't take down others, we know they can from experience. This happens in my biz from time to time. A big customer or company goes TU and leaves a lot of smaller vendors holding bad receivables, my customers want me to share the pain. The only way around this chance of loss is ONLY ACCEPT CASH.

I can tell you that only the illegal and third World economies run on a cash basis. The real world runs on credit lines like I described above. So your argument that Ripple has already failed is already proven wrong, because the trust lines work pretty much the way the real world of credit between small players works right now.

If I was selling you something I'd want XRP and not your personal IOUs. I'd take XRP because XRP is not at all dependent on me trusting you. This is not all that different than you showing up to buy a used car from me, you'd better bring cash and not a check.

I would also take Bitstamp USD or BTC because I already trust Bitstamp BTC and USD IOUs. I'd also accept BTC from you.... BUT I'd want 3 confirms before I handed over the goods. Still takes about an hour, right?!

If you paid me in XRP, Bitstamp/BTC or Bitstamp/USD the transaction would be almost instantaneous.

Therein lay the real reason Ripple has value.

[DumbFruit]

Hi Graceza.
I already addressed your argument from my other post. Could you address why that response didn't satisfy?

Basically, the fact that the IOU is not literally transferred down the Web of Trust doesn't address the flaw in ripple in which the risk of IOU cannot be adequately judged by the lender.

By "lender" I mean the asset holder, the last person in the chain of trust.

This is the relevant post;

@Coinseeker
Every single one of your sentences contains either inaccuracies or hypocrisy.

[Sukrim]

Well, an IOU of for example 1 BTC will likely be worth a value between 0 BTC (issuer = defaulted/fraudster...) and 1 BTC (100% trustworthy issuer). Values above that are of course possible but unlikely.

Your argument is now that it is hard to determine a proper amount to value this 1 BTC IOU. This is true however for any IOU and has been this way for millennia. Also to crush your dreams maybe a bit: It is my belief that 1 BTC (on the blockchain, as an asset) has exactly 0 value in e.g. USD as they are not redeemable for anything. This means anything that people pay for BTC is not based on their inherent value but rather upon their usefulness as money and store of value.

Your argument turned around would be the following: The inherent flaw of digital assets like XRP or BTC is that they cannot be priced by the owner, as they are worthless by themselves and it is not clear how useful they are to the world. So unless you can determine from everyone in the world how useful they find digital assets, you have no way to buy/sell BTC at their true price.

The solution to both your arguments about rating trust in IOUs and the opposite argument about uncertain pricing of assets is also known for millennia: an open market where people come up with prices and hopefully also match these from time to time based on both their needs/beliefs and other market participants.

[DumbFruit]

Well, an IOU of for example 1 BTC will likely be worth a value between 0 BTC (issuer = defaulted/fraudster...) and 1 BTC (100% trustworthy issuer). Values above that are of course possible but unlikely.

A common example of an IOU worth something higher than the principle is a CD or Bond.

Your argument is now that it is hard to determine a proper amount to value this 1 BTC IOU. This is true however for any IOU and has been this way for millennia.

The difference is that for millennia the lender and borrower had a direct relationship and the lender could make an accurate determination of the risks he takes on when he lends by getting as much information as he can from the borrower. He can also determine the interest that would make it worth the trouble.
In ripple, this relationship is severed, making accurate determination impossible, rather than difficult.

Two consequences of this jump out at me;
1.) Trust lines will be determined by how much the lender is willing to lose, no questions asked, without notification, and without remuneration.
2.) People can and will abuse this system, and all of the most trusting/gullible will suffer the most from it.

As a direct result of this, trust lines -if they exist at all- will a combination of extraordinarily short and in tiny amounts.

It is my belief that 1 BTC (on the blockchain, as an asset) has exactly 0 value ... BTC is not based on their inherent value but rather upon their usefulness as money and store of value.

Everything is valued based upon it's usefulness, not its "inherent value". When Austrian Economists talk about intrinsic value, they are only referring to the intrinsic properties of the item in question that has value, subjectively, to certain people.

Your argument turned around would be the following: The inherent flaw of digital assets like XRP or BTC is that they cannot be priced by the owner, as they are worthless by themselves...

No, but a different phrasing of my argument would be;
IOU's cannot retain value as they are passed along a Ripple Web of Trust because the terms of the loan, which determines the value of the loan, is vaporized by the first Liquidity Provider.

The solution to both your arguments about rating trust in IOUs and the opposite argument about uncertain pricing of assets is also known for millennia: an open market where people come up with prices and hopefully also match these from time to time based on both their needs/beliefs and other market participants.

That doesn't work because the mechanism by which lenders can make these determinations in the market do not exist in Ripple over Liquidity Providers.

[QuantPlus]

@Coinseeker
Every single one of your sentences contains either inaccuracies or hypocrisy.

This clown have been spamming every Ripple forum for months with 100s of posts.

OpenCoin indoctrinates Ripple Zombies like this creature... and spams the world with FUD.

[Coinseeker]

@Coinseeker
Every single one of your sentences contains either inaccuracies or hypocrisy.

Wow!  Stunning rebuttal.    Seeing that you continue to fail to recognize that you can't be forced to accept someone else's IOU's that you don't trust, I'd venture to say that it's your argument that is flawed, not Ripple.  If you trust some guy on the street corner with a sign that says, "bank here" and you give him your money, you deserve to lose it.  That's not a flaw of the banks, that's your flaw.  But who does that?  We use real, trusted banks for that.  If you send your BTC to some random, no name exchange claiming to be safe and secure to trade your BTC, you deserve to lose your BTC.  We use trusted exchanges for that.  Same is true in Ripple.  If you're going to accept IOU's from some untrustworthy joe smoe, you deserve to lose your money.  We use trusted gateways for that.  And since in both examples, the bank and the exchange both operate in IOU's, the attempt to paint Ripple any differently is ridiculous at best.  

[DumbFruit]

Seeing that you continue to fail to recognize that you can't be forced to accept someone else's IOU's that you don't trust...

You and graceza have made this objection after I've rebutted it as a Red Herring, and I'm not sure how I can be any more clear about it.
http://en.wikipedia.org/wiki/Red_herring

Imagine that the IOU was a written contract that is literally passed down line of people.

The contract says, "I [name] owe [name] [principle amount]".

I'm saying, "That's not enough information to make any kind of rational loan."

You say, "But wait a minute, each person in the line creates a new IOU and passes that onto the next one, the first person in the line doesn't make a contract with the last person in the line."

I say,"That's a red herring, that doesn't have anything to do with my objection. The asset holder here at the end of the line can't make a rational decision about the loan based on, 'I [name] owe [name] [principle amount]'. It doesn't help that he knows and trust the person next to him, because even he doesn't know the objective, length of the loan, collateral, or credit rating of the actual borrower."

You say, "No it isn't."

I say, "Yes it is."

What else can I say?

Edit:
Then you really go into the woods. You bring in an outside party from the line (A Gateway), and say, "Look, the last person in this line can lend to this guy (the Gateway), and there isn't any trust problem."

Of course there isn't. I didn't say there was.

The contract between a Ripple Gateway and the user can be as nuanced as the Gateway and lender like because the Gateway is not a Liquidity Provider.

[Coinseeker]

Seeing that you continue to fail to recognize that you can't be forced to accept someone else's IOU's that you don't trust...

You and graceza have made this objection <snip>

I don't know why you're talking about loans.  Nobody is talking about loans.  Legitimate IOU's are backed by actual assets.  It doesn't matter who holds the IOU, as long as the actual asset exists and you can trust the IOU provider to redeem the IOU for that asset.  It's really not that difficult to understand.  If I trust Bitstamp, you trust bitstamp and 8 other people trust bitstamp we can pass a $1 USD IOU from me, to you and all other 8 people with no issue because the actual asset that backs that $1 actually exists at Bitstamp.  The last holder in this scenario can redeem the IOU at Bitstamp, the same as the first and anyone in between.  Each person creating a new IOU before they pass it?  I don't even know where you got that from.  You're making this significantly harder than it needs to be.

The contract between a Ripple Gateway and the user can be as nuanced as the Gateway likes because the Gateway is not a Liquidity Provider.

Says who?  Some gateways will only be gateways and some will actually be market makers as well.  This is where you can determine who is best for you to do business with.  

[timeofmind]

One major drawback of Ripple is that it relies on clients to maintain lists of nodes that are trusted not to collude. Bitcoin is not reliant on this assumption that nodes are not colluding. I could see a scenario where the NSA forces some of the most commonly used nodes to collude in order to comply with the law; even if users would suspect such nodes to have nothing to do with one another. In bitcoin, the NSA would have to take over the mining power. In Ripple, the NSA would just have to force a limited number of nodes to comply, since in order to ensure non-collusion between nodes, the client must choose from well-known nodes. If a client was to simply choose from a random set of nodes, there is no assurance of non-collusion. Ripple claims that this does not require trust, because we only need to be sure that nodes are not colluding, but it basically amounts to a dependence on a set of trusted nodes, because untrusted nodes cannot possibly be trusted to not collude. ie. Where are you getting your list of trusted nodes from?.... it has to be a trusted source. If you take your list of nodes from a public pool of nodes, then there is the potential for someone to contaminate this pool with a large number of colluding nodes.

[DumbFruit]

I don't know why you're talking about loans.  Nobody is talking about loans.  Legitimate IOU's are backed by actual assets.

*sigh*

If I trust Bitstamp, you trust bitstamp and 8 other people trust bitstamp we can pass a $1 USD IOU from me, to you and all other 8 people with no issue because the actual asset that backs that $1 actually exists at Bitstamp.

*SIGH*

Yep. If someone photocopies a contract 8 times, distributes it among 8 people, and they all sign it, those 8 people could trade those contracts around and just replace the signature with their own.

Each person creating a new IOU before they pass it?  I don't even know where you got that from.

SIGH!

Says who?  Some gateways will only be gateways and some will actually be market makers as well.  This is where you can determine who is best for you to do business with.  

If "Market Maker" = "Liquidity Provider", then no. It's not going to happen.

Should not have bothered...

One major drawback of Ripple is that it relies on clients to maintain lists of nodes that are trusted not to collude.

There is a kind of grandeur that creeps into their naiveté. It's like the Voynich Manuscript; everything is so nonsensical that one starts to imagine that it must contain some novel insight that the reader is just missing.

Also like with the Voynich Manuscript, if such an insight does exists, no one can find or understand it.

[Coinseeker]

Yep. If someone photocopies a contract 8 times, distributes it among 8 people, and they all sign it, those 8 people could trade those contracts around and just replace the signature with their own.

What are you talking about?  "Photocopy the contract?"     Why would an IOU issuer create 8 different $1 IOU's to represent an actual $1 asset?

[DumbFruit]

What are you talking about?  "Photocopy the contract?"     Why would an IOU issuer create 8 different $1 IOU's to represent an actual $1 asset?

You're missing the point, but to answer your irrelevant question for giggles;

[timeofmind]

One major drawback of Ripple is that it relies on clients to maintain lists of nodes that are trusted not to collude. Bitcoin is not reliant on this assumption that nodes are not colluding. I could see a scenario where the NSA forces some of the most commonly used nodes to collude in order to comply with the law; even if users would suspect such nodes to have nothing to do with one another. In bitcoin, the NSA would have to take over the mining power. In Ripple, the NSA would just have to force a limited number of nodes to comply, since in order to ensure non-collusion between nodes, the client must choose from well-known nodes. If a client was to simply choose from a random set of nodes, there is no assurance of non-collusion. Ripple claims that this does not require trust, because we only need to be sure that nodes are not colluding, but it basically amounts to a dependence on a set of trusted nodes, because untrusted nodes cannot possibly be trusted to not collude. ie. Where are you getting your list of trusted nodes from?.... it has to be a trusted source. If you take your list of nodes from a public pool of nodes, then there is the potential for someone to contaminate this pool with a large number of colluding nodes.

I haven't witnessed many criticisms of Ripple's reliance on trust, yet to me this is one of its major weaknesses. It is meant as a way to fend of Sybil attacks; but bitcoin achieves this through proof-of-work; which requires absolutely no knowledge of the nodes, so how is not the bitcoin way an advantage over Ripple's solution?

If you believe in the IOU system... then you could potentially fork Ripple to remove their weak system of consensus and replace it with a mining-based system of transactions, while keeping the IOU aspect. If the IOU system is a problem, then I don't see anything good in Ripple.

[Coinseeker]

What are you talking about?  "Photocopy the contract?"     Why would an IOU issuer create 8 different $1 IOU's to represent an actual $1 asset?

You're missing the point, but to answer your irrelevant question for giggles;

It's that your point is invalid.  I didn't say it wasn't possible, I said why would they do it?  More importantly, why would you do business with them?  You're trying to suggest that every gateway must operate in some fractional way.  That's just not the truth.  You can continue to create your worst case scenarios and live by them, you're certainly entitled but that doesn't make them the norm as it relates to Ripple.