Some thoughts on Ripple

[k99]

I just looked closer to Ripple with high expectations but got finally a pretty bad impression.
Maybe I dont understand all aspects right and maybe I am missing some. I am open for comments if I am wrong with some of the following.
But at least I am not the only one who sees Ripple as at least a pretty misleading project: http://ripplescam.org

Here is my summary of that afternoons investigation:

As far as I understand Ripple, it has much more in common with the traditional banking system then with Bitcoin.
It may be an interesting modernisation for banks and may be successful in that direction as well as it supports new crypto currencies. But it is in many aspects very different to Bitcoin:
- Money as depth
- Based on trust to gateways (banks, brokers, exchanges, FED...)
- NOT decentralized (gateways)
- Controlled and issued by a company
- Not anonymous (at least when you want to convert your IOUs)
…

I think it includes the same or even higher risks as our traditional finance system.
If a gateway goes default and if it is a huge system relevant one (like MtGox or BTC China), that event could cause a default of many other gateways and a bailout by all the users with trustlines to them (if I understood Ripple correct). The trust lines are obligatory to be able to interact but not well controlled (does the user alway update the trustlines after each tx?).
The inter-gateway (interbank) transfers could cause dangerous system wide effects.

Lets think of an example:
A Ripple user could use Ripple and another exchange with very different prices for arbitrage. So he needs a trustline with at least the tx volume to the Ripple gateway exchange. The fact that there are real reasons why there is a price penalty at some exchanges (problems to get out the fiat like at MtGox, low volume, weak trust of exchanges in some countries with low legal environment, weak security or customer care,......) will be blurred behind the scenes (the exchanges negotiate inter-gateway transfers like interbanking).
That will cause some distorted balances. Say JustCoin (which has normally much lower volume and higher prices then MtGox) will hold a lot of these BTC or USD Vouchers (BTC or USD in ripple are not real, they are IOUs for that currency including the trust that some gateway will convert it back some day, just like fiat). Some day MtGox get hacked/shutdown/defaulted and simply disappears as possible gateway for liquidity for interbanking tx. What happenes to the other small gateways? Will they get desctructed by that major event like in the bank crisis the default of some big banks destroyed small ones?
What happendes to the trust lines many users has setup with MtGox to be able to do arbitrage trades? They will loose that amount (but not only the money they had "desposited" but the whole value of the trustline if they have forgotten to adjust it after every tx). There is no protection of the state for such events unlike the "100k at bank are safe" promise....(and we all pay pretty much for that insurance). Will then a FED step in as gateway to save the system if it had already reached a global system relevant size? 

Another point is the "p2p" transfer between users directly. That sounds like cool p2p and a decentralized system. But if you look closer it turn out it is the same kind of a decentralized system like a money transfer from one users bank to the other users bank. The IOU (I owe you -> debt, fiat) is transferred but it has just some value if you trust a gateway (bank, FED,…). So you can make a tx directly but with a token controlled by a central instance. Its like you send a cheque or company voucher to a friend. Its even worse as you have to implicit trust that instance and as far I have seen (not sure with that) there is no automatic adoption to the min. amount of trust needed. That trust is the same you create when doing a deposit to a bank (when paying in 100 USD you trust the Bank for 100 USD). But here the trust/risk is implicit adopted with every tx. At the end your balance is the trust/risk. With Ripple I think you need to change that trust level after every tx (if you have deposited first 1000 USD, then widthdraw 900 you still have 1000 USD trust setup). But I have not looked that close to Ripple, so maybe I am wrong here.

And there a much more problems with Ripple, best explained at http://ripplescam.org.

For me the Ripple system looks very similar to the our banking system, where we suffer from to strong interdependencies to some "too big to fail" companies and socialized losses (bailouts payed by the tax payers). Just to include crypto to that system seems for me more danger then benefit. If the bank lobby and state manage to hype Ripple as better BTC (just because it has crypto) it could become a real danger to the distribution of BTC.

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[TTBit]

sometimes an IOU of a bitcoin is worth more than an actual bitcoin and you need services such as ripple or traditional banking system. If you don't currently have the need to keep assets in IOU form, don't do it.

[bitpop]

Scam

[bonker]

i wants to sell my ripple

[PirateButtercup]

sometimes an IOU of a bitcoin is worth more than an actual bitcoin and you need services such as ripple or traditional banking system. If you don't currently have the need to keep assets in IOU form, don't do it.

I need some time to appropriately absorb and study all of the points in the original post....BUT....in terms of this quote....your bank statement and checks are IOUs from your bank... people don't actually have the stock of companies that they purchase, just IOUs from their brokers.....most gold/precious metals ownership is in the form of receipts....etc, etc.....

You should think about the ramifications of your statement, because everyone has a need to keep assets in IOU form on a daily basis....they just don't recognize it. If you want your money to work for you, keeping it liquid is the worst advice you can ever follow, as inflation will eat it. The second you put it to work, you're dealing with IOUs.

[SSC]

Ripple is not really crypto currency.

Crypto currencies are digital currencies & ripple are trying to be the digital money changer/borker.

[PirateButtercup]

Good on ya’!!! You’re coming around the curve :-) Realizing that Ripple is significantly more than a value holder like BTC or LTC is good.

There are a few points that you made which are a little off, a few aspects of the protocol that you missed and a few logical steps that you have yet to make.

First off, the consensus ledger is on a distributed network. It is not centralized. It is not run by the gateways. You can set up a server yourself and run rippleD….I am in the process of doing so myself. Here is an image you help you understand the different types of networks.




Ripple Labs doesn’t ‘control’ the Ripple network. It is much more of a guide-on-the-side. In much the same way ICANN doesn’t ‘control’ the internet. Their future functions are to be funded by the XRP they retained.

In short, it seems that you focused on the banking-like aspect of Ripple. It is also a foreign exchange market. It is also a payment system.

The vision is MUCH larger than what you’re seeing. Just as every business, bank, person, etc. has an email address, all will….should….could…what have you….have a Ripple account. When my bank opens an account, ALL of it’s members will have access to the ripple network. When my employer opens an account, they can pay me directly through the network (instead of through my bank). At this early stage, gateway’s look pretty significant……but ‘gateways’ are only really needed until such a time as all the financial systems are federated.

You can buy XRP anonymously through sites like Ripplewise. Your BTC are bridged directly into the system. Your account will stay as anonymous as you want it to be.

Ripplescam.com is a joke. Have you noticed the dates or the comments? All of the dates were prior to Ripple going open source. Many of his points can be categorically dismissed, as you can download the code yourself from github and check. The author of the post will not update his position with this information nor has he allowed any new posts since July….especially any that undermine his assertions.

I have read your post as thoroughly as I could. I'm sorry to say, but I got lost on a couple of your examples. I'll study them a bit closer later....or perhaps someone else can answer them....

I was in your position just 8 weeks ago....trying to critically deconstruct Ripple. It took me and a group of friends 2 weeks to fully get our heads around 'trust lines' .... once we did, we found it to be an over-blown issue. Other than to one gateway, most users will have no reason to use trust lines.

Now my friends and I all feel 100% certain that Ripple is an inevitable evolution to a higher form of financial networking.

[k99]

@PirateButtercup:
Thanks for your detailed answer.
 
I was not looking closer to the consensus ledger and did not mention that directly (ripplescam.org has some critics there as well). That seems to be a form of decentralized/distributed system (I would not distinguish them so sharply as in reality they are mixed).

The reason why I was investigating Ripple was the promis for a decentralized exchange.
That is for me the area missing badly in the BTC eco-system. And for that part the gateways are a central point and a single point of failure, the same way like the BTC exchanges we have now (can be easily shut down by a government). At the end I did not see any benefit using Ripples IOUs (or colored coins or vouchers) and to not directly trade on several exchanges BTC to fiat. At least I have more control and its seems more transparent to use them directly.

I see some potentials in the Ripple concept (for the existing finance industry it is for sure a very interesting project), but they are far away from that why I am interested in BTC.
In BTC I like the differences to Fiat. In BTC money you dont need trust in any central point (like exchange, gateways), my BTC is not an IOU. It is a keypair where my private key is the proove that I own it, and the only trust included is the crypto behind it and the BTC network.
Also I dont like the reserve banking concept. I dont want that my money works for the bank behind the scenes. If I want to lend my money I want to do that directly and not via a system based on that model.
Of course that does not create value from itself, value come when people are using it as money.

If I use online wallets or let my BTC balance at an exchange, I am in the IUO world. If the company crashes, my money is gone.

I am not looking for a faster payment system (I think the problem of the slow confirmation with BTC is over-estimated. It depends on the use case and there will be intermediate solutions for fast payments - probably temporary IOU based solutions) and I am not looking for a forex market or ETF (like Gold ETF holding gold for you if you trust them).
I am looking in a trustless crypto - fiat exchange. And so far I understand Ripple it does not meet my expectations.

   

[k99]

sometimes an IOU of a bitcoin is worth more than an actual bitcoin and you need services such as ripple or traditional banking system. If you don't currently have the need to keep assets in IOU form, don't do it.

Why should they be more worth?

The only reason I see that it can be more worth as its possible to use for lending. If I want to lend my BTC/money I prefer to control that by my own and not by the monetary system. Or try to tell your bank that you dont allow them to use your balance for lending. They simpyl cannot as the whole system is based on that model. You need to put cash in a bank safe to get there. But in countries like Italy or Spain cash tranfer over 1000 EUR (Italy) or 3000 (Spain) EUR is already forbidden and there a pretty high fines if you break that laws.

[mmeijeri]

But at least I am not the only one who sees Ripple as at least a pretty misleading project: http://ripplescam.org

Ripplescam.org is TradeFortress's anti-Ripple propaganda site. It's not a reliable source.

[k99]

You should think about the ramifications of your statement, because everyone has a need to keep assets in IOU form on a daily basis....they just don't recognize it. If you want your money to work for you, keeping it liquid is the worst advice you can ever follow, as inflation will eat it. The second you put it to work, you're dealing with IOUs.

You are talking about Fiat money. Fiat is IUO if it is not in form of cash, and even cash is an IUO to the FED (originally it was the promis to be convertable to gold...).
For BTC that does not apply. The money system and the credit system should be seperated. Fiat comes as a merge of them. Ripple has the same nature. BTC is pure money, you cannot lend your BTC directly via the BTC system. I am not against lending. People should be able to do that business, but that should be a seperate business, like insurances, hedgings, bettings, whatever....

[mmeijeri]

Maybe I dont understand all aspects right and maybe I am missing some.

For one you appear to be missing the fact that the IOU system is an addition to cryptocurrencies, not a replacement for it. In fact, Ripple has its own internal cryptocurrency just like Bitcoin. The IOU system and the foreign exchange system built on top of it can provide an excellent distributed exchange between all kinds of currencies, both cryptocurrencies and state-issued fiat money. This is enormously useful for all cryptocurrencies, including Bitcoin.

[k99]

Maybe I dont understand all aspects right and maybe I am missing some.

For one you appear to be missing the fact that the IOU system is an addition to cryptocurrencies, not a replacement for it. In fact, Ripple has its own internal cryptocurrency just like Bitcoin. The IOU system and the foreign exchange system built on top of it can provide an excellent distributed exchange between all kinds of currencies, both cryptocurrencies and state-issued fiat money. This is enormously useful for all cryptocurrencies, including Bitcoin.

But there is a big difference of XRP to BTC. There is a for-profit company behind it and it owns most of it. I know they say that they will give their XRP away some day and play fair, etc..... but that has to me no value (who knows who will own the company in the future?).

And I think XRP are not intended to be used as money to buy things. They are introduced to make the payment system work and prevent spam.

For me all that sounds much more as a trap to infect BTC with Fiat-like properties. To bring people to the point that they use IOUs for BTC instead of BTC directly (from their own wallets). If its faster, more convinient, maybe adds some small earnings with lending (interests) many people who dont care about the original motivation behind BTC could use it.
Look at the gold ETFs. Many people use them to speculate because they are more convinient to trade and they take the risk that the emitter is lying about the backing of physical gold. At the end the most people using that does not care about the different nature of gold against fiat. They use it to make fast profit. Like gold ETF has not much in common with real gold but very much with fiat, BTC IUOs are much more like fiat then like BTC.

As I said before the finance industry will love Ripple, and if they will not adopting it they will probably come with something similar soon.
Ripple could be a way that they keep control as well as the state. The US based ripple company and the gateways are for me too vulnerable.

I am not completely against the concept of colored coins and a layer which lets them interchange easily.
But that should come for me with the same ideas like the one behind BTC.
No need for trust to companies and states, open source and decentralized.
I think some day we will see applications for exchanging fiat or real world items to crypto with these characteristics.

[kisa2005]

Heard of "Debt - the first 5,000 years" ?

One of the Graeber's points is that credit was throughout the human history more essential than actual money, and that in most societies it existed before money. Money was introduced by rulers in order to feed their armies. Soldiers were paid in fiat, and the normal folks were incentivised to accept fiat from soldiers, in order to be able to pay taxes established by the rulers.

Credit = IOU. No economy would work or grow without credit. Credit was essential even in most primitive societies as the basic financial instrument. So credit remains crucial in the modern world. [add on after reading k99 repl: of course not to forget regular distructive credit bubbles]

BTC is amazing as fiat, but not sufficient for the financing of the economy. Ripple allows both - fiat as XRP, and credit system for any other IOUs, with XRP help. Plus possibility of most efficient FX markets in history. Plus immediate secure confirmations. Plus poor numerous populations of all continents getting access to the modern international financial system without expensive private intermediaries. E.g. look at India: http://www.cnbc.com/id/101250646 - multiple corporations sensing fat profits for introducing their mobile payment services into such markets.

That's why it is a different dimension than BTC and could evolve independently of BTC, coexist or even facilitate BTC use. Private company maintaining or "regulating" the system as well as stronger possibility of governmental supervision may sound bad to bitcoiners. From an investment consideration point though, these might ultimately be the winning features for widespread adoption throughout the international economy and trade. Herewith I am not making any judgement with regards to the aspired values.

[k99]

Heard of "Debt - the first 5,000 years" ?

One of the Graeber's points is that credit was throughout the human history more essential than actual money, and that in most societies it existed before money. Credit = IOU. No economy without credit. BTC is good as fiat, but not sufficient for the financing of the economy. Ripple allows both - fiat as XRP, and credit system for any other IOUs, with XRP help. Plus possibility of most efficient FX markets in history. Plus poor numerous populations of all continents getting access to the modern international financial system without expensive private intermediaries.

That's why it is a different dimension than BTC and could evolve independently of BTC, coexist or even facilitate BTC use. Private company maintaining or "regulating" the system as well as stronger possibility of governmental supervision may sound bad to bitcoiners. As an investment though, these might also be winning points for widespread adoption. Herewith I am not making any judgement with regards to the aspired values.

I heard about the book but have not read it. I know you can see money that way. But BTC is different to that model. It is like Gold. You can discuss which model is better. I am in the BTC/Gold camp as I have seen too much misuse and bubble with fiat.  Credit does not have to be intermixed with the money system. You can lend money from businesses specialized on that like insurance companies are specialized on insurances. I prefer the seperation.
Ripple could have influence to BTC like Gold ETF to Gold. They help to accellerate bubbles and the following crashes. So all hurts more and happens faster. For speculation its helpful but thats not why I am interested in BTC.

[k99]

Just read a bit more about TradeFortress posts. I did not know his threads here in the forum before.
He is for sure a disputable person, but this experiment with Ripples trust system should make people think!
https://bitcointalk.org/index.php?topic=206948.0

"What TradeFortress has done is a brilliant example of what Ripple is. There will be a lot of scams going on in Ripple, lot of people will get burnt." (https://bitcointalk.org/index.php?topic=206948.msg2212945#msg2212945)

[mmeijeri]

But there is a big difference of XRP to BTC. There is a for-profit company behind it and it owns most of it. I know they say that they will give their XRP away some day and play fair, etc..... but that has to me no value (who knows who will own the company in the future?).

Sure, but that's not what you were saying. Also, fairness doesn't enter into it. Ripple Labs created the software and the initial ledger, and they get to do what they want with the money. No one is under any obligation to buy and Ripple Labs isn't under any obligation either. The question is not whether it is fair, but whether it is in people's best interests to buy XRP. Since the rippling functionality is very useful for buying or selling Bitcoin and since you only need a tiny amount, I was happy to buy a little bit. I've received much more in a handout (~1000 XRP) and I've made ~200 "mining" them at computingforgood.org.

And I think XRP are not intended to be used as money to buy things. They are introduced to make the payment system work and prevent spam.

Correct. However, if Ripple is successful that means XRP will become valuable and very useful as a currency. This is how Ripple Labs aims to make a profit on their investment.

For me all that sounds much more as a trap to infect BTC with Fiat-like properties. To bring people to the point that they use IOUs for BTC instead of BTC directly (from their own wallets). If its faster, more convinient, maybe adds some small earnings with lending (interests) many people who dont care about the original motivation behind BTC could use it.

It sounds as if you've made up your mind already and are inventing arguments to attack Ripple. The IOU and foreign exchange systems are enormously useful for Bitcoin trading. The lack of distributed exchanges is Bitcoin's Achilles heel at the moment, and Ripple is changing that.

Look at the gold ETFs. Many people use them to speculate because they are more convinient to trade and they take the risk that the emitter is lying about the backing of physical gold. At the end the most people using that does not care about the different nature of gold against fiat. They use it to make fast profit. Like gold ETF has not much in common with real gold but very much with fiat, BTC IUOs are much more like fiat then like BTC.

I wouldn't trust any of the gateways to hold my money for long periods, and that includes Bitcoin exchanges too. For short durations and small amounts, it's fine.

As I said before the finance industry will love Ripple, and if they will not adopting it they will probably come with something similar soon.
Ripple could be a way that they keep control as well as the state. The US based ripple company and the gateways are for me too vulnerable.

Gateways are only there for convenience, the system can operate underground in a fully P2P manner if necessary.

I am not completely against the concept of colored coins and a layer which lets them interchange easily.
But that should come for me with the same ideas like the one behind BTC.
No need for trust to companies and states, open source and decentralized.
I think some day we will see applications for exchanging fiat or real world items to crypto with these characteristics.

There will be a role for both trusted and trustless services. Ripple offers both.

[mmeijeri]

He is for sure a disputable person, but this experiment with Ripples trust system should make people think!
https://bitcointalk.org/index.php?topic=206948.0

It takes a while to get used to the system. It looks very simple at first, then it becomes very confusing, and then you get used to it. The basic rule to remember is that if you extend a trust limit for x amount to a person, there's a risk you'll lose precisely x amount if that person defaults. Also bear in mind that your neighbours in the trust graph will make transactions on other people's behalf through rippling, and that this may affect their own balances.

[k99]

The lack of distributed exchanges is Bitcoin's Achilles heel at the moment, and Ripple is changing that.

I agree that that lack is a big problem. But I dont see that Ripple is the solution as it needs gateways which are companies (exchanges, banks,...) which can be shut down.
The only possible solution for a decentralized fiat/crypto exchange I see is to use the single users bank accounts. No government or bank can seize the bank accounts of millions of "average joe" users, but they can easily attack companies like MtGox,...

Gateways are only there for convenience, the system can operate underground in a fully P2P manner if necessary.

The system only trade IOUs, to bootstrap that system you need a lot of outside real money or many merchants accepting these IOUs. The only way how to get in Fiat are gateways. So for me that seems to be a major part of the system.
The friend2friend network may be ok. The money is debt idea (IUO) may be ok (even I dont like that). The gateways are for me the critical point. In BTC system the exchanges are not a part of BTC, they are the external environment and hopefully we get soon a better solution. The Ripple gateways are the backers of the IUO currencies (if I understood it correctly). Without a gateway you never get real USD for Ripple USD.

Maybe we rotating in circles as I focus on that part of the system and you on the p2p network...

[mmeijeri]

I agree that that lack is a big problem. But I dont see that Ripple is the solution as it needs gateways which are companies (exchanges, banks,...) which can be shut down.

It's still a major improvement. And consider Hawala, because Ripple is in part a digital verison of Hawala. Despite their best efforts governments around the world haven't been able to suppress it. And even if just one jurisdiction allows Ripple, everybody with an internet connection can use it. Bitcoin enthusiasts in China can trade in Bitstamp IOUs, even though it might be difficult to exchange them for yuan. As long as they're legal somewhere, they'll keep their value.

I don't understand how people can seriously complain that Ripple isn't perfect if it is a major improvement over what we have now.

The system only trade IOUs, to bootstrap that system you need a lot of outside real money or many merchants accepting these IOUs. The only way how to get in Fiat are gateways. So for me that seems to be a major part of the system.

The distinction between gateways and individuals issuing IOUs is blurry. Anyone can issue IOUs.

The friend2friend network may be ok. The money is debt idea (IUO) may be ok (even I dont like that).

That is the reality of fiat money and exchanges. There's no escaping except by using cryptocurrencies. To get there, we need exchanges. Ripple helps tremendously with that.

The gateways are for me the critical point. In BTC system the exchanges are not a part of BTC, they are the external environment and hopefully we get soon a better solution. The Ripple gateways are the backers of the IUO currencies (if I understood it correctly). Without a gateway you never get real USD for Ripple USD.

The fact that the exchanges aren't part of BTC is a weakness, not a strength, though that may change with coloured coins. XRP isn't any more dependent on IOUs than BTC is. Ripple's interface with the fiat system is far superior to that of Bitcoin. Ripple can do anything Bitcoin can and a lot more (the fiat interface, community credit). And the good thing is that all this good stuff benefits Bitcoin too.