Topic: Decentralized XRP distribution (Read 2898 times)
Full decentralized distribution of XRP is at odds with the stated goals of monetization through hoarding. Therefore, on account of new information that has surfaced regarding the Ripple system, I am locking this thread and preparing a new comprehensive summary of what we know.
Personally I'm not too worried about Ripple concentrating power in the hands of it's founders. The massive pre-mine and idealistic "Trust us to distribute them fairly!" approach is bad enough. But the crazy IOU and trust system is way too confusing for the average consumer. People don't want reputation-backed IOUs, they want cash in hand.
What difference is there between "cash in hand" and IOUs? The only difference I can see is in the degree they are trusted. After all, conventional cash is just as much fiat as any cryptocurrency IOU.
Personally I'm not too worried about Ripple concentrating power in the hands of it's founders. The massive pre-mine and idealistic "Trust us to distribute them fairly!" approach is bad enough. But the crazy IOU and trust system is way too confusing for the average consumer. People don't want reputation-backed IOUs, they want cash in hand.
What difference is there between "cash in hand" and IOUs? The only difference I can see is in the degree they are trusted. After all, conventional cash is just as much fiat as any cryptocurrency IOU.
In the end, the success or failure of Ripple is also in the hands of the major exchanges. Ripple has two exchanges now, if it gets 5 big ones, it will be half the way to success, whether we like that they get rich in the process or not. People that organize, take risks and the initiative will in many cases get rich in the process, sometimes with some abuses in the middle. Buy now a million XRPs, it will cost you about 10 btcs, not a big risk to try to get rich 
. Of course, they can end up with no value at all.
. Of course, they can end up with no value at all. 
Personally I'm not too worried about Ripple concentrating power in the hands of it's founders. The massive pre-mine and idealistic "Trust us to distribute them fairly!" approach is bad enough. But the crazy IOU and trust system is way too confusing for the average consumer. People don't want reputation-backed IOUs, they want cash in hand.
Despite all the furious debate happening here about XRP distribution, I suspect OpenCoin is gonna do exactly what they said they were gonna do, mostly because they consider giveaways as a better way to achive faster adoption (no non-nerdy human being can ever understand mining) and they also consider how the initial 50% of coins were distributed to be completely irrelevant to subsequent evolution of the ripple network.
Assuming OpenCoin sticks to their plan, I see two scenarios from here:
1. OpenCoin allows a few more gateways first.
2. They open the source and publish a paper.
3. Ripple gets slashdotted as "next or successor to Bitcoin"
(at this point no fork will survive because the only viable market in BTC/XRP already exists ONLY in the original distribution through bitstamp)
3. This is where they decide how to continue distributing XRPs
a. They simply keep dripping them out at the current rate of roughly 100 new accounts per day perhaps rising slowly to 1000 accounts per day by end of the year
b. They decide to do a mass distribution to millions of people ...
Let's analyse, these two cases separately
A. Things take a lot longer to launch the dripping out of XRPs continues, new gateways and nodes appear but all the activity in the network is purely for trading of BTCs vs XRPs and various fiat IOUs.
after a while ripple becomes big enough to make MtGox problem go away ... this slow evolution continues for a while until they feel confident that next 100,000 accounts can be created and the corresponding next batch of XRPs can be released. If some actual economic transactional activity appears on ripple beyond it serving as a distributed exchange, then they will be managing the floating XRP supply to track transaction volume and they will keep a ceiling on XRP price to prevent bubbles like BTC has in the summer 2011 ...
B. After all the euphoria of a mass Ripple distribution has subsided and the millions have happily handed over their tiny XRP allocations to the large XRP hoarders (hey dude, I just got some weird free internet money it's like $10 I can go out and buy some burgers). This process will be very similar to what happened during privatisation of Soviet State property (all the productive resource and mineral wealth of the Russian empire) after the collapse of the soviet union. Each household was given "vouchers" for shares in multiple state-own companies but at the same time inflation and hard economic times simply forced all those vouchers to be quickly sold for far below their real value to those who became The Oligarchs like this guy ( http://www.youtube.com/watch?v=rkB9OT2XVvA ).
4. Either way this goes, the sober financial types will eventually understand the following:
Yes Ripple has all the good attributes of Bitcoin and removes its 7 TPS transaction limit and other scalability bottlenecks, its allows transactions in any asset (not just currency) class, allows lines of trust, IOUs, etc, etc, etc ... basically it's the iPad to Bitcoin's Linux 1.0.
However, and here's the crucial problem with ripple (although it need NOT be fatal): Ripple XRPs do NOT have any counter party risk (like gold, silver or vanilla (non-IOU) BTCs)
but Ripple network has Inherent Systemic Risk which comes from unpredictability of if and when a massive disgorgement from the remaining 50% of the ripple hoard might occur.
This massive dump of XRPs can happen with or without OpenCoin, Inc or their founders wishes. Competent divorce lawyers for one of the founder's wives can extract her few billion XRPs and she can decide to dump ALL of them at once even tho it might be against her own economic interests, simply to destroy her ex-hubby's legacy. Another way would be for OpenCoin or its founders to be compelled to release the keys to XRP Fort Knox by some law suit or simply by G-men threatening them with charges.
This Systemic Risk does not exist in Bitcoin, therefore Bitcoin makes for a better "store of value" currency, while ripple XRPs might make for a a better "transactional currency".
In conclusion:
1. Both systems have the essential attribute of Finite Upper Bound on total possible number of currency units and therefore both posses "Scarcity" attribute (although in Ripple disgorgement might make scarcity "volatile")
2. Both systems have are very useful, therefore a market price for Ripple will emerge just like it has emerged for Bitcoin.
In the long run total relative market capitalization of both systems will depend on their usefulness (as store or value or transactions or a mix of the two).
Let the race begin ... (I guess the real start of the race will be the release of Ripple source code)
Cheers ....
Assuming OpenCoin sticks to their plan, I see two scenarios from here:
1. OpenCoin allows a few more gateways first.
2. They open the source and publish a paper.
3. Ripple gets slashdotted as "next or successor to Bitcoin"
(at this point no fork will survive because the only viable market in BTC/XRP already exists ONLY in the original distribution through bitstamp)
3. This is where they decide how to continue distributing XRPs
a. They simply keep dripping them out at the current rate of roughly 100 new accounts per day perhaps rising slowly to 1000 accounts per day by end of the year
b. They decide to do a mass distribution to millions of people ...
Let's analyse, these two cases separately
A. Things take a lot longer to launch the dripping out of XRPs continues, new gateways and nodes appear but all the activity in the network is purely for trading of BTCs vs XRPs and various fiat IOUs.
after a while ripple becomes big enough to make MtGox problem go away ... this slow evolution continues for a while until they feel confident that next 100,000 accounts can be created and the corresponding next batch of XRPs can be released. If some actual economic transactional activity appears on ripple beyond it serving as a distributed exchange, then they will be managing the floating XRP supply to track transaction volume and they will keep a ceiling on XRP price to prevent bubbles like BTC has in the summer 2011 ...
B. After all the euphoria of a mass Ripple distribution has subsided and the millions have happily handed over their tiny XRP allocations to the large XRP hoarders (hey dude, I just got some weird free internet money it's like $10 I can go out and buy some burgers). This process will be very similar to what happened during privatisation of Soviet State property (all the productive resource and mineral wealth of the Russian empire) after the collapse of the soviet union. Each household was given "vouchers" for shares in multiple state-own companies but at the same time inflation and hard economic times simply forced all those vouchers to be quickly sold for far below their real value to those who became The Oligarchs like this guy ( http://www.youtube.com/watch?v=rkB9OT2XVvA ).
4. Either way this goes, the sober financial types will eventually understand the following:
Yes Ripple has all the good attributes of Bitcoin and removes its 7 TPS transaction limit and other scalability bottlenecks, its allows transactions in any asset (not just currency) class, allows lines of trust, IOUs, etc, etc, etc ... basically it's the iPad to Bitcoin's Linux 1.0.
However, and here's the crucial problem with ripple (although it need NOT be fatal): Ripple XRPs do NOT have any counter party risk (like gold, silver or vanilla (non-IOU) BTCs)
but Ripple network has Inherent Systemic Risk which comes from unpredictability of if and when a massive disgorgement from the remaining 50% of the ripple hoard might occur.
This massive dump of XRPs can happen with or without OpenCoin, Inc or their founders wishes. Competent divorce lawyers for one of the founder's wives can extract her few billion XRPs and she can decide to dump ALL of them at once even tho it might be against her own economic interests, simply to destroy her ex-hubby's legacy. Another way would be for OpenCoin or its founders to be compelled to release the keys to XRP Fort Knox by some law suit or simply by G-men threatening them with charges.
This Systemic Risk does not exist in Bitcoin, therefore Bitcoin makes for a better "store of value" currency, while ripple XRPs might make for a a better "transactional currency".
In conclusion:
1. Both systems have the essential attribute of Finite Upper Bound on total possible number of currency units and therefore both posses "Scarcity" attribute (although in Ripple disgorgement might make scarcity "volatile")
2. Both systems have are very useful, therefore a market price for Ripple will emerge just like it has emerged for Bitcoin.
In the long run total relative market capitalization of both systems will depend on their usefulness (as store or value or transactions or a mix of the two).
Let the race begin ... (I guess the real start of the race will be the release of Ripple source code)
Cheers ....
Yes, the mob will love those "rebel Robin Hood Ripple billionaires who made obsolete the "bankster cartel" along with wall street and commodities exchanges.
LOL, Okay, I guess I am a member of the mob already
The masses love it when someone becomes a billionaire like that, Bill Gates, the Facebook guy, they will love elevating the Ripple guys the same way. They aren't going to care about a bunch of frustrated free software geeks. They could probably give you a head start and still win the masses, just because they have a corporation... That the corporation will become rich just makes it even better, maybe the masses will even be eagerly awaiting an I.P.O. they imagine will make them rich too.
-MarkM-
-MarkM-
Yes, the mob will love those "rebel Robin Hood Ripple billionaires who made obsolete the "bankster cartel" along with wall street and commodities exchanges.
The masses love it when someone becomes a billionaire like that, Bill Gates, the Facebook guy, they will love elevating the Ripple guys the same way. They aren't going to care about a bunch of frustrated free software geeks. They could probably give you a head start and still win the masses, just because they have a corporation... That the corporation will become rich just makes it even better, maybe the masses will even be eagerly awaiting an I.P.O. they imagine will make them rich too.
-MarkM-
-MarkM-
Once the rippled source code is avaliable this could be an interesting fork to try, if enough bounty is available to motivate coders to code it.
True but this is where I get angry: OpenCoin is keeping their software closed source for as long as necessary to bootstrap the network and grow adoption to a point where forks are not viable. In essence they are co-opting the good will produce by Bitcoin. If Bitcoin didn't already exist in hearts and minds, Ripple would be dead on arrival.
OpenCoin already bought off two gateways with the bribe of privileged access to software and a generous bounty of XRP credits. Already they are off to a bad start in terms of credibility. It's easy to see how the first few gateways will have an enormous early adopter lead and effectively control the market with their IOUs, which will always have a higher trustworthiness over anyone else simply because they had more time. Just look at the problem we have with MtGox. And Ripple, which was theorized to solve the problem of centralized exchanges, appears to be maintaining the status quo with "too big to displace" gateways!
Once the rippled source code is avaliable this could be an interesting fork to try, if enough bounty is available to motivate coders to code it.
-MarkM-
-MarkM-
This proposal re-aligns the interests of Ripple development with the interests of the community by taking away the conflict of interest.
1) OpenCoin updates the node software to reject transactions that transfer XRPs out of founder accounts. This effectively takes the 100 billion XRP (minus what has already been given away) out of circulation.
2) Node software is modified to accept special "mining transactions" as part of the consensus.
3) A "mining transaction" takes the form of an increase of a total of 2,000 XRPs to one or more designated account balances (the sum of increases to each account must total to more than 2,000 XRP)
4) The mining transaction also includes a proof of work, which is a nonce (256 bit number) that, when added to the "source material" produces a SHA-256 hash which is less than the current difficulty. The mining transaction refers to a specific ledger number (more on this below)
5) The "source material" for computing the hash consists of the body of the ledger entry with the specified ledger number. For a mining transaction to be valid, the ledger number that it references must exist and be larger than the ledger number of any other mining transaction that was previously accepted into the ledger. This scheme is designed so that the verification of the proof of work is O(1) with respect to the number of ledger entries that need to be examined.
6) Mining transactions are no longer accepted after 100 billion XRP have been created using this method.
7) The difficulty is updated every 200,000 mining transactions in such a way as to ensure that the average rate of valid mining transactions produced is one per 10 minutes.
This system fits in perfectly well with the existing Ripple ledger system and as such should be completely compatible with what is already there. Given that the developers of Ripple already have a great familiarity with Bitcoin, it should be fairly easy to implement.
The constants can be tweaked of course (it doesn't matter if the mining happens every minute or ten minutes). The schedule for XRP creation can also be tweaked. For example, have the reward start at 10,000 XRP and decrease it every so often in a manner much like Bitcoin. The general principle is the same. XRPs are produced by miners at a predetermine rate.
This scheme takes the distribution out of the hands of OpenCoin and puts it in the hands of miners. Anyone can become a miner. It is presumed that those who mine XRPs can then sell them on the open market via the Ripple software itself and receive IOUs in the currency of their choice, including Bitcoin. It ensures that the price of XRPs cannot be manipulated by large players.
It is true that new users will have to "buy" their way into the system. The only way to open a new account would be to go to a gateway, pay some currency (BTC or fiat), and receive the necessary XRP into their account (200 XRP reserve requirement). But this will HAVE to happen anyway under the current system. Once OpenCoin distributes their 50 billion free XRP, the only way for new people to enter the system will be to buy the XRP on the open market.
This mining technique / proof of work makes sure that there will be hundreds, thousands, or tens of thousands of people to buy their XRPs from (the miners) instead of just OpenCoin.
Another great benefit of this system is that it makes mining more profitable for Bitcoin miners, since they can now accumulate XRPs at almost no additional cost via merged mining. This means that the Bitcoin network hash rate will settle at a higher equilibrium than otherwise, giving it greater security.
1) OpenCoin updates the node software to reject transactions that transfer XRPs out of founder accounts. This effectively takes the 100 billion XRP (minus what has already been given away) out of circulation.
2) Node software is modified to accept special "mining transactions" as part of the consensus.
3) A "mining transaction" takes the form of an increase of a total of 2,000 XRPs to one or more designated account balances (the sum of increases to each account must total to more than 2,000 XRP)
4) The mining transaction also includes a proof of work, which is a nonce (256 bit number) that, when added to the "source material" produces a SHA-256 hash which is less than the current difficulty. The mining transaction refers to a specific ledger number (more on this below)
5) The "source material" for computing the hash consists of the body of the ledger entry with the specified ledger number. For a mining transaction to be valid, the ledger number that it references must exist and be larger than the ledger number of any other mining transaction that was previously accepted into the ledger. This scheme is designed so that the verification of the proof of work is O(1) with respect to the number of ledger entries that need to be examined.
6) Mining transactions are no longer accepted after 100 billion XRP have been created using this method.
7) The difficulty is updated every 200,000 mining transactions in such a way as to ensure that the average rate of valid mining transactions produced is one per 10 minutes.
This system fits in perfectly well with the existing Ripple ledger system and as such should be completely compatible with what is already there. Given that the developers of Ripple already have a great familiarity with Bitcoin, it should be fairly easy to implement.
The constants can be tweaked of course (it doesn't matter if the mining happens every minute or ten minutes). The schedule for XRP creation can also be tweaked. For example, have the reward start at 10,000 XRP and decrease it every so often in a manner much like Bitcoin. The general principle is the same. XRPs are produced by miners at a predetermine rate.
This scheme takes the distribution out of the hands of OpenCoin and puts it in the hands of miners. Anyone can become a miner. It is presumed that those who mine XRPs can then sell them on the open market via the Ripple software itself and receive IOUs in the currency of their choice, including Bitcoin. It ensures that the price of XRPs cannot be manipulated by large players.
It is true that new users will have to "buy" their way into the system. The only way to open a new account would be to go to a gateway, pay some currency (BTC or fiat), and receive the necessary XRP into their account (200 XRP reserve requirement). But this will HAVE to happen anyway under the current system. Once OpenCoin distributes their 50 billion free XRP, the only way for new people to enter the system will be to buy the XRP on the open market.
This mining technique / proof of work makes sure that there will be hundreds, thousands, or tens of thousands of people to buy their XRPs from (the miners) instead of just OpenCoin.
Another great benefit of this system is that it makes mining more profitable for Bitcoin miners, since they can now accumulate XRPs at almost no additional cost via merged mining. This means that the Bitcoin network hash rate will settle at a higher equilibrium than otherwise, giving it greater security.
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