Topic: PSA: 'Bitcoins' in Ripple are not Bitcoins. They are not real, can be seized. - page 3. (Read 8445 times)

Gateways are only necessary because Ripple is going to have to coexist with fiat currencies for a long time.  It's a hard sell to suggest that we can just up and do away with fiat currency entirely before too long -- in the meanwhile, the more of your value you can get out of the Gateways and into helping people, the better.

These OpenCoin guys are geniuses. They create a system that reproduces the old banking system in a distributed way - you do not hold any real asset, only debt, with all the negative incentives that this produces (and which Bitcoin was designed to address).

Then, they launch their own cryptocurrency, which is the only real asset you can hold inside the Ripple system - so the logical step for users is to value Ripples more, as it is "real" money and not "paper money" or debt.

Anyhow, I see many flaws in Ripple. Its complicated, and gateways will for sure abuse the trust they were given. People will think this is Facebook, they will start to trust each other, and as soon as they realize they can create money out of thin air... Well, you can imagine what will happen. And we all know that debt based systems collapse.

Again: Ripple is everything Bitcoin is against. Bitcoin was designed to make you free and independent. With Ripple your money is still in the hands of your "trusted gateways" and their fractional reserverve.

I'm going to have to disagree with misterbigg about the future of Ripple and the advisability in speculating in XRP although having just met him at the conference I will say I enjoyed talking to him.

Ripple is neither a currency nor is it a payment system; it's an accounting system. You can use it as one of the components needed to build a multi-currency payment system but by itself Ripple is not a complete solution. Gateways as Opencoin has described them don't interest me much due to legal liabilities issues.  I can see how a P2P network of people with relative high levels of financial education could use Ripple to pool their fiat liquidity and really make the transition between Bitcoin and legacy currencies easier, but in a future scenario where Bitcoin is a mainstream currency I don't know if Ripple will be needed.

Misterbigg, thank you for this very clear explanation. I now comprehend the process quite well. Kudos to you.

That might have been the whole point of the original Ripple by Fugger, but that never really scaled up or addressed existing problems like having a distributed exchange. The new Ripple certainly incorporates the "web of credit" in the spirit of the original but as you said, it remains to be seen whether this will work or not.

On the other hand, we know that the gateway model will work. If person to person trust actually becomes viable it would be amazing because then we can handle fiat almost as well as the way that Bitcoins are handled (decentralized). But its not so clear to me that it will work.

Micon it's nice to see your questions and legitimate complaints expressed in a civil fashion. I totally agree with you that Ripple is hard to understand at first. Perhaps the easiest way to understand Ripple is to recognize the similar ways that you already accept IOUs and currencies. I'll use MtGox as an example:

Imagine you wire some money over to MtGox because you want to buy Bitcoins. A few days after you wire the money, the balance appears in your MtGox account and is visible when you log into their site. Now you look at the order book and decide to place a few orders. Eventually they execute and you are left with both a USD balance and now a BTC balance. Both of these balances are visible on the MtGox website. At this point you decide that you would like to have your dollars and Bitcoins so you go to their Withdrawal page and first ask them to wire you the remaining USD balance to your bank account, and then have them send your Bitcoin balance to your wallet address. An hour or two later the bitcoins appear in your wallet, and hopefully a few days later your bank account shows the dollars.

Ripple functions almost identically to this example! Using Ripple to perform these actions would look like this:

You choose a Ripple gateway that you trust (right now Bitstamp is the largest gateway but that will change as more appear). You open an account at the gateway then you wire some dollars over to the gateway. A few days later the balance appears in your gateway account when you log into their site (bitstamp.net for example). Now you "withdraw" the dollar balance into Ripple. Logging into your Ripple wallet client (http://ripple.com/client) you will see that you hold a USD balance from your gateway. You look into the BTC/USD order books inside the Ripple client and place a few orders. Shortly after, they execute and you are left with a BTC and USD balance showing. Now you decide that you want to cash out so you "Deposit" the BTC and USD from Ripple back into your gateway account. You log into your gateway account through their website and you can see your BTC and USD balance. You go to the Withdrawal page at the gateway and first ask them to wire you the remaining USD balance, and then have them send your Bitcoin balance to your wallet address. An hour or two later the bitcoins appear in your wallet, and hopefully a few days later your bank account shows the dollars.

What's the difference between this and MtGox? Imagine if you had a $100 balance at MtGox and you could transfer that balance not just to any other MtGox user but to any user in general. That's the power of Ripple! If you are holding IOUs from a gateway, Ripple's decentralized system allows you to send those IOUs to anyone who will accept them in a cryptographically secure manner. You can use those IOUs to trade in the built-in distributed order books to receive BTC IOUs, exchange them for other currencies like Euro IOUs, or anything.

As long as you trust the gateway to redeem those IOUs back into whatever they are supposed to represent (like dollars or Bitcoins), then the balances in the Ripple system are as good as the money they represent.

Can you lose money? Yes. You don't hold actual Bitcoins in your Ripple wallet, you hold a gateway's promise to pay bitcoins later. If the gateway defaults you can lose up to the entire amount of their debt that you hold. This is no different than having a BTC and/or USD balance at MtGox, and they freeze your account or otherwise refuse to redeem your balance.

A lot of bitcoiners might complain that having to trust a gateway is the very problem that Bitcoin is intended to solve, and to a certain extent they are right. However, this overlooks the fact that it is impossible to completely avoid interacting with the fiat money system. Rather than thumbing its nose at the banking system and asking for a fight, Ripple plays nicely with it to the extent that it can. It provides tremendous functionality. You do have to find a reputable gateway for IOUs to have value.


"XRP" (often confusing called "Ripples") is a crypto-currency that is built into the Ripple system. Like bitcoins  there can only ever be 100 billion of them, and they are divisible to many decimal places. Unlike bitcoins, they are not mined. Instead, the "genesis ledger" (this is similar to Bitcoin's genesis block) was created with 100 billion XRPs sitting inside an account whose private key is owned by the founders of the Ripple system.

Ripple uses XRPs to pay for transaction fees. The XRPs used to pay for transactions are destroyed (this might seem counter intuitive but trust me its the right thing to do). XRPs are also held as reserves in your account to allow you to do certain things. For example, in order to even create a Ripple account you need 50 XRPs to sit in there. XRPs used as reserves cannot be sent to any other account, but they can be used for transaction fees. Essentially once the XRPs are used as reserves they are "stuck" or "sequestered", unless the network decides reserve requirements should be lowered because they are too expensive.

OpenCoin states that 20 billion XRP is held by the founders of the software, with the other 80 billion going to OpenCoin. Out of this 80 billion, a full 50 billion will be given away to promote the usage of the system (in other words, to make new account creation essentially free for a time). The remaining 30 billion will be held and sold from time to time by OpenCoin in order to fund its operations. Holding and selling XRP is the only way OpenCoin can make money.

Because XRPs are sequestered as reserves, OpenCoin can give away a lot of them without causing the price to drop, since reserves cannot be sent to other people or used to buy IOUs.


XRPs are different from IOUs. XRPs are not debt. Anyone with a Ripple account can issue IOUs. The trick is getting people to accept your IOUs. Realistically speaking, only IOUs from a gateway will have any significant value or liquidity. Gateways are corporations with legal standing, and should be licensed and fully regulated in their jurisdiction. This is why you can hopefully trust their IOUs. Gateways also need to hold customers' funds on deposit.

It seems Bitstamp and WeExchange were very interested in operating as gateways early on, while other exchanges were not. I see no evidence that OpenCoin is restricting companies who want to get on board. Quite the opposite, it would seem to be in their best interest to have as many gateways as possible. The more gateways, the better, because there are that many more ways to get money into and out of the system. Compare this with Bitcoin, where MtGox is the bottleneck and lifeblood of almost all the Bitcoin businesses. If MtGox was to close down it would disrupt Bitcoin significantly for a while. With Ripple, having many gateways allows many points of entry; Once you have deposited funds in a gateway they can be used anywhere, not just in MtGox' order book.


Yes it is possible:

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


Complex yes. And very much needed!


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.

We are not overplaying it because *that is the whole point of Ripple*.  The amount of trust between people dwarfs and will continue to dwarf by orders of magnitude any trust to gateways -- though it remains to be seen how much of that trust will actually make its way onto the ledger.  I think I have ~200$ in gateways, and about ~16,000$ in people.  That's about a 80:1 ratio and I would expect others to have similar ratios, once they get that this is a possible and useful thing.

This is outside of the scope of Ripple as Ripple itself but it is perfectly reasonable, when offering credit to someone, to demand something in return for it, like collateral or signing a document or something.


I won't even justify this with an answer unless you clarify that you care about other people as human beings, and their interests and rights and human dignity.


The difference between Prosper and Ripple is that Prosper is about profit.  It isn't about getting to learn about how people around you use their money, and helping them, as a group, use it more effectively.  Transparency is good, and it should be something that comes along with any credit, really, as much as possible.


But the thing is -- all you need is the trust between individuals.  In practice, that is all all of our societies run on, as is, really.  Trust aggregates and scales in practice.

How would you go about accomplishing this via the Ripple system?  How do I set the condition that any credit offered is legally binding?


Yes, you can keep it "alive" forever but will it be collectible?  That's all I care about.


I agree.  However, I'd like to see it work well.  I'm willing to wait and see but I'm still voicing my concerns.


I thought like this at one time too.  The reality of Prosper brought me out of this fantasy.  You cannot spread out risk when risk cannot be effectively measured.  This all goes back to transparency, something Ripple lacks.  Yes, on a very small scale Ripple might work if you only trust your buddy or someone you know very well, I'm talking about Ripple on a much larger scale.  This is where I see the business model start to fall apart.

I think that's likely to be true. But then I wonder why bother at all then? The current system(s) already transfers funds for a fee. If the upside of Ripple is just modestly cheaper transaction fees -- a questionable assumption from what I have read -- I don't see the big deal.

I wouldn't be so sure about that. I think people are overplaying the community / self-issued credit thing. While the person to person "web of credit" sounds appealing there are practical problems with its implementation.

Almost all debt in the Ripple system will come from gateways. Even the word "debt" is misleading because when we think of debt we think of consumer debts like mortgages. But gateway debt and debt in Ripple in general is not like those things.

Debt in Ripple is more like what happens when you deposit money into MtGox. The exchange "owes" you US dollars, which can be redeemed by wire transfer, etc...

Which is why you should only loan what you are willing to lose.  The system will work with that.


Depends if you make them so.  That is up to the people making the connection.  Some people will only offer credit if the conditions for the offer are legally binding.  Others, will trust unscrupulous people with 100BTC for no reason at all.  And lots will happen in between.


What is a FICO score?  It is an abstraction of whether or not a person is expected to pay their debt.   Ripple is an competitor system to FICO and it is reasonable to pay no attention to FICO but keep your Ripple connections in good standing, because quite frankly, FICO is an inhumane institution that does not have the interest of the people it manages at heart.

In the future if these institutions are useful, they will be implemented in a decentralized way.  But for the moment I wouldn't be worried about it, unless you're thinking of putting serious amounts of value into the Ripple network instead of just being a user.  In which case, you should probably be using Villages.cc, not OpenCoin's implementation(as it's not done yet and they could still yet have a jubilee before it's released).

Thanks for making Ripple more popular than ever.  Caught one of your scam artists in the currency exchange too.  Hope you're planning to pay them in exchange for the reputation they just lost.  Really sad you are spending all this time and money just to mislead and scam people.  Why anyone is taking him serious, is beyond me.

You know, there's concerns and complaints that are justified, but this is just psychotic behavior at this point.  When the server source code is released, we'll all have the facts.  Continuing to scam people is just low by any human standards and I can't believe the moderators allow this nonsense to continue.  Or at least move this nonsense to the "Speculation" board, where the rest of the "speculation" is done, because that's all this is.  What because he bought ad space, he's legit?  Or the ad revenue superseded righteousness?  Disgraceful.

Now I'd say you should be ashamed but I know you're not.  You're enjoying ridding the Ripple bandwagon, just to improve your own profile popularity and boost your web traffic.  Cheap tricks that are not even remotely original.  That's all for now...please feel free to delete this post as you have the others.  Wouldn't want too many people calling you out in your own ridiculous thread.

For everyone else, wait and see.  Then hold Ripple's feet to the fire.  Ripple has made their claims and will be held accountable.  Reasonable people get that, ideological nut jobs do not and can not because they are not rational individuals.  They will seek to destroy anything they dislike, instead of just not using something they don't like.  Haters is the easiest word to describe them.  Haters.

Ripple forces you to do nothing.  Ripple allows you to take debt, if it makes sense for you to do so.  It also offers you the option of creating debt for others to take.  It as a system acknowledges that money is debt, regardless of whether the underlying asset is or not (such as bitcoin).  No one is forced to do anything with ripple, except that when you have created debt, your debt automatically is treated as something the system can work with and allocate in an efficient way, depending on the needs of the network.

When there are tens of thousands of Ripple exchanges, it will be very impractical to police any substantial portion of them.

There is a tradeoff.  Obviously it's not "just as good" -- but the fact that people you trust can spend your bitcoins with justcoin if they need it is valuable in and of itself.  I mean, you would want to give something of value to all those people you sent 1BTC to on the other thread right?  Having their ripple credit allow them to use justcoin would do just that.

Ripple is NOT a bitcoin competitor.  It is a complement.

tradefortres, to be fair the community should wait for the source code to be released and then fully judge it.
it does sound like it has several pitfalls at the moment.
trading xrps (as in buying them) should probably be avoided unless you want to do high stakes gambling.

The gray area with Ripple "debt" is what troubles me most.  Debt is granted with the expectation of being repaid.  However, in the Ripple system I'm not even sure there is legal recourse you could take against someone if they were to default on you.  As I mentioned earlier, we're already dealing with unsecured debt, which already leaves the creditor with very little recourse but on top of that, these IOU's or whatever you want to call them, are they even legally binding?  

Even in peer-to-peer lending, you had the ability to sick debt collectors on a defaulter, hurt their FICO score, etc.  This was done through the peer-to-peer medium (i.e. Prosper) and not done by the actual creditors.  Is Ripple going to play collection agency?  I don't think they will nor do I think they can, not in a decentralized exchange.  So again, everything falls back on a system that is predicated purely on trust.  And rather opaque trust at that.  I'd like to see a real world example where a PURE trust-based system has been successful on a grand scale.  It doesn't work.  People follow the rules because if you don't, there are consequences.  If you take away the consequences and expect everyone to play fairly, you're incredibly naive.

How long will bitcoin be around?  Does it matter?  You could use the same argument against mtgox or any online service which allows you to deposit BTC into it.  "Sure mtgox lets you keep your BTC on their service...but for how long?"

If you have trust issues, that's your problem.  But if you trust someone for 1BTC, and that person trusts someone else for 1BTC, then that 1BTC of value can be transferred between you.   You do not need a "real" bitcoin in order to make a transaction happen, and that's the whole point.  Let the "real" bitcoins stay in a more secure location and let trust be allocated via 'lighter' ways.

...

The whole point of Ripple is that there will be *many* gateways and that a complete loss of one will only be a trivial problem.  Sure there's only a few right now, but there will be no barriers beyond legal ones(and good luck with that).


Equivocation.  You owned something, and that something can be recreated.  Unlike real bitcoin a balance can be reinstated after a hard disk is lost.  Obviously not all gateways are going to do this but there's nothing preventing a balance of 1BTC from being put right back after a hard drive is taken.  As you've pointed out these are not bitcoins these are *promises* of bitcoins, which is a different thing but, when treated right, can function *just as much of a currency as bitcoins themselves*.


I would encourage people who believe this go check out the source code to villages.cc and other releases of Ripple.  It has been a continuing path of decentralization, ending at the next version which is not yet released but which TradeFortress seems to have some kind of an issue with.


Which is fantastic, if you're living in a cabin in the woods and don't have any friends but can still order stuff at gunpoint off of the internet.

Unfortunately most of us *do* trust people and our trust is limited to fairly local trust networks, and mostly sits unused.

Ripple allows you to use that trust so you, along with your entire community can build wealth that is not available without it.

History repeats itself. Don't blindly follow Satoshi, but as someone who has created Bitcoin, you have to give their word a moment of thought.

Satoshi has NEVER commented on Ripple.  TradeFortress is building an argument based on misunderstandings of what Ripple is.

You're over-thinking

Consider this - the US used to be on a min-ripple system, the gold standard. People routinely traded in their gold for paper IOUs and bank IOUs (and vise-versa). Ripple is a way to do this for all assets. We're getting lost in why people would want to turn in perfectly good assets for IOUs of said asset, but there can be advantages of doing so.