Bitcoin without mining
Re: Distributed Bitcoin Exchange
NOTE: This post is idle speculation. Please treat it as such. I do not work for OpenCoin. I have no privileged information that doesn't come from forums or OpenCoin web sites
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So the other day I was trying to explain how OpenCoin might not actually be XRP speculators (as is the common wisdom). My basic guess was, maybe OpenCoin plans to just sell XRP to other companies so they can use XRP to activate their user's Ripple accounts. Seemed a plausible expedient way to see some substantial ROI. Then ahbritto posted something that has been nagging at me ever since. Re: XRP Ripple money what advantage ?
Quote from: ahbritto
In the federation model, even with a million end users a gateway would only have two accounts: the hot and cold wallets.
Further, end users can remain completely ignorant of Ripple: XRP, trust, reserves, offers, the client.
Later while reading this thread, virtual currency trading wars bitcoin versus ripple xrp Further, end users can remain completely ignorant of Ripple: XRP, trust, reserves, offers, the client.
I run across a web article that concludes:
Quote
Should Bitcoin believers be worried that Ripple is on its way to crush their dream currency? Absolutely not. Interest in Bitcoin will continue to grow, and separately, interest in Ripple will continue to grow. In fact, the Ripple network should help make bitcoins substantially easier to buy and sell, as well as legitimize them. Our take on it is that XRPs will primarily be held by institutions, while bitcoins will primarily be held by people. On a transactions level, XRPs will primarily be used in money transfers between institutions, while bitcoins will primarily be used to store wealth and buy things. If you’re a trader, you should be long term bullish on both.
Normally I would just dismiss that out of hand, EXCEPT I noticed a comment by JoelKatz on the article.Quote from: David Schwartz, May 24, 2013
I’m going to start pointing people to this. It does a better job of explaining Ripple than we’ve been doing.
--- Begin Idle Speculation -----
So maybe, XRP and Ripple Accounts aren't designed for us after all. Maybe OpenCoin is starting to see Ripple as simply THE GLUE between other financial services providers. Basically, a peer-to-peer international version of the Automated Clearing House (ACH).
Please note that in this vision, we (currency users) are NOT the peers in BitCoin's sense of P2P. Nor are currency users even necessarily Ripple address/account owners. We might simply be Google Wallet users sending money to users of (China's version of PayPal). Or Dwolla users buying Zynga freemium upgrades. The actual Peers would be "federated" companies like PayPal, Google Wallet, Dwolla, FaceBook, Zinga, XBox Live, etc. Basically anyplace where users can have accounts and any type of currency or credits. The Ripple System just handles the inter-company exchanges and currency conversions. (Send $10 from google/sourceID to dwolla/destinationID.)
This concept substantially reduces the scalability issues inherent in Ripple ledger maintenance and consensus building. It also creates an pretty substantial business model for OpenCoin's XRP stash. They become the inter-currency market-maker by using their XRP as intermediate currency.
Note that being a "market-maker" doesn't require speculation. OpenCoin would make money on the ask/offer spread. Notice that if you want to exchange $1,000,00 USD for its equivalent in OTR (other) and you use XRP as an intermediate currency. Then there needs to be $2,000,000 USDs worth of XRP liquidity in the marketplace in order to determine a price.
USD/XRP (OpenCoin sells $1,000,000 worth of XRP at "ask")
XRP/OTR (OpenCoin buys $1,000,000 worth of XRP back at "bid")
Big companies exchanging currencies don't have to care what the actual price of XRP is. They only have to care about the overhead inherent in the spread. Normally, market speculation keeps the market spread small. But conversely, if OpenCoin keeps the spread small on their own, it reduces the incentive for other speculators to even try to compete.
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So I see two possible Ripple Systems.
Ripple 1.0 - The Ripple I presumed was being built. An improved version of BitCoin, with faster transactions, low volatility and much improved usability. But one that kept BitCoin's essential P2P vibe. "We users, are creating, owning and trading currencies AMONG OURSELVES."
Ripple 2.0 - A Ripple that seems much more appealing to venture capitalists. One where increased interoperability and reduced costs provide a, hopefully, compelling new feature to an existing user base. "This company I'm funding can inter-trade with these other companies you're funding. Our users will pay extra for convenience."
I guess the open question is, "Should any of this matter to me?"
Does it matter to you if Ripple becomes version 2.0 instead of becoming 1.0 first?