Topic: Ripple and Trust - page 2. (Read 4030 times)

Okay, from what I see in Ripple here is my suggestion:

1. The principal mistake with XRP, it might be a result of the commercial nature of the project, is that it is created as a currency. XRP has to be a bond, not a currency!
2. The bond issuer must not be a single company but the pool of Ripple severs that maintain the shared Ledger. The bond holder should be every Ripple customers that is willing to transact on Ripple network. This is why customers must purchase these bonds in advance.
3. XRP bonds will represent transaction reference/numbers reserved on the General Ledger for future transactions. Bonds are redeemed if they are attached to a transaction. Until used (redeemed) they can be freely sold to new owners at market rates using Chaum's blind signature mechanism to transfer ownership and later verified by the issuer when redeemed by a digital bearer.
4. XRP bonds will have expiry date (the needed demurrage effect), say 3 months or 6 months after they are issued by the issuer. After this period they are considered null and void. This is why bond holders will have incentive to sell them if they think they've more bonds than they'll need to pay with for their transactions. The number of currently issued and not redeemed XRP bonds as well as their respective expiry dates must be absolutely transparent to the entire system in every single minute!
5. Very convenient tool to issue XRP (as tn bonds) is offered by colored bitcoins project. Actually, XRP bonds will be colored bitcoins! After they are redeemed or expire XRP bonds are just ordinary bitcoins.
6. Different transaction types on Ripple network must require different number of XRP to be paid (redeemed) by the user. It must be a dynamically defined number depending on current server load as well.
7. The IOU's must have expiry date as well. Never forget, Ripple servers will have to maintain the network irrespective of customers' activity! If used in a transaction that changes the record kept at the corresponding gateway then their expiry date is automatically extended. In other words, if IOUs are used as cash-only they must have maximum life span like bank bills are worn-out while changing hands.
8. A mechanism for internal competition between Ripple servers issuing XRP bonds must be set in place to ensure maximum value for bond holders.
9. A proof of work must be implemented before a server is allowed to become a part of the pool issuing XRP bonds!
10. Very strict economic model must be developed for all the participating groups maintaining Ripple network so that they all have equal potential for profitability.

Ripple server is the key indeed and more can be suggested only after its source is opened.

This might be helpful: https://ripple.com/wiki/Transit_Fee

The people who provide liquidity between them might end up putting them at different qualities, which would do exactly what you described. All put together, there'd be a complicated equilibrium between the various Ripple BTC/USD exchanges, the transit fees and debt qualities of the liquidity providers, and countless other effects. In any situation where they're not trading 1 for 1, there's potentially a profit opportunity for arbitrageurs. Whether that's profitable in at any given moment ultimately depends on the fees for moving real-world funds between the various exchanges and gateways, as well as the amount of risk associated with holding funds in any particular gateway.

I suspect in practice Ripple would have the effect of removing a lot of the friction in moving funds between exchanges, making the exchange rates closer on average than they are now.

Ah! This is in interesting piece of info. Joel, thanks for taking the time to explain everything to us. Someone has to do it

Touching on a point made earlier - currently, BTC-E rates are about 97% of MtGox rates (29.00 BTC-E vs 29.75 MtGox)

If both become active ripple gateways, would the bitcoin/usd exchange rates merge, or would BTC-E USD trade at a 3% discount to MtGox USD?

Placing an offer to buy an IOU implicitly extends trust to hold the IOUs that result from people taking the offer. We had to do it one way or the other and neither is exactly what you want in all cases, but this is probably what you are more likely to want most of the time.

Hi, thank you for the answers.


So bitstamp doesn't have any special privileges in the system. Ok.


So if I get it right, when making payments the system values my 1 BTC IOU the same as my friend's 1 BTC IOU. Not ok.
It's meant be the complicated way so when a payment goes through the users, they get exchanged also debts in the same currency at arbitrary rates.


No, I just placed an exchange order for buying BTC, it got executed, and I received BTC - without any trust to the issuer. I didn't really mind but it seems it goes around the limits.


But somehow I can image some people doing so, thinking like how they are gaming the system.

Anyway, as we discussed elsewhere, there is this XRP currency which is an element outside of ripple, and which ripple traditionalists can't wrap their heads around.

Yeah, "trust" isn't the right word. It would be better to replace it with "risk".

Instead of saying "I trust the PayPal gateway for $100" we should say "I'll risk $100 with the PayPal gateway".

I've started to replace "trust" with "deposit", coupled with each of us, and each gateway, essentially functioning like an unregulated bank (IOUs = banknotes) and it all makes a lot more sense.

Of course, this is only half of it, the other half is the currency part which is also interesting.  I like the idea of giving everyone enough to last their lifetime, too bad the giveaway is suspended until Monday.

We call an entity a "gateway" if it has certain characteristics. If you have these characteristics, we'll call you a gateway. If you have some of them but not all of them, some people may call you a "gateway" and some may not. You can do whatever you want.

Generally, we call a company a "gateway" if:

1) They offer a reasonable "redeem on demand" agreement to a large group of people.

2) People have good reason to value their IOUs at close to face value.

3) They make it their business to issue IOUs.

But you can do most of what a gateway does without being a gateway. For example, you can sell Bitstamp IOUs to people face to face. You can buy Bitstamp IOUs from people face to face for cash.

In some cases they are treated as the same currency, in some cases they are treated differently. The system does allow you to value IOUs in the same currency but different issuers differently, but this is a very tricky feature to use correctly. The main difference is this: To change the issuer of an IOU but not the currency, you can ripple through someone. To change the currency, whether or not you change the issuer, you must take one or more offers.

I think the scenario you're envisioning is this:

1) I deposit 10 BTC at a gateway using a Bitcoin transaction.

2) I don't extend trust to that gateway.

3) I try to withdraw the 10 BTC to my ripple account.

What happens depends on the gateway's policy. First, they can't give you their own IOUs since you don't accept them. And if you don't accept any BTC IOUs, the operation is impossible and will fail. But say you accept BTC IOUs from some other gateway. They could make the withdrawal work. There it's up to their policy. Possible policies are:

1) They just don't allow it. You must extend them credit to withdraw, period.

2) They allow it so long as it won't cost you more than 1%. So you may wind up with 9.9 BTC in your account.

3) They allow it at any loss level, provided you agree to accept the loss.

You can drop a credit limit below the level of IOUs you hold. This indicates you don't want to hold those IOUs any more. People can now take them from you but not give them to you. If you're an attractive path for them, they should fix it for you over time.

If you extend them trust, you're allowing them to take IOUs you hold and to give others your IOUs! Unless you don't hold any valuable IOUs in that currency and don't care if other people hold your IOUs in that currency, this is *not* a good idea.

Hi there, it seems like a nice system. I have got couple of questions though.

1. Are there implemented any special rules for gateways, or is this just something that everyone can do?

2. Is BTC issued by A and B the same currency? As they may have different exchange rates, I think they are different. But it seems that when a payment goes through the system, they are treated as the same BTC, right? Or are users supposed to set exchange rates between various BTC? Probably they should; e.g. if I think that BTC issued by me are much safer than BTC issued by my friend, then as a payment goes through us, I would only agree to issue 0.9 BTC for receiving 1 BTC issued from him. What are the intentions about this?

3. What happens if there is a debt but no trust limit? I managed to buy some BTC but without extending a trust limit to the seller issuer first. Also it appears that some orders could be created with similar results. Other way to get into this situation is possibly to remove the limit after the debt exists. Shouldn't this be restricted somehow? Or should it be not restricted and the trust limits would only be informative? Actually why should I pressure friends about settling their debts at all? It may be something about that they can't pay me anymore, but hey, I could extend their trust limit further coz it's just a number?

Thank you very much sir.

EDIT: Bitstamp wrote me an email:


It has not been returned as of 24 hours.  Not real worried about anything just curious where they went.

Gateways hold fiat, not XRP. There is no reason to deposit XRP with a gateway. We're working with Bitstamp to make sure XRP sent to them by mistake are returned.

OK as I understand it Bitstamp is one of the only functioning gateway atm. 

So Bitstamp lists Ripple as being possible to deposit.  So I "trusted" them and I deposited 1000xrp.  Now they seem to be gone.  No balance listed on Bitstamp anywhere.  I have contacted them 3 times with no reply.

Am I missing something or was I too quick on the trigger?

When you stop trusting Pirate his IOUs you hold are not automagically traded away. You need to trade them away yourself by looking for offers, or over time as others happen to Ripple through you, assuming anyone actually does Ripple through you, they should gradually get exchanged away / used.

-MarkM-

There's nothing in the ripple system to stop evil gateways.

Suppose I have various lines of trust with other people and organizations, including with Pirate's gateway. I have "deposited" $50 with Pirate. In return I have an IOU from Pirate valued at $50.

At some point, I start to feel uneasy about Pirate, so I remove the trust that I extended to Pirate. Am I correct that the $50 owed to me by Pirate then automatically becomes $50 owed to me by others, specifically those whom I trust and who in turn trust Pirate themselves (and who have not "maxed out" their Pirate balance)?

Then when Pirate defaults, I try to collect from those people. Not surprisingly, they don't feel like paying me and they default too. It could turn ugly fast. Those who are quick to spot the scam will modify their lines of trust fast enough to ensure that everyone else is stuck with the worthless Pirate IOUs.

Or am I missing something here?

A possible suggestion/thought:

On the one hand I think it's a good idea for the client to hide such complexity as explained above from the user (displaying just the maximum cost and stuff).

On the other hand it would carry much "educational value" to actually show the complexity in the client (differenct payment paths, lot of work I'm sure).

This also goes for other things like the balances (these could be split by different issuers, right?)

They won't always be on par, but if the gateways are doing their jobs, it should almost always be very close. Every failure is a profit opportunity.

Yes but no. A payment will take from offers if that's the best payment path. When making a Ripple payment, this is the typical payment mechanism:

1) The client gets the destination account and destination currency from some source. ("Pay Jeff 50 Bitcoins.")

2) The client looks at what the user holds and picks one or more source currencies to use.

3) The client asks the server what its options are. The server forms payment paths using the various possible source currencies taking into account what the destination will accept. These payment paths can ripple through accounts that hold and accept multiple IOUs but also offers. No transactions have been performed yet, so this is all free.

4) The client tells the user something like "You can make this payment for 50.03 bitcoins or 125 USD."

5) The user picks a source currency.

6) The client assembles one final transaction, incurring one fee. The transaction can include multiple paths (so long as they use the same source currency). The transaction can include a "maximum to spend" and the transaction will fail if it would cost more than that.

7) The client submits the transaction. The servers process it. The transaction is accepted. (The servers will take incrementally from more than one path of the paths explicitly specified in the transaction to get the best result.)

Notice that only one transaction is needed, even if you ripple through multiple accounts, take from multiple offers, and so on. The one and only transaction is basically "get Jeff 50 bitcoins he'll accept and don't charge me more than 50.03 Bitcoins to do it."

Possibly. But I don't see why that will be bad. Since there will be many possible paths for the same transaction, costs should typically be low. We'll see.

Welcome to the free market.

-MarkM-

So I can't transfer 10 ripple USD issued by gateway A to a merchant that is pricing their products in ripple USD issued by gateway B without exchanging them first? That will lead to doubling the fees for every transfer. 1 XRP for the exchange and 1 XRP for the actual transfer?

If there are 1 million gateways issuing ripple USD how many currency pairs will we have in ripple USD being both base and counter currency? There are also euros, pounds, yen, franks etc. This will be speculator's heaven and a price chaos?!

See this post: https://bitcointalksearch.org/topic/m.1545061

This is the key part: