Topic: Ripple or Bitcoin - page 46. (Read 34110 times)

Of course, in such a scenario, you might find the gateway/exchange features of Ripple rather redundant.

Another question that interests me... Lets say that either Ripple or Bitcoin become the international currency of the world. Which one would be more reliable? Which one would be more impervious to attack? What would the topology of the Ripple network ultimately look like, compared to Bitcoin in such a world? Which one would be more resilient?

If bitcoin becomes ubiquitous enough before Ripple ever catches on, then what would be the incentive to use Ripple to exchange dollars for bitcoins, when you can just do this directly with your brother or your neighbor without ever having to deal with credit relationships?

Concern #1. Are individuals likely to honor each other's IOUs?

Concern #2. Are gateways likely to honor each other's IOUs?

Concern #3. Is there enough incentive for users to use this system over other services out there that already allow people to exchange fiat for crypto and vise-versa?

Concern #4. Is there enough incentive for companies to want to use this system, rather than just doing this on their own? If you are a company wanting to start a gateway, are your IOUs going to be valuable until you get other gateways honoring them? Are people going to be able to take your IOUs and use them to get other currencies?

The existing systems are absurdly inefficient. Each payment system is tied to its own proprietary liquidity providers. Connections between systems are ad hoc, expensive, and slow.

I think that's one way of looking at it. Think about things like email and text messages. What makes them so ubiquitous and useful is the fact that they provide a unified namespace and work across providers seamlessly and without high costs, long delays, randomly different policies, or the like. Payment systems today are where email was before it was federated by SMTP.

Basically, people have to honor these issued IOU's to make anything work. If "gateway" X is shutdown, all his IOUs become worthless. So if my exchange..er...gateway, starts honoring the IOUs of another "gateway", I'm risking the day that gateway goes under.

What I'm really interested in is understanding the individual motivation for both exchanges and gateways to want to use this, rather than just operating outside the network. I definitely understand the value of having this network for its price-setting capabilities for good-of-all. I'm just not so sure this will fly as a way to achieve it. I'm not sure this network would be a reliable enough way to achieve it.

So a gateway is a bank and a exchange is an matching engine/broker for FX transactions -- combine the two or not. Risk still appears to be risk in this system. I don't see the big deal so far -- which I'm willing to admit may be due to what's been called "a lack of vision on my part."  Simply put, what's the value add here over the existing processing system(s). Is it really just the single communications protocol? Is it wrong to say that Ripple is an initiative to "disrupt" an existing cartel via use of a single communications protocol?

LOL. Yep. Just like every word in the english dictionary? Sure, it has a specific meaning, but that does not clarify the symbolic associations that can be applied to that meaning.

I suppose you can view it as an exchange. One thing is traded for something else, certainly. There are two senses in which it's not like an exchange, at least not in the sense that Bitcoin exchanges are exchanges.

First, the two things traded are denominated in the same currency. A dollar from a gateway in Ripple is worth less than a physical dollar because there's counterparty risk. But a dollar from a gateway in Ripple is worth more than a physical dollar because it provides you access to the liquidity in the ripple network and can be transferred rapidly. For healthy gateways, there's an implicit agreement to treat these two factors as cancelling out for mutual convenience. The expectation is that this will remain true, so there's negligible exchange rate risk.

Second, the gateway acts much more like a bank than an exchange. The gateway is just holding fiat currency until someone claims it, just like banks normally do. The gateway doesn't have to match parties to counterparties or hold anything other than fiat.

I think these two factors make what a gateway does so different from what we think of as an "exchange" that it's not helpful to describe it in those terms.

Right. Ripple provides a decentralized, peer to peer mechanism for transferring balances in a cryptographically secure fashion. This doesn't make gateway IOUs "safe" - you are still exposed to loss if they default on the redemption. It's a hybrid of centralization and decentralization:

Redemption of gateway balances: centralized, possibility of default
Transfer of gateway balances between third parties: decentralized, cryptographically secure

Then there's XRP, which is fully decentralized, cryptographically secure, and deflationary (only 100 billion can exist). With usual assumptions about OpenCoin going open source and all the XRP getting distributed soon.

No, the word has a specific meaning within the Ripple system.


A gateway exchanges between external currencies and IOUs. An exchange exchanges between all sorts of currencies. Bitstamp is both a gateway and an exchange, but its own exchange only trades between USD and BTC. Once you've sent them money and transferred the corresponding IOUs to Ripple you can trade inside the Ripple system, and exchange between JPY and EUR if that's what you want. If you want to use Bitstamp's exchange functionality, you'd log into your Bitstamp account on the Bitstamp site. If you want to trade in Ripple, you'd use a Ripple client instead. It's crystal clear which of the two you are using. If the Bitstamp website goes down during a DDoS attack, then you can still trade your Bitstamp-issued IOUs on the Ripple network without any ill effects. Only if you want to buy more Bitstamp IOUs or if you want to redeem them would you need Bitstamp itself.

Ya. I follow. So basically, Ripple provides a framework through which all these exchanges can achieve this.

In the case of all these exchanges working together, you'd basically have IOUs happening between them... just as Ripple purposes now.

There would still be "IOUs" because gateways have to trust each other not to abuse the API. Typically this is done by each gateway holding a balance at each other gateway but you can see how that would quickly become prohibitive from both a cost and an administrative perspective.

I'm going to try to address every single point brought up.


In Ripple, you can never get stuck with IOUs that you don't directly trust. Payments are atomic. If you trust issuers A and B, then you can only ever receive IOUs issued by A and B. Just because another user is in the path doesn't mean that you'll end up holding their IOUs if you don't trust them directly.


Yes, exactly. All the problems come up when you need to deal with fiat. MtGox, BTC-e, BitInstant, etc... If you can conduct your business entirely in Bitcoins for example on Silk Road that solves a lot of problems of trust in entities that deal with fiat.

The word "gateway" in Ripple is totally appropriate. It is a business that acts as Ripple's "gateway" to the fiat world.


In my opinion, yes. Although I can't speak for OpenCoin.


No. A gateway that extends trust to another issuer is exposing themselves to risk. I would not want my money parked at a gateway that was exposed to external risk.

Intra-gateway IOU liquidity is provided by market makers. These are typically bots which post bid and ask walls in the appropriate order books. They take a small fee for converting between IOUs. Since anyone can become a market maker, intense competition drives the fees down to very small values.


Gateways can do much more than just convert between currencies. One strong possibility is that gateways will offer their own custom wallet interface so that users dont have to learn the obtuse reference client. A gateway could offer bill payment services, a credit card, subscriptions, and deals with merchants. Ripple would let you use any currency you wanted. So you could use your bitcoins to pay any bill, even if they only take credit cards or checks.


There are two ways that people can "link" together. One is for an intermediary to self-issue credit and become trusted by others. This is the "community credit" model, and one that I feel is not fully thought out or ready for public use.

The other way that someone can link gateways together is by placing bids and asks in the appropriate order book. They don't self-issue IOUs but instead they trust two separate gateways and make offers to exchange one gateway's IOUs for another. All the risk falls on that person. Someone who uses this liquidity path can never get stuck holding IOUs they dont want because payments are atomic. They either go through at the advertised price, or fail.

If MtGox, BTC-e, CaVirtEx, etc. all started opening up all their data with one another, and allowing buy orders on one exchange to be fulfilled across this whole network of exchanges, would that not serve the function that ripple is now trying to fulfill? In that scenario, anyone could go to any of these exchanges to change their money to any currency supported by any of these exchanges... would we not then gain the same functionality as Ripple, but without IOUs or Ripples?

Sounds like a meaningless argument over semantics.  You can call the "gateways" whatever you like. The function they serve is to exchange currency in someone's hand for IOUs, ripples, bitcoins, etc. Whatever it is taken out as at another gateway (which must be linked to all the other gateways though trust, whether it be through individual users, or gateways directly). Yes, the ripple network maintains an order-book, the same way an network of exchanges would maintain an order-book together if they were to all start trusting one another and setting up backend-api's through which they could all communicate with one another. So what is the difference? This brings me back to my initial question... what would be the difference between a network of online exchange who decide to open up api's to one another and allow cross-trading between them, and the ripple network itself? What is the difference?

Is Ripple just a fancy abstraction for a interlinked network of exchanges? How is it any different?

Wow...there is a lot of really good discussion on page 10 of all this! Every post deserves an answer!

To my mind somewhat true. The Ripple website notes that XRP's can be used as a currency -- page down to the XRP section. I think calling IOU's a currency is a bit tougher -- mostly due to how one defines a currency.

https://ripple.com/how-ripple-works/

No, it isn't, let alone obviously so. Before you start pontificating, perhaps you should read up on Ripple. What a gateway does is to issue and redeem fiat IOUs. That's what makes it a gateway. The distinction between a gateway and an ordinary user is a bit fuzzy, since anyone can issue and redeem IOUs, but a gateway is a party that does so professionally.


The gateway itself need not be an exchange. The Ripple network itself maintains an order book, and trades you make inside the Ripple network are not handled by the gateway issuing the IOUs that are being exchanged, but by the whole network. Note that you could easily be trading USD IOUs issued by Weexchange for EUR IOUs issued by Bitstamp. Some gateways like Bitstamp also offer their own order book, outside the Ripple system, but I don't know if all of them do, and in the long run I'd expect so see a degree of specialisation, with some gateways focusing on just being a gateway.