Topic: Ripple SOUNDS nice but there are some MAJOR problems - page 4. (Read 7053 times)

I could actually see myself doing this - something I have represented from the start in my various criticisms of Ripple.  For example, I have maintained for a long time that if I were to issue some sort of standing agreement with other big players in the Bitcoin world agreeing to settle any debt I issue as recorded on Ripple, thereby giving Ripple's data some sort of legal teeth, then Ripple would greatly complement my ability to do business.  If this became commonplace, it would add an enormous amount of fluidity to the entire Bitcoin economy.

The easiest way for me to describe how I see the benefit of using Ripple would be to take the whole concept of "MtGox USD codes" - which work in practice but are subject to the theoretical risk that MtGox may at any point choose not to honor a code and pretend it's invalid - and replace it with an open system like Ripple, where the system of swapping MtGox debt is sort of an open book to the world, forcing a certain level of integrity on the way MtGox liabilities are accounted for.  MtGox could still choose to dishonor their debt, but then at least people would be able to see that and call them out on it.

The ability to swap debt around - when done properly - would be a huge benefit and would increase Bitcoin market confidence immensely - I am convinced that the true Bitcoin market is FAR deeper than what is currently represented on MtGox, and what we see is greatly hampered by the rightful fear of people to put "good money" in MtGox knowing it can be seized or misappropriated without accountability.  If instead, people could put "good debt" into MtGox, we'd be at the multi-billion-dollar mark in market cap yesterday.  Good debt for this purpose is almost as good as money, but comes with a big benefit: it can't get seized without due process because only by due process can its repayment be forced.

Now as for Ripple... swapping debt is already possible without it.  I can draft a contract, put it in a PDF, digitally sign it, and plausibly have that digital signature recognized by a court, which the only tool I need to start creating and swapping debt.  That is, a pen, paper, and some way to add the digital stamp of approval that allows everyone to confirm that I really agreed to what I agreed to.  Courts aren't all that familiar with PGP, but they are plenty familiar with PDF as they use it daily, and the PKI for signing PDF's has been maintained well enough that they're likely to recognize a properly signed PDF as legit.

Yes, Ripple will make a fantastic open ledger for managing and settling debt among parties sophisticated enough to form the proper agreements and be trusted with issuing and making good on their debt.  And it will also be a fantastic open ledger for work buddies to trade their lunch money around.  But between these two groups, there will be this HUGE donut hole of people in the middle who will erroneously presume that because Ripple works for lunch money and the babysitter, and because they hear it also works for bigshot rich people to settle monstrous sums, that they should feel OK using Ripple to manage large undocumented debts for things like cars, vacations, bad investments, gambling losses, and all kinds of things... people are going to get their financial backsides seared and blackened repeatedly until they learn the hard way that they should not accept any "debt" as payment that they won't mind being 100% defaulted on... at which point it ceases to be revolutionary and they may as well just use PayPal.

Absolutely. And I should try to be clearer about what I mean.

Someone can owe you money in the sense that the system records a particular balance between you and them. Here, the words "owe you money" don't really refer to an actual legal or moral obligation but to a particular status in the system. That status has an effect though, because the system has that status, the system will act in a certain way when it receives future transactions.

Where it gets real is when people have an actual "withdraw on demand" agreement. You could have such an agreement with a friend of yours. You could agree that the ripple system says they owe you dollars, they'll pay you dollars on demand in exchange for you cancelling out that debt. More likely, you could enter into such an agreement with a "gateway", an entity that makes it their business to enter into "withdraw on demand" agreements with lots of people.

We should make it very clear that absent an agreement that says otherwise, there is no inherent obligation to settle "debts" recorded in the ripple system. The system gives those "debts" power, and you can't stop it from doing that. But that's strictly within the system until you get to a case where you have an enforceable withdraw on demand agreement (or people are willing to settle on an ad hoc basis).

If I extend you 10 USD credit, you are under no obligation to ever pay me any actual US dollars. However, I can then acquire your IOUs within the system various ways and I can use them as a medium of exchange with anyone who can accept them. I can also give them to you and obtain other IOUs you hold within the system. This is all automated. But to get actual dollars in my hand or bank account, there needs to be an agreement outside the system.

If ripples become scarce in the future, the transaction fee can be lowered by consensus. Ripples are quite finely divisible, but if it came to that, their divisibility could be increased in the future, just like with bitcoins. That couldn't even come close to being a problem in less than 100 years though.

Currently, currencies are just a three-letter code and a sequence number (in case a currency is re-issued). We have plans for custom currencies but they're not supported yet. If someone created a new currency, you would never see that currency unless you elected to transact in it. You can't hold an IOU you didn't agree to hold, and the currency is part of what you have to agree to.

I'm not sure if you mean nodes you might connect to or nodes you might trust. The list of nodes you can connect to is managed just like Bitcoin does it. Nodes keep lists and offer those lists to their clients. We don't currency have a DNS anchor, but will probably add one. You can have a list of known node IPs in your configuration.

As for nodes you might trust, anyone who wants to can maintain a list of such nodes. Servers can choose root trust points and then those root trust points can list additional trust points.

For clients and servers not trying to actually process transactions, you only need to use trust to determine what the current consensus ledger is. From that point on, you're just walking hash chains.

The order book consists of entries in the ledger. There are entries that hold actual offers and index entries used to track the "tips" of the order books. Since the order book is in the ledger, the same scheme that ensures everyone operates against the same ledger does the same for the order book.

To create an offer, you have to do two things. First, you have to consume XRP for the transaction that places the offer. Second, you have to have sufficient XRP in your account to cover the increase in the reserve. The reserve drops when the offer is removed or fully taken.

I do too. And what's stunning is how simple our solution is. However, there is a lot of subtlety underneath the simplicity.

For example, one key thing we did was organize the ledger as a hash tree so the entire ledger can be stated with a single hash. This makes it easy for all participating validating nodes to sign a statement that they believed that the entire database had a particular state at a particular time.

Another thing we did was organize the ledger so that simple proof chains can be extracted from it using only hashing operations. So a client that sees signed receipts to convince them that the ledger had a particular hash can be shown a chain that proves a particular entry is or isn't in the ledger.

That's a fair point. I agree that we need to put much more effort into documenting. There just are only so many hours in the day.

Allowing customers to "feel confident" is not the same thing as customers balances being sound and secure.

This is like the FDIC... your bank account insured to $250,000!!!...by a $19 billion fund "protecting" $5 trillion in deposits (link).

tl;dr:

I don't mean to be the one to spoil the party.  By all means, let's let Ripple be built.  Who am I to say someone shouldn't be free to expend their own efforts as they see fit?  But I foresee it being no more revolutionary than a screen door submarine, certainly nowhere comparable to Bitcoin.

There are a variety of advantages of the distributed database model:

1) You can easily exchange the balances for balances at different gateways. This means people who use different gateways can still pay each other instantly.

2) You can easily exchange balances for different currencies.

3) The market for exchange balances across gateways gives you a reliable real-time view of how trustworthy gateways are.

4) A gateway can't stop you from exchanging IOUs or enforce policies on anything but deposit and withdraw operations.

5) Costs are kept low because no entity can set the system's fees.

6) The gateway can't really freeze IOUs, destroy IOUs, force chargebacks, or the like. (Strictly speaking, they can. But for practical purposes, it's extremely unlikely that they will because they'll make their own customers innocent victims. It's the same reason Mt Gox had to accept tainted bitcoins from their merchants.)

7) People can easily operate small gateways in areas not served by larger gateways and offer 1-to-1 exchanges of their IOUs for a major gateway's IOUs.

8 ) Longer term, ripple may facilitate community credit.

9) You can change what gateway you use without having to notify everyone who pays you or have a change in how you integrate with the payment system.

I think the complexity argument is a red herring. Every payment system can be looked at from a high level at which it's simple and a low level at which it's complex. Ripple is no different. As for the electricity use, that strikes me as a very strange argument, but assuming it's true, I hope the benefits will significantly outweigh the costs.

If one can issue promises far in excess of the "bond", then they are still junk and uncollectible.  So instead of having a promise that is totally uncollectible, you have a promise that is either a) collectible only in proportion to how leveraged the bond is, or b) collectible only if you happen to be lucky enough to collect on the bond before someone else does.  Sounds a lot more like the Federal Reserve ponzi scheme than sound money.


Of course.  You are 100% right.  It could work this way.  But the nexus is centralized.  In this case, why bother with a decentralized database?  The Nexus could just use regular database and regular software and keep track of balances the old fashioned way.  Just like PayPal or perhaps MtGox.  Instead of being revolutionary, using Ripple just makes the solution needlessly complex and use way more electricity than needed for no useful benefit.

This is definitely not the equivalent of Bitcoins because after the debt is extinguished you still have the fidelity bond which can be re-used. This allows the the sum of the values of all transactions using the self-issued credit to greatly exceed the value of the bond, as long as at any given time the amount of self issued credit is below the fidelity bond (or else the issuer has an incentive to cheat).


From what I read, it seems like the "Nexus" is the key. You have to trust your local Nexus. You go over to them and exchange your Bitcoins for their self issued credit, which then travels around the system in a series of swaps. Eventually, someone else in your neighborhood receives some of those local Nexus credits and they want to cash out, so the Nexus hands out the previously collected Bitcoins.

In theory this is a great way to handle the decentralization of conversion to and from fiat. You go over to your Nexus and exchange cash for self issued credit (or Bitcoins, if they have them). Later on someone else who is local wants to get fiat so they head to the Nexus and exchange credits and/or Bitcoins for fiat.


Nope, the fidelity bond is not the same. For example a Nexus could post a fidelity bond, this would allow customers to feel confident transacting up to below the value of the bond in total value. Over time the Nexus could securely handle many times the value of the fidelity bond, as long as at no given time it extends total credit whose value exceeds the bond.

Then you have the equivalent of Bitcoins.  In that case, just pay someone with Bitcoins, and never mind the whole thing about debt.

This would be like the fiat-world equivalent of a "secured credit card", where you are really borrowing (and paying interest) on your own money.  It's for people who have ruined their own credit to try to rebuild their credit... nobody in their right mind would ever use a service like this for any other reason as they'd simply be paying interest to a bank to use money that is already their own.  One may as well use cash or a debit card, and throw out the pretense that they're using "credit" or "debt".

Hmm...I'm not entirely sure this is true. Consider the case where someone provably posts a fidelity bond (using the Bitcoin destruction method, or the secure way of giving away fees to miners). They could then self-issue credit whose total value is less than the value of the bond.

With all due respect, I think you misunderstand what it means to "make" someone owe someone money.  You can't just make someone owe you money, only they themselves can make themselves owe you money by agreeing to pay you.  There is a legal concept of assignment of debt, but a legal system also decides how that is to be done.  Absent a law saying that the Ripple system is how it's done, nothing in the Ripple system has the legal authority to effectuate an assignment of debt, or to make anybody owe anybody anything.


It's totally unlike the regular financial system.  When I pay you $50 to your checking account, I do so by adding the balance to a demand deposit account, which by law they must pay you the balance on demand.  The legal framework that compels them to pay you is already in place.  If the bank one day doesn't "feel" like giving you your money, a court will ultimately tell them they are wrong.


The problem is that it's like a decentralized screen-door submarine.  Just because it is decentralized doesn't mean it will work.  A debt whose repayment is voluntary and totally optional isn't a novelty, and isn't even a debt.  It's nothing.  Without an entity that can enforce arbitrary policies on you (like requiring you to settle the debts you agree to), the purported debts one can create with Ripple are totally worthless.

Thanks for making an appearance and offering to address some areas where information is scant. I will try to consolidate my list of question marks but for now I wanted to step in and say thanks.

I see that there is a second line of criticism here that claims that the concept behind Ripple is unsound. Let me distance myself from that - Ripple the concept sounds great (more on this below). But Ripple the implementation / specification seems lacking. The impact of a finite amount of XRPs seems hard to determine. Does this mean that eventually it will be impossible to produce new transactions? Again why are 80 billion XRP kept on reserve? Perhaps I just need to re-read the wiki a few more times to have a clear picture but it is not obvious how to analyze the system for correctness given only the published docs.

Whats to stop someone from creating a bunch of accounts and using them to spam the network by creating new bogus currencies?  Is this what the XRP are for? What prevents someone from making a new currency that has the same name as someone else's currency? Who controls the master list of Nodes? How does a node add itself to the list? How do you prevent someone from spamming the list of Nodes? Where is the "order book" (global list of bids and asks for all currencies)? How does someone place orders in the book? What happens when an order is filled? What prevents someone from spamming the order book? Is it guaranteed that everyone has a global view of the order book? How does this scale? etc... These are the kinds of questions that the wiki doesn't answer. There's no way to do an attack analysis because fundamental algorithms are not described.

It seems that the authors of the Ripple software have developed a fully decentralized distributed database that has read, update, and write capabilities (is this true?) Furthermore they have designed it to be resistant to spam, in a way that doesn't require proof of work. This is what's known in computer science as a hard problem. Just solving this problem in a straightforward and robust fashion would be a significant advance (look at the complexity of Freenet, which still has issues). I find it hard to believe that this difficult problem was solved in such a short period of time.

As a concept, I think Ripple sounds great. The trust is definitely an issue but that is not something that Ripple claims to solve (nor should it). In my opinion the biggest value is that there can be an network of independent local nexuses that handle the conversion to and from fiat. Instead of wiring some ridiculous amount of money to an overseas bank (hello MtGox) an individual or business can deal face to face with a local entity. This has the power to address Bitcoin's biggest weakness (the exchanges).

My beef is not with the concept, but with the lack of details about the implementation. And it is exceptionally frustrating that a lot of people are jumping on this bandwagon and singing its praises when we don't have any sort of analysis to determine if the required algorithms are workable or scalable.

If you only trust theymos, then he is the only person who can owe you money. You cannot hold any other kind of IOUs. Nobody can give you an IOU that you haven't chosen to accept. Internally, the ledger holds a "ripple balance node" for a pair of accounts and a currency. So if you trust theymos to owe you up to 50 USD, there will be a "vampire/theymos/USD" node in the ledger with a credit limit in the "theymos owes vampire" direction of $50. If that's the only trust you have extended, the only way I can pay you $10 is to make theymos owe you $10 or to you make you owe $10 less to someone you already owe money to.

People generally form a ripple payment transaction by knowing who they want to pay and how much. "I want to pay vampire 10 US dollars". To do that, I have to make someone you've chosen to trust owe you $10 more than they do now. I can do that by exchanging any IOUs that I hold or any credit that's available to me. But you decide which IOUs I have to get to you. I can, of course, always pay you with your own IOUs if I can find them. So if I can make you owe $10 less to anyone you currently owe money to, that's a $10 payment to you too.

They couldn't issue unique IOUs to you unless you had agreed to accept them. You can't give anyone an IOU they haven't agreed to accept (other than their own).

Of course unless they issue unique IOUs to you. Since anyone can issue IOUs then a company could have many different types of IOUs.

Which is leads me to the next question.. How do I know which IOU is owned by who? Let's say I trust theymos, but how do I know that the IOU that is given to me is actually his IOU?

Right, but that's because PayPal can default on just you. Do you worry that they'll choose to shutdown their business while your money is there? Probably not, especially considering there's an entire economy that only exists because of them. But if you did worry, the solution would be to keep as little money with them as possible, not to miss out on the economic opportunities PayPal has created.

A ripple gateway can't stop you from trading IOUs that you hold to others who wish to accept them.

This is the nice thing about the way Ripple IOUs work -- unless the gateway stops paying everyone, their IOUs should hold value. And if the gateway stops, or slows, redeeming, it will become quickly obvious as the exchange rate on their IOUs changes.

Let me give you a different example... PayPal.

You have used PayPal for few years.
Do you worry that PayPal will run off with your money or lock them forever?

Yea. Exactly.

Also I have 2 BTC locked up in MtGox.. So much for their IOU. Let's see how AML will affect these IOUs.

Pretty much. If you literally don't trust anyone to owe you anything, then you can't transact in fiat currencies using Ripple.

It depends just how risk averse you are. You could stick to just regulated financial entities insured by major governments. You could stick to only individuals personally known to you with whom you have "withdraw on demand" agreements. Any one of them wouldn't be able to do you much harm.

This really wouldn't work. You wouldn't extend significant trust to anyone unless their trust network was worth more than their total trust. So anyone who did this would do it at their own detriment and to your benefit. For example, say you've used Amazon for a few years. When you pay Amazon for an order, do you worry that they'll run off with your money and not ship your order? Even forgetting the possibility of a chargeback, you know that Amazon's business is worth much more than the total value of all the money they're holding at any one time. Plus, even the cost of them betraying you on one typical order will still leave you with a net plus for having trusting them because of the accrued benefit of hundreds of fulfilled orders.

The biggest threat would be a gateway going out of business due to a theft or an insider running off with all the customer's money. If you're very risk averse, don't use the system as a store of value for fiat currencies.

We've tried to design the system so that gateways have very strong incentives to run a solid, reliable business.

There's really no difference. Checks are used as payment and all they do is trade debt.

So each Ripple's IOU would need to be rated..

So I would rate for an example:

casascius's IOUs at 100%, each $1 owned by him I would give $1

But for pirateat40's IOU at 0.01% (just an example) I would give only 1 cent.

Basically in a nutshell each IOU would have its own exchange rate....

Yea, it looks like a trading platform for debt, not a payment system.

edit: Of course that gets a lot more complicated since each IOU could be dominated in a different currency.

So how any casascius's dollar dominated IOUs would you give for theymos's bitcoin dominated IOUs.

Hmm..

And if I don't trust anyone that would make this system irrelevant? Also what does prevent the entity I chose to trust to go out of business?

Scammer's paradise:

Build a reputation like pirateat40 (he had over 100+ positives on OTC)
Issue a million IOUs
Run

I think you misunderstand how people pay you. They pay you by making entities that *you* choose owe you money. It's just like the regular financial system -- when you pay me $50, you do it by making *my* bank owe me $50 more. The only entity I ever have to collect from is the one I've chosen to trust.

The idea is more or less to be a nearly-free, decentralized system like PayPal, except with no chargebacks, no entity that can force arbitrary policies on you, easy cross currency transactions, and so on.

This is so dumb.  Someone please show me the light.

I see NO POINT in Ripple being decentralized like Bitcoin.

Ripple is a way to transfer debt.  But debt only has value when there is a legal framework to collect it.  That is, a centralized legal framework that can and will refuse to help you collect on debt that hasn't been legally transferred to you.  Until somebody passes a law to the contrary, using Ripple is not recognized by ANY legal system as a valid way to transfer debt.

The biggest Achilles heel to Ripple is not that someone will shut it down if it's not decentralized.  It's that if someone pays you with Ripple debt, and you try to collect on it, and the person refuses to pay, YOU ARE SCREWED.  The debt is worthless.  At best, you can pass this worthless debt on to another bagholder before the music stops.  It's no revolution, it's a way for people to pay people with bits that are worth nothing.  May as well just use SolidCoin.

When someone defaults on repaying lunch money, you suck it up and move on.  But when it's $100k, it's totally a different story.  You won't use Ripple because you might not get paid.  So it is good for nothing more than lunch money.

The world isn't demanding a new decentralized database for tracking lunch debt, certainly not one where you have to go find and pay for some XRP on the market before you can even use it just so your activity doesn't look like spam.  You may as well just use PayPal's iPhone app and click "Request Money".