Topic: Why Ripple has failed. - page 5. (Read 10953 times)

Well, an IOU of for example 1 BTC will likely be worth a value between 0 BTC (issuer = defaulted/fraudster...) and 1 BTC (100% trustworthy issuer). Values above that are of course possible but unlikely.

Your argument is now that it is hard to determine a proper amount to value this 1 BTC IOU. This is true however for any IOU and has been this way for millennia. Also to crush your dreams maybe a bit: It is my belief that 1 BTC (on the blockchain, as an asset) has exactly 0 value in e.g. USD as they are not redeemable for anything. This means anything that people pay for BTC is not based on their inherent value but rather upon their usefulness as money and store of value.

Your argument turned around would be the following: The inherent flaw of digital assets like XRP or BTC is that they cannot be priced by the owner, as they are worthless by themselves and it is not clear how useful they are to the world. So unless you can determine from everyone in the world how useful they find digital assets, you have no way to buy/sell BTC at their true price.

The solution to both your arguments about rating trust in IOUs and the opposite argument about uncertain pricing of assets is also known for millennia: an open market where people come up with prices and hopefully also match these from time to time based on both their needs/beliefs and other market participants.

Hi Graceza.
I already addressed your argument from my other post. Could you address why that response didn't satisfy?

Basically, the fact that the IOU is not literally transferred down the Web of Trust doesn't address the flaw in ripple in which the risk of IOU cannot be adequately judged by the lender.

By "lender" I mean the asset holder, the last person in the chain of trust.

This is the relevant post;

@Coinseeker
Every single one of your sentences contains either inaccuracies or hypocrisy.

>>>>In this way, highly risky loans make their way to asset holders through Liquidity Providers without any warning or determination being made by the lender.<<<<

There is no way for me to end up with your IOU's unless I trust you directly no matter how many connections there are between you and me. What I can end up with are dollar denominated IOU's you might have owned from a gateway that we both trust. If I trust Bitstamp for $10 and you trust Bitstamp for $10, I could end up with $10 that you initially deposited into Bitstamp or bought in trade.

If you send your buddy a $10 IOU, not from a gateway, but your "personal" IOU and even if that same buddy of yours sends me his $10 IOU via Ripple there is no way I'll ever have your IOU in my wallet unless I specifically set the trust for you in my client to $10. Right now your trust line in my client is set to zero and I wouldn't change that even if a friend asked me to.

I would never do this because I don't know you. What I would do is set $10 trust for our mutual friend, so the debt is between him and me, I own his IOUs, not yours. In order to use Ripple safely all you have to remember is don't trust strangers, something your mother taught you when you were 4 years old.

The real way the trust lines work is not unlike dollar credit balances from my regular business clients. I run a biz which is a B2B operation. My customers order work from me on credit that I extend to them. I extend them credit basically to pay for work that they are ordering for delivery to their business client and so on. The payment terms between me and my clients are not in any way dependent on their getting payment from their customer. I have every legal right to sue them for money they owe me regardless of whether or not their client pays them.

In the real world this is not to say that a bad player using credit going bust can't take down others, we know they can from experience. This happens in my biz from time to time. A big customer or company goes TU and leaves a lot of smaller vendors holding bad receivables, my customers want me to share the pain. The only way around this chance of loss is ONLY ACCEPT CASH.

I can tell you that only the illegal and third World economies run on a cash basis. The real world runs on credit lines like I described above. So your argument that Ripple has already failed is already proven wrong, because the trust lines work pretty much the way the real world of credit between small players works right now.

If I was selling you something I'd want XRP and not your personal IOUs. I'd take XRP because XRP is not at all dependent on me trusting you. This is not all that different than you showing up to buy a used car from me, you'd better bring cash and not a check.

I would also take Bitstamp USD or BTC because I already trust Bitstamp BTC and USD IOUs. I'd also accept BTC from you.... BUT I'd want 3 confirms before I handed over the goods. Still takes about an hour, right?!

If you paid me in XRP, Bitstamp/BTC or Bitstamp/USD the transaction would be almost instantaneous.

Therein lay the real reason Ripple has value.

Then you're not looking.  Bitcoin's ridiculous 7 transaction/sec limit is enough to usher in Ripple to save the day, allowing off block transactions in mass.  And what about waiting an hour for a transaction to go through.    Bitcoin in it's current state is a boutique commodity.  Not even a currency.  As has been said repeatedly, Bitcoin can't even match Visa's transaction/sec limit, let alone being a legitimate world currency.  Ripple, can make that possible and also nullify the negative baggage of Bitcoin (drug trafficking, child porn, gambling, ideological nuckledraggers and the rest of Bitcoin's PR failures) by allowing merchants to refuse to accept BTC (as they clearly are doing) and stick with fiat, while you the buyer can still pay in BTC or any other currency.  It's a win-win.  Unfortuantley, like any "bible-thumper" (religious or otherwise), some are too busy shoving their own beliefs down everyones throats to see or even care what's in the best interest of the masses.

As QuantPlus pointed out there are novel problems that Bitcoin solves that nothing else can touch, but it also performs as a medium of exchange, store of value, and unit of account better anything else ever invented.

Even the last person that joins the Bitcoin economy will benefit directly from the aforementioned qualities.

Ripple (as initially imagined) was based on a whimsical idea of aggregate debt that doesn't mesh with the real world. If they can salvage it and build a open source distributed exchange, I could see some value in that, but it barely qualifies as novel.

Therefore the objection that Ripple is a solution looking for a problem does not apply to Bitcoin in equal measure. I just don't see it.

The difference is that Bitcoin is a solution for criminal activity and online gambling...
It's FASCINATING for the tech and Zero Sum Game crowd (web traffic, trading, poker, etc)...  
And it also became "hip" within "urban hipsters enclaves" = $1.5 billion Cap...
While LETS, cc, and freaking Bob&Alice just bores the shit out of everyone = $0.

You know that is exactly how many people would (accurately) describe Bitcoin?
A solution in search of a problem that the average man on the street doesn't need.

OC Ripple exists because Ripple Classic went nowhere.

The whole LETS, community credit thing is "a solution in search of a problem"...
Functional, working adults in a modern urban center don't need/want anything like this.

If there is a place for this in the Third World... then move it to the Third World.

Hi Sukrim.
I don't think there is any big difference between inputs.io and a Ripple gateway, besides the platform on which it does its exchanging.
However, my criticism with Ripple is with the Liquidity Provider mechanism that Gateways do not participate in.

I contend that Gateways are not Liquidity Providers because the problems I mentioned become grossly obvious at that scale, but the problems exist just as tenaciously and corrosively among the user base.

I don't have any disagreement with you if you say people can exchange in Ripple in a lender/borrower relationship, because that is the same thing as removing the Liquidity Providers from the system.

Yep. Inevitably the most trusting individuals in the system get bad IOU's dumped on them. They didn't fix this problem by making Gateways not Liquidity Providers, they just distributed that risk among the user base.

I disagree that it's impossible to transfer IOU's reliably. If Liquidity Providers are removed, then the system would be a way to transfer Certificates of Deposit. There's nothing intrinsically impossible about that task.
It's true that Gateways have varying reliability, but users can evaluate the risk and factor that into the price of the IOU.
It's also true that there will be disasters in the system, but that's just a reflection of the fact that debt is inherently risky.

Yep.

This is respectable and innovative!

I do want to see a world with private currencies, however, as a centrally issued currency it can only end 2 ways:

1. It just fails due to lack of interest.
2. Person goes to jail for "money laundering", "terrorism" and "child pornography".

Ripple in its standard idea would work like this community credit approach. Opencoin ripple is different in its most likely use case. It's weird that you still seem to ignore answers here and still claim that ripple should be used in a very inefficient way.

All in all what you'll need with ripple is most likely a single gateway you trust with your favorite currency (around here likely bitcoin). No friends, no 1:1 exchange for other IOUs...

This is also already now the most common use case, as you can see from the public ledger. There is a small network from the villages.cc community, most of the other users don't do real community credit.

Please tell me in your words what is the difference between me depositing btc at inputs.io and at a ripple gateway and where the loan terms etc of inputs are.

Very good analysis, thank you.

I have made my own analysis and have reached similar conclutions. In my own words:

1. The only person/gateway you could reliably trust with USD in Ripple is the Fed. The only gateway you could trust with EUR is the ECB. You cannot trust any other parties. If you trust "some-shitty-gateway" with USD, they would be able to exchange *your* Fed-USD for some-shitty-gateway-USD. Some-shitty-gateway-USD are much much worse than Fed-USD.

2. Because of (1), you cannot reliably transfer USD, EUR or BTC within Ripple. The Fed does not participle in the Ripple system, and there is *NO* BTC gateway that would be fundamentally reliable, because BTC is not centrally issued. Playing with debt money is just asking for disaster, that will eventually happen.

3. The only innovation is that it would be possible to create private currencies within Ripple, but ATM this is not even being done and it's not even marketed as such due to it being much less useful than bitcoin.

Short version: Ripple is only good for DumbFruit to issue DumbFruit-dollars. Nothing else.

Excellent read, thank you! At least there is some intelligent Ripple discussion on these forums without the mindless Ripple bafoons who fabricate the information and thus lie to the BTC community about Ripple.

To just touch on this point again..

More important than the issue of the contractual obligations and moral hazard is the fact that the IOU's don't carry any information to the lender. (asset holder.)

It's not a feature of ripple that the tie between the lender and borrower is broken by a myriad of jumps, it's a defect.

It's a defect precisely for the reason described in my opening post. If you break the relationship between the lender and the borrower, then you have to try to derive the correct terms of the IOU at the final point from the relationships along consecutive users in the chain, which bears no relevance to the problem.

But maybe I'm getting too theoretical.

In markets today if you want to borrow money you have to go directly to to the lender and present your case. You have to tell them what the loan is for, what your experience is, how trustworthy you have been in the past (Credit rating), and what you can use to back your loan (Collateral).

Using this information, the lender decides the risk of the loan, and assigns an appropriate interest rate and length of the loan.

In Ripple, this doesn't take place. Instead, the borrower goes to his friend (who's standards are usually much lower than a bank.) then the friend goes to his friend and so forth.

How can you determine an appropriate interest rate and terms for the loan from unrelated relationships in a chain? You can't. All of the appropriate data that could be used to make the determination is washed away long before the request gets to the lender.

In this way, highly risky loans make their way to asset holders through Liquidity Providers without any warning or determination being made by the lender.

That's why the fact that IOU's are not literally passed to the lender does not solve the problem that I was talking about in the opening post.

My argument isn't going anywhere because Trust Line Quality does not, and can not, address the problems presented, and neither does the name of the IOU at the endpoint of the chain.

The name on the IOU makes zero difference if the person that instigated it defaults, because the bottom line is there's a debt that needs to be paid and no one along the chain has an incentive to eat the loss. At what point would they eat the loss anyway? Is there an expiration date on IOU's now?

Trust Line Quality tries to emulate the interest rates in a market, but the interest in sections of a chain do not (and can not) come close to approximating the risk of default of a given debt. There is no relationship.
At best this could be wildly wrong to the point of costing too much for anyone to get any significant quantity of IOU's. At worst it would be just low enough for people to use it and default for the free cash.

OpenCoin could  cripple the web of trust so profoundly that no one uses it for any significant amount, or they could just get rid of the entire concept of a Liquidity Provider, because it's broken.

It doesn't matter how many rules or caveats OpenCoin tries to come up with the patch it up because you can't derive a subjective value, and interpersonal contractual arrangements, from the trusted value's among consecutive parties.
One does not follow from the other.

Well, you have to look at Ripple XRP volume and estimate number of traders...
Because most currency exchange is designed to go thru XRP...
XRP is a highly specialized internal Market Making currency...
And only XRP/BTC and XRP/USD Bitstamp have any liquidity.

So XRP volume had collapsed to about 150 BTC or $20,000/day...
And with the new Pump and Dump has tripled to 450 BTC or $65,000/day...
I will bet you anything OpenCoin is dumping XRP into this market to raise cash.

That translates into maybe 20 traders during dead times...
To maybe 100 traders during pumps.

http://bitcoincharts.com/charts/rippleXRP#rg90zigDailyztgSzm1g10zm2g25zv

Ripple is such a dog...
On average, mcxNow is doing about 5 times the business as Ripple...
And the Ripple client and trading interface is awful... with 242 bugs on GitHub.

https://github.com/ripple/ripple-client/issues?state=open

It's all smokes and mirrors, baby...
I'd be totally shocked if key server code is open sourced...
They have not yet achieved anything approaching critical mass...
All the Classic Ripple vultures are circling the sky waiting to hard fork.

I don't believe a word OpenBong says.

Whether or not people speculate on XRP, like is done with pretty much every crypto-currency out there, does not negate the usefulness of the Ripple system itself. You can successfully use Ripple for many purposes and never hold more than the bare minimum of XRP needed for the account reserve and transaction fees.

Let's talk about the system, not some misguided users of the system.

you make it sound like all xrp is good for is gambling based on news reports.. pass that sucker on to the tnext person and hope you're not the last person (or made enough money) holding XRP? if that's your argument....

This is actually one of my concerns, and something that might hamper adoption by players who could bring real liquidity to the system. 

Since the ledger is public, it seems like an opportunity for a company to provide a service where you give them a ripple address (or group of addresses), a jurisdiction and a time frame and then they produce a tax compliant report.

It would be nice to see this built in, but with all of the possible jurisdictions, I don't see that happening. Do you think there would be enough people willing to subscribe to such a service to support the programmers and various tax lawyers required to make it happen? What do you think serious traders would be willing to pay for this?

Note: I don't plan to do this myself. I just want to know if you think there is enough demand to support someone doing it the right way.

You can transfer Bitstamp USD IOUs anonymously since Day One...
Though SnapSwap requires a US bank account...
Every Gateway does whatever it wants.

I did about 500 trades in May-June...
And you cannot get any Tax Compliant report on Ripple network trading activity...
So it's a Big Fat FIAT Laundering Machine.

*** OpenCoin claims it is not responsible for any of this activity. ***

FINCEN and SEC exists for the very purpose of shutting down dodgy things like Ripple...
CEO Chris Larsen has a history of tangling with US authorities like the SEC.