Re: Ripple

As presently constituted, the "value" of XRP (as is the case with BTC) is
classed by accountants as "goodwill", which can easily become impaired on
rumours or events.
http://www.iasplus.com/en/publications/us/other/the-goodwill-impairment-dilemma

Joseph Potvin


On Mon, Nov 18, 2013 at 2:42 PM, Joseph Potvin <jpotvin@opman.ca> wrote:

> RE: Ripple Labs isn't playing a hoarding game but
>
> I don't have any opinion on that at this point, but some people think it
> is: http://ripplescam.org/  (Sorry if posting that link seems aggressive.
> That's not my intent. It's out there and shows up in searches, so I'm just
> being forthcoming.)
>
> RE: "The value of 1 XRP matters to currency traders, Ripple Labs, and
> anyone else holding XRP as an asset. "
>
> That seems entirely unnecessary to me, and a "bug" in the current business
> architecture of Ripple. Why permit the holding of XRPs at all? In the grand
> scheme of things, what's the value added from their persistence? I still
> advocate for 1 XRP = 1 banana, compared with the XRP's current design. (To
> see where I'm actually coming from, see:
> http://www.bengrahaminvesting.ca/Outreach/2009_Symposium.htm and
> http://www.theglobeandmail.com/globe-investor/investment-ideas/commodities-as-a-global-currency/article1346127/
> ...although even more I prefer an "Earth Reserve" base, which I and some
> colleagues are working on.)  Meanwhile the private consortium aspect of The
> Fed is hardly something to be replicated -- the more successful Ripple
> becomes, the more suspicion and "divergent" interests it will attract. It
> fear it would become the monetary instantiation of The Peter Principle.
>
> In any case, the value of a BTC or an XRP is nothing more than brand
> loyalty, what the accountants call the value of "goodwill", since any
> number of parallel currencies just like them can be created.
>
> Joseph Potvin
>
>
> On Mon, Nov 18, 2013 at 1:56 PM, Evan Schwartz <evan@ripple.com> wrote:
>
>> Q1: What is it about the A's role, and about the B's role that positions
>>> all the A's as currency price makers, and all the B's as currency price
>>> takers?
>>
>>
>> Only that the A's have put out offers on the books. Anyone can create an
>> offer and it'll be treated equally to anyone else's. In practice we expect
>> that certain users will use the system primarily for currency trading so
>> you'll see a lot more offers put out by those but as far as the system is
>> concerned all accounts have the same potential functionality.
>>
>>
>> Q2: In this model, what are the criteria and information sources that A1,
>>> A2 and A3 are assumed to use when offering their preferred amounts of EUR
>>> to buy those USD? Anything and everything available to them, correct?
>>>
>> Yes. They have access to the same network data about existing offers as
>> everyone else.
>>
>>
>>
>> Q: Can a machine register to and participate in Ripple? Or do all Ripple
>>> members need to be flesh&blood people. Is it possible for a machine to join
>>> Ripple as if it were a flesh&blood person, and if it did, would the Ripple
>>> system or team know or care?  Today, what's the proportion of machine
>>> accounts to flesh&blood accounts amongst Ripple subscribers?
>>
>>
>> People can definitely create bots that trade on Ripple. I'm not sure it
>> would be possible in any system to stop this from happening and I'm also
>> not entirely sure that we'd want to. Modern currency trading seems to be
>> more of a machine's game but what we're hoping for is that any human or
>> machine traders on the network will facilitate very cheap exchanges between
>> currencies, which will let basic users do cross-currency payments at a
>> fraction of the cost and time it takes now.
>>
>>
>> Okay, and this order book is determined by all the offers from A1, A2 and
>>> A3, however that plays out. Correct?
>>>
>> Yes.
>>
>>
>> Q: How does an EUR→XRP rate and an XRP→USD rate play into all of this?
>>> Here's what I presume, correct me if I'm wrong...
>>>
>>> RE:  Transactions can and often do take multiple paths to get the best
>>> rate
>>>
>>> A path is a series of trades underway at a given time, correct, such as
>>> USD→CAD with CAD→EUR to get a USD→EUR trade.  And where a suitable path
>>> can't be found, the Ripple algorithm will insert XRP. Correct? XRP always
>>> fills in gaps.
>>>
>> In order to do a USD -> EUR trade the system will look at direct USD ->
>> EUR paths, USD -> XRP -> EUR paths, and I believe some more indirect ones
>> as well. XRP is meant to fill in those gaps so that you don't actually need
>> people trading on all of the possible pairs of currencies.
>>
>>
>>
>> Q:  Does the value of 1 XRP matter?  As mere gap-filler, I don't think
>>> so.  XRP is just grease. Am I wrong?  In what context does the value of 1
>>> XRP really matter?
>>
>>
>> The value of 1 XRP matters to currency traders, Ripple Labs, and anyone
>> else holding XRP as an asset. For anyone using the system to make a payment
>> the value of XRP won't really matter because their money isn't "in" XRP for
>> any real period of time like it would be with Bitcoin if someone made a
>> payment USD -> BTC -> EUR outside of the Ripple network. Payments are
>> either executed in atomic time or they'll fail if the rates have changed
>> dramatically between the time when a price was quoted and when the user
>> decided to execute it.
>>
>>
>> Q: Why not set the purchasing power of 1 XRP to the tangible market price
>>> of 1 banana?
>>>
>>> The 100 billion XRP's would thus be valued at about a dozen container
>>> ships of bananas
>>> http://www.bloomberg.com/news/2013-05-29/maersk-s-8-4-billion-bananas-add-to-ship-profits-freight.html
>>> I jest, of course. But my fundamental point here is that if XRP were tied
>>> to something tangible, RippleLabs would be trusted not to be playing some
>>> sort of massive hoarding game. XRP would be understood to be just grease.
>>> ...or bananas.
>>>
>> Ripple Labs isn't playing a hoarding game but we are hoping that the
>> price of XRP, and thus the 25 billion XRP that the company is using to
>> sustain itself, appreciates in value. I think most of the people in the
>> company would agree with Jeffrey Cliff's earlier comment. We only make
>> money if the network we've built and are continuing to improve provides a
>> useful service for people.
>>
>>
>> Is this "end user" a price taker?  I'm always interested in the price
>>> makers.
>>>
>> When I say end user I'm generally talking about price takers / people
>> trying to make payments
>>
>>
>> More questions?
>>
>>
>> On Mon, Nov 18, 2013 at 3:30 AM, Joseph Potvin <jpotvin@opman.ca> wrote:
>>
>>> Hello Evan, Thanks for this!
>>>
>>> RE: If you want to see all of the outstanding offers for any currency
>>> pair you can do that directly in the client.
>>>
>>> So, I see in my UML mind a stickman, whose role is labelled: [Fill in
>>> blank, referred to here as A]. There's another one: [Fill in blank,
>>> referred to here as B].  Let's say A1, A2 and A3 each want some USD, and
>>> each is offering their preferred amounts of EUR to buy those USD.  Let's
>>> say B wants some EUR, and so...
>>>
>>> RE: the path finding engine will search direct and indirect paths for
>>> the rate that is best for the initiator.
>>>
>>> So the path finding engine discovers that A2 is offering B the best
>>> rate.
>>>
>>> Q1: What is it about the A's role, and about the B's role that positions
>>> all the A's as currency price makers, and all the B's as currency price
>>> takers?
>>>
>>> Q2: In this model, what are the criteria and information sources that
>>> A1, A2 and A3 are assumed to use when offering their preferred amounts of
>>> EUR to buy those USD? Anything and everything available to them, correct?
>>>
>>> Now, the following observation is not meant in any way to challenge
>>> Ripple. It's only meant to acknowledge the environment within which Ripple
>>> and all the A's and all the B's have to live, for the time being. This is
>>> the $5.3 trillion / day forex ecosystem dominated by top predators:
>>>
>>>
>>> http://www.bloomberg.com/news/2013-10-04/swiss-regulator-probes-alleged-foreign-exchange-manipulation.html
>>>
>>> http://www.usatoday.com/story/money/business/2013/11/15/foreign-exchange-trading-investigation/3573499/
>>>
>>> http://www.theguardian.com/business/2013/oct/30/barclays-cooperating-investigation-manipulation-currency-markets
>>> "Treasury's War" by Juan Zarate
>>>
>>> http://www.publicaffairsbooks.com/publicaffairsbooks-cgi-bin/display?book=9781610391153
>>> "Currency Wars" by James Rickards
>>>
>>> http://www.us.penguingroup.com/nf/Book/BookDisplay/0,,9781591844495,00.html
>>>
>>> In this ecosystem, then, I'm wondering from where it is assumed that A1,
>>> A2 and A3 get their information to offer their preferred amounts of EUR to
>>> buy USD? Let's structure this directly:  Let's say that A1 and A2 are
>>> machines running unique forex algorithms, and leave A3 as a flesh&blood
>>> person. So A3 is somebody who "watches the forex market" and reckons that
>>> some amount of EURs for USD is a good bet this afternoon.
>>>
>>> Q: Can a machine register to and participate in Ripple? Or do all Ripple
>>> members need to be flesh&blood people. Is it possible for a machine to join
>>> Ripple as if it were a flesh&blood person, and if it did, would the Ripple
>>> system or team know or care?  Today, what's the proportion of machine
>>> accounts to flesh&blood accounts amongst Ripple subscribers?
>>>
>>> Let's focus on A1 and A2 machines. What are the most important data
>>> feeds that each machine's algorithm might be coded to draw upon in order to
>>> generate their EUR-for-USD offers at any given moment?  Let's say A1 is
>>> designed to statistically interpret the WM-Reuters spot rate
>>> http://www.wmcompany.com/pdfs/026808.pdf and is able to project it
>>> correctly by a few hours 60 per cent of the time. And lets say A2 is
>>> designed as "a news-trading algorithm. The computer will not be interested
>>> at all in long-term value considerations. It will look at semantic
>>> relations in news announcements"
>>>
>>> http://www.lgt-cm.com/shared/.content/publikationen/$verwaltung_publikationen/sciene/The-self-organization-of-markets-LGT-working-paper-v2-1_en.pdf
>>>
>>> RE: "Regarding the order book and exchange rates, the order book is
>>> public and is one of the pieces of information the system uses consensus to
>>> determine."
>>>
>>> Okay, and this order book is determined by all the offers from A1, A2
>>> and A3, however that plays out. Correct?
>>>
>>> Q: How does an EUR→XRP rate and an XRP→USD rate play into all of this?
>>> Here's what I presume, correct me if I'm wrong...
>>>
>>> RE:  Transactions can and often do take multiple paths to get the best
>>> rate
>>>
>>> A path is a series of trades underway at a given time, correct, such as
>>> USD→CAD with CAD→EUR to get a USD→EUR trade.  And where a suitable path
>>> can't be found, the Ripple algorithm will insert XRP. Correct? XRP always
>>> fills in gaps.
>>>
>>> Q:  Does the value of 1 XRP matter?  As mere gap-filler, I don't think
>>> so.  XRP is just grease. Am I wrong?  In what context does the value of 1
>>> XRP really matter?
>>>
>>> The system is not designed for XRP hoarding, like BTC hoarding is done
>>> and even encouraged. It seems to me that XRP does what economists do: "Lets
>>> assume that this in-between trade did exist to complete the path."  Then
>>> act as if it does. I don't mean to criticize -- it's a clever thing to do.
>>> But some have expressed concern that Ripple Labs is hoarding all the XRP,
>>> and that they will increase in value. So how about this:
>>>
>>> Q: Why not set the purchasing power of 1 XRP to the tangible market
>>> price of 1 banana?
>>>
>>> The 100 billion XRP's would thus be valued at about a dozen container
>>> ships of bananas
>>> http://www.bloomberg.com/news/2013-05-29/maersk-s-8-4-billion-bananas-add-to-ship-profits-freight.html
>>> I jest, of course. But my fundamental point here is that if XRP were tied
>>> to something tangible, RippleLabs would be trusted not to be playing some
>>> sort of massive hoarding game. XRP would be understood to be just grease.
>>> ...or bananas.
>>>
>>> RE:  all the end user really needs to know about is the amount it'll
>>> cost them in the currencies they have to send some amount in another
>>> currency to someone else
>>>
>>> Is this "end user" a price taker?  I'm always interested in the price
>>> makers.
>>> Joseph Potvin
>>>
>>>
>>>
>>> On Sun, Nov 17, 2013 at 10:36 PM, Evan Schwartz <evan@ripple.com> wrote:
>>>
>>>> Hi all,
>>>>
>>>> I am one of the engineers at Ripple Labs. I've been with the company
>>>> for 3 months so I can speak to a fair number of these points but for the
>>>> nitty gritty details of how consensus works I'll bring our chief
>>>> cryptographer David Schwartz into the conversation.
>>>>
>>>> Regarding the order book and exchange rates, the order book is public
>>>> and is one of the pieces of information the system uses consensus to
>>>> determine. If you want to see all of the outstanding offers for any
>>>> currency pair you can do that directly in the client.
>>>>
>>>> When someone wants to make a trade or do a cross currency payment the
>>>> path finding engine will search direct and indirect paths for the rate that
>>>> is best for the initiator. If you want to see visuals of these paths
>>>> happening you can go to ripple.com/graph and click on a transaction
>>>> entry to see a visualization of the paths. Transactions can and often do
>>>> take multiple paths to get the best rate but all the end user really needs
>>>> to know about is the amount it'll cost them in the currencies they have to
>>>> send some amount in another currency to someone else. If you take a look at
>>>> the Send tab in the client and have a couple of different currencies in
>>>> your wallet you can see this functionality in action.
>>>>
>>>> Happy to try to answer any more questions you all have, I think there's
>>>> a lot of opportunity for collaboration between Ripple and this group.
>>>>
>>>> Evan
>>>> On Nov 17, 2013 3:25 PM, "Joseph Potvin" <jpotvin@opman.ca> wrote:
>>>>
>>>>> Thanks,
>>>>>
>>>>> RE: it has an order book and the market determines the price
>>>>>
>>>>> How exactly?  And is the order book and associated process documented
>>>>> somewhere? I'd love to see the UML sequence or activity diagram, for
>>>>> example, but text will do.
>>>>>
>>>>> Is the general user experience that of a price-maker or price-taker? A
>>>>> currency "price maker" is asked to bid. A currency "price taker" is shown a
>>>>> rate as a fait-accompli.  And does the user make or take the intermediate
>>>>> XRP rate, or the destination currency rate?  (i.e. If Fred pays CAD to a
>>>>> vendor who wants to receive USD, he'd want to make or take the CAD-USD
>>>>> rate. The CAD-XRP then the XRP-USD rates would be invisible and of no
>>>>> concern to him.)
>>>>>
>>>>> Joseph
>>>>>
>>>>>
>>>>>
>>>>> On Sun, Nov 17, 2013 at 5:26 PM, Melvin Carvalho <
>>>>> melvincarvalho@gmail.com> wrote:
>>>>>
>>>>>>
>>>>>>
>>>>>>
>>>>>> On 17 November 2013 23:24, Joseph Potvin <jpotvin@opman.ca> wrote:
>>>>>>
>>>>>>> Melvin, Can you point to the specific documentation about how Ripple
>>>>>>> determines XRP inter-currency spot exchange rates with all the central bank
>>>>>>> currencies,and for BTC? And is there a documented policy for choosing the
>>>>>>> official source of exchange rate data for any other present or future alt
>>>>>>> crypto currency out there would be added to the Ripple portfolio of
>>>>>>> currencies?
>>>>>>>
>>>>>>
>>>>>> AFIAK it doesnt use a spot rate, it has an order book and the market
>>>>>> determines the price.
>>>>>>
>>>>>>
>>>>>>>
>>>>>>> Tx,
>>>>>>>
>>>>>>> Joseph Potvin
>>>>>>>
>>>>>>>
>>>>>>>
>>>>>>> On Sun, Nov 17, 2013 at 4:32 PM, Melvin Carvalho <
>>>>>>> melvincarvalho@gmail.com> wrote:
>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>>
>>>>>>>> On 17 November 2013 22:27, Fabio Barone <holon.earth@gmail.com>wrote:
>>>>>>>>
>>>>>>>>> I should do this as a homework, I apologize,
>>>>>>>>>  but I'm currently pretty busy.
>>>>>>>>>
>>>>>>>>> Would someone be so kind and answering these questions about
>>>>>>>>> Ripple:
>>>>>>>>>  - Is the code open source?
>>>>>>>>>
>>>>>>>>
>>>>>>>> Yes
>>>>>>>>
>>>>>>>>
>>>>>>>>> - Is the protocol they use openly documented,
>>>>>>>>>   as openly as bitcoin is?
>>>>>>>>>
>>>>>>>>
>>>>>>>> I can only answer this superficially as I've not written a web
>>>>>>>> ripple implementation (yet)
>>>>>>>>
>>>>>>>> But it seems to be yes: https://ripple.com/wiki/
>>>>>>>>
>>>>>>>> You only ever know after you've drilled down into every last detail
>>>>>>>> ... something I plan to do next year ...
>>>>>>>>
>>>>>>>>
>>>>>>>>>
>>>>>>>>> thanks
>>>>>>>>>
>>>>>>>>>
>>>>>>>>> 2013/11/17 Manu Sporny <msporny@digitalbazaar.com>
>>>>>>>>>
>>>>>>>>>> On 11/14/2013 04:30 PM, Andrew Miller wrote:
>>>>>>>>>>
>>>>>>>>>>> 2. But this doesn't work for public/anonymous networks.
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> Why doesn't it work for public/anonymous networks? Link? This is
>>>>>>>>>> Web of
>>>>>>>>>> Trust stuff we're talking about, isn't it (chained trust metrics)?
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  3. Ripple, on the other hand, takes yet another approach.
>>>>>>>>>>> There's no
>>>>>>>>>>> global administrator, but nor is there a well-understood public
>>>>>>>>>>> competition. Instead, individual users are supposed to configure
>>>>>>>>>>> their clients to identify particular servers they have determined
>>>>>>>>>>> they trust.
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> Isn't this a good thing? If you allow anyone to pick who they
>>>>>>>>>> trust, you
>>>>>>>>>> force cooperation in the system, don't you? The idea being that
>>>>>>>>>> for the
>>>>>>>>>> system to be useful, people need to coordinate and thus won't pick
>>>>>>>>>> participants with whom they entirely disagree with.
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  Here's where it gets really murky, and I can't figure out any
>>>>>>>>>>> set of
>>>>>>>>>>> assumptions that actually lead to robust functioning of the
>>>>>>>>>>> network.
>>>>>>>>>>> What if users entirely disagree with which servers they trust?
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> Why would someone deliberately do this? If you have to pick from
>>>>>>>>>> 32
>>>>>>>>>> servers, why would you pick from 32 servers that are in a
>>>>>>>>>> completely
>>>>>>>>>> different trust set? It would be incredibly difficult to do that
>>>>>>>>>> in a
>>>>>>>>>> dependency chain based system, wouldn't it?
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  Are they on two different networks or the same one?
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> No idea.
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  If an individual doesn't do their due diligence, and carelessly
>>>>>>>>>>> approves bad servers, are they individually affected or does it
>>>>>>>>>>> affect the overall network?
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> I'd expect that in the worst case, the overall network suffers.
>>>>>>>>>> However,
>>>>>>>>>> the likelihood of this is in the 51% attack against the Bitcoin
>>>>>>>>>> network
>>>>>>>>>> category, isn't it?
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  I really wish more people were looking into this rather than
>>>>>>>>>>> ignoring
>>>>>>>>>>> it, because I suspect it's not sound (although I haven't come up
>>>>>>>>>>> with
>>>>>>>>>>> a super clear explanation why not), and if the underlying
>>>>>>>>>>> assumptions
>>>>>>>>>>> aren't sound then does it matter if the frontend UI is great?
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> Well, yeah, if the algorithm is broken then no UI in the world is
>>>>>>>>>> going
>>>>>>>>>> to save it. However, I don't think you've explained quite why
>>>>>>>>>> Ripple's
>>>>>>>>>> consensus algorithm is broken. Why is allowing individuals to
>>>>>>>>>> pick whom
>>>>>>>>>> they trust a bad thing (when the number of servers is large
>>>>>>>>>> enough)?
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  Unfortunately the only set of assumptions I can think of that
>>>>>>>>>>> lead
>>>>>>>>>>> to this actually working is where every one essentially picks the
>>>>>>>>>>> same default list, and the servers on that list are actually
>>>>>>>>>>> trustworthy.
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> I think the problem surfaces when a group of servers create a
>>>>>>>>>> trust set
>>>>>>>>>> that has no intersection with another set of servers. With that
>>>>>>>>>> said,
>>>>>>>>>> why would anyone do this? What's the attack?
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>>  This is the "centralized" option, where the default list
>>>>>>>>>>> determines
>>>>>>>>>>> who participates, and no user has any incentive to deviate from
>>>>>>>>>>> the
>>>>>>>>>>> default list, either by adding some newcomer they individually
>>>>>>>>>>> trust
>>>>>>>>>>> or by removing default servers they don't trust.
>>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> I thought that only a subset of the list needs to be trusted for
>>>>>>>>>> Ripple
>>>>>>>>>> to function, and all trust sets that all servers choose have to
>>>>>>>>>> overlap
>>>>>>>>>> by at least a small degree. Is that not true?
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>> -- manu
>>>>>>>>>>
>>>>>>>>>> --
>>>>>>>>>> Manu Sporny (skype: msporny, twitter: manusporny, G+: +Manu
>>>>>>>>>> Sporny)
>>>>>>>>>> Founder/CEO - Digital Bazaar, Inc.
>>>>>>>>>> blog: Meritora - Web payments commercial launch
>>>>>>>>>> http://blog.meritora.com/launch/
>>>>>>>>>>
>>>>>>>>>>
>>>>>>>>>
>>>>>>>>>
>>>>>>>>
>>>>>>>
>>>>>>>
>>>>>>> <http://goo.gl/Ssp56>
>>>>>>>
>>>>>>
>>>>>>
>>>>>
>>>>>
>>>
>>>
>>> <http://goo.gl/Ssp56>
>>>
>>
>>
>>
>> --
>> Evan Schwartz
>> Developer + Technology Pioneer
>> Ripple Labs Inc.
>>
>>
>>