W3C home > Mailing lists > Public > public-webpayments@w3.org > April 2013

Re: Ripple a scam?

From: Clark Minor <clarkm@MIT.EDU>
Date: Fri, 26 Apr 2013 21:30:12 -0400
Message-ID: <CAOknBuV1EjiBt3s_-Jc1pG0R9V9LUQjStejbnS4mBa47Rge7Lw@mail.gmail.com>
To: Melvin Carvalho <melvincarvalho@gmail.com>
Cc: Brent Shambaugh <brent.shambaugh@gmail.com>, Nathan Rixham <nathan@webr3.org>, Jeffrey Cliff <jeffrey.cliff@gmail.com>, Web Payments CG <public-webpayments@w3.org>, Manu Sporny <msporny@digitalbazaar.com>, Mike Hearn <mike@plan99.net>
I agree -- right now, both bitcoin and ripple have features that are rather
centralized. However, it is interesting to think about how these things
might play out in the long term.

For bitcoin, two aspects prone to centralization are exchanges and miners.
Over the past few years, mining has become increasingly centralized, mostly
as a consequence of increasing sophistication in both software and
hardware. While the development of specialized hardware (ASICs) was
certainly predicted, I don't think many people expected mining pools to
become so prominent. Pool operators wield a tremendous amount of influence
on the network, and having a pool with close to 50% of the hashrate is not

While this trend toward centralization could continue forever, it probably
won't. Several p2p mining pools have been proposed, and if widely-adopted
will aid in decentralization. However, the specialized hardware could go
either way, dependending on whether economies of scale are present. I
suspect that once ASICs are widely available, they will be adopted by a
large number of people willing to run them at a loss to help support the
network. This will make large, centralized mining operations unprofitable,
so the system will tend to decentralization. Though since the difficulty is
always changing, I have no idea if this is a stable equilibrium, but I
think it is.

However, I see a bleaker future for exchanges. While MtGox is losing market
share due to competition (it is down from over 80% in 2011), large
exchanges will always be an important part of the bitcoin economy.
Exchanges need market depth and trade volume to be useful (unless you're an
arbitrageur), so the number of useful exchanges is limited.

The problem of exchange centralization is what ripple solves. In bitcoin,
records of BTC to USD are recorded by exchanges, who operate off the
blockchain (you deposit money with them, and they match you with a
buyer/seller). In the ripple network, all transactions -- not just BTC from
account A to B -- are stored on a shared ledger. This means that price
discovery occurs within the network, which is decentralized.

Though whether this completely solves the decentralization problem, I'm not
sure. In fact, I'm working on performing an independent evaluation of
ripple, and this is one of the questions we're considering. So, if you have
any suggestions for potential weaknesses in ripple that we should
investigate, or concerns you think we should address in our paper, feel
free to send me an email.


Clark Minor

On Fri, Apr 26, 2013 at 8:14 PM, Melvin Carvalho

> On 26 April 2013 19:13, Brent Shambaugh <brent.shambaugh@gmail.com> wrote:
>> For reference, Melvin Carvalho posted a link on the list to a video about
>> the future of Bitcoin by Mike Hearn. At the end of the talk (~24:48) Mike
>> mentions that Bitcoin is still centralized, but Ripple is a completely P2P
>> (decentralized) currency exchange.
> I really enjoyed this talk.
> The truth is that neither bitcoin NOR ripple are 100% decentralized.
> bitcoin is pretty much decentralized in that it has 1 million+ people
> running software with the 'one cpu one vote' concept
> ripple is more a consensus idea which is interesting, but at this point
> more centralized ... i think there are under 10 nodes running rippled, but
> then again it's still a closed beta
> cc: mike hearn
>>  "Mike Hearn on Bitcoin" Sun, Apr 21, 2013 at 11:05 AM
>> >Sorry posted this to wrong list, it was meant to be web payments
>> >Some on the webid list may still find it interest, as it talks about
>> payment workflows between different identities aka 'smart >contracts' :)
>>  >https://www.youtube.com/watch?feature=player_embedded&v=mD4L7xDNCmA
>> >On 31 March 2013 19:18, Melvin Carvalho <melvincarvalho@gmail.com>
>> wrote:
>>    > https://www.youtube.com/watch?feature=player_embedded&v=mD4L7xDNCmA
>> On Fri, Apr 26, 2013 at 11:57 AM, Nathan <nathan@webr3.org> wrote:
>>> I agree, I know a few of the ripple developers and they all assure me
>>> that they just want it critical-bugless before released.
>>> Put it this way, I trust it enough to hold several hundred thousand XRP
>>> and use it daily and give feedback + submit issues, so I for one trust it.
>>> Jeffrey Cliff wrote:
>>>> It should be pointed out that the so far cloeed components are planned
>>>> to
>>>> be opened--the system is not yet stable enouhh and they are just trying
>>>> to
>>>> figure out how to do this in such a way thay they won't likely have to
>>>> reset the ledger afterwards.   In the meanwhile  it is sensible to not
>>>> use
>>>> it, given the source isn't finished yet...but the criticism *as a
>>>> system*
>>>> that it is closed is imho invalid.
>>>> On 2013-04-26 10:40 AM, "Nathan" <nathan@webr3.org> wrote:
>>>>  Manu Sporny wrote:
>>>>>  Interesting commentary on Ripple being a scam:
>>>>>> http://ripplescam.org/
>>>>>> #bitcoin #ripple #payswarm #w3c #futureofmoney
>>>>>> Some of the arguments are fairly weak, I think the underlying
>>>>>> assumption
>>>>>> that the author is making is that Ripple is attempting to be Bitcoin
>>>>>> (it
>>>>>> isn't, it's a for-profit currency run by a corporation). So, if you
>>>>>> trust Ripple, most of the arguments go away.
>>>>>> The open source argument is pretty solid, so is the one about hoarding
>>>>>> of XRPs. The OpenCoin developer arguing in the comment thread
>>>>>> certainly
>>>>>> didn't help defend Ripple.
>>>>>> I think the real argument is whether or not Bitcoin is better than
>>>>>> Ripple, and in this case, it completely depends on what you want out
>>>>>> of
>>>>>> the currency. Fast transactions? Use Ripple. Decentralized and open
>>>>>> source? Use Bitcoin.
>>>>>> Any commentary from payment folks on this list?
>>>>>>  Yes! I use both daily, and heavily.
>>>>> There are two things here:
>>>>> a) Ripple as a clearance system.
>>>>> b) Ripple XRP as a currency.
>>>>> Ripple as a clearance system is rather good, it'd be better if it was
>>>>> open
>>>>> source, but it's certainly setting the bar and more than usable (I use
>>>>> it
>>>>> daily). Worst case the rippled project can be reimplemented using the
>>>>> details on the wiki and using the API (which isn't great). The low
>>>>> friction
>>>>> and latency is hard to live without once you are used to it.
>>>>> Another + is that ripple has opensourced some rather good client
>>>>> libraries
>>>>> in Javascript, and lots of tooling for it.
>>>>> Ultimately you cannot directly compare Ripple and Bitcoin directly. You
>>>>> can compare the currencies, in which case there are two ways to
>>>>> compare and
>>>>> value them.
>>>>> 1) Traditionally, where the value of the currency is the amount of
>>>>> trust
>>>>> behind it
>>>>> 2) In ripple case, where XRP is a utility of the network, in which
>>>>> case 1
>>>>> XRP has the value of 10k-100k transactions depending on how the fees
>>>>> are
>>>>> set.
>>>>> The aside issue, is the distribution of the pre-mined currency. Are
>>>>> they
>>>>> doing this to get rich and get out, or get rich while making things
>>>>> better
>>>>> for the general population. If the first case then that sucks, if the
>>>>> second case then who cares? I'm sure we all hope Satoshi and the
>>>>> original
>>>>> bitcoin pushers are rich today, and likewise I hope the Ripplers will
>>>>> be
>>>>> too.
>>>>> Ultimately, a well defined clearance system similar to ripple,
>>>>> supporting
>>>>> multiple currencies will and should become the norm, ripple is pushing
>>>>> the
>>>>> populations in the right direction. That can't be a bad thing.
>>>>> Best,
>>>>> Nathan
>> --
>> Brent Shambaugh
>> I've worked with polymers, I teach chemistry, I'm currently researching
>> how to build distributed economies.
>> Website: http:// <http://bshambaugh.org/experiments/connect_dots3.html>
>> adistributedeconomy.blogspot.com
Received on Saturday, 27 April 2013 17:52:50 UTC

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