Re: Ripple

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>