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Version1.8
byAndrewWhite
andrew@onemilliongateways.com
twitter@OMGateway
Copyright2014AndrewWhite
HelloandwelcometotheRippleInvestmentGuide.Thisebookis
designedasanoverviewofthewaysinvestorscanparticipateinthe
Rippleecosystem.Thisbookisonlyforeducationalpurposes,andis
notintendedtoprovideinvestmentadvice.Beforeinvesting,I
encouragemyreaderstodiscusswiththeirfinancialadvisorany
potentialrisksandrewardsofaninvestment.
Mygoalforthisbookistobelargelynontechnicaland,astheauthor,I
feelacertainresponsibilitytomakesureeveryonewhoreadsthisbook
learnssomethingofvalue.Iapologizeinadvanceifthereisanythingin
thisbookthatseemstootechnicalorcomplicated.Ifthereisa
passageinthisguidethatdoesnotseemtomakesenseoristoo
complicatedIaskthatyoudonotgiveuplearningmoreaboutRipple
andtheopportunitiesitpresentstoinvestors.Takeyourtimewitheach
sectionandsupplementyourlearningwithGooglesearchestohelp
withyourownresearchontermsorideasofinteresttoyou.Dontbe
surprisedifafterreadingthisguideyoubecomethegotoexpert
aboutRippleinyoursocialnetwork.
TheRipplepaymentsystemisoneofthemostexcitingtechnologiesto
bedevelopedinrecentyears.Forthefirsttime,paymentscanbesent
toanyoneintheworldinanycurrencywithinafewseconds.Idescribe
Rippleaslikeemailformoney.Activitiesthatwereoncethesole
purviewofthebankingindustry,suchaslendingormakingpayments,
havebecomedemocratizedintheRipplesystem.Themyriad
opportunitiesandchallengesthesenewoptionsbringtothemasses
openawholenewsetofpossibilitiesandquestionsforthediscerning
investortoconsider.Thisebookpresentsabriefoverviewofbusiness
opportunitiesintheRIppleecosystemandwhatrolesyoucanplayin
thisexcitingnewareaoffinance.IhavebeeninvolvedwithRipplesince
Copyright2014AndrewWhite
early2013andIhaveexperiencedallthedifficultquestionsoftryingto
understandit.SoonthatnoteIwanttocoverallthemajorcomponents
ofRippleasitexiststodayanddivedeeperintoeachtopicasspace
allows.Withanynewtechnologytherearetradeoffsbetween
sophisticationandeaseofuse,newfeaturesandcomplications,new
capabilitiesandnewrisks,andRippleisnodifferent.Inthisebooks
twenty31orsopages,myintentismakeyouconversantinthemain
areasofRippleandinviteyoutospecializeinyourownareaof
research.
Bestwishes,
AndrewWhite
Acknowledgments:Iwouldliketothankthefollowingpeoplewiththeir
helpinthisdocument:FredLaughterforediting,RippleLabsfor
images,andtheRipplecommunityformakingvaluablefeedbackand
suggestions.
Copyright2014AndrewWhite
TableofContents
RippleLabs
Wallets
Ripples
Gateways
Consensus
CurrencyIOUs
Traders
MarketMakers
Enterprises
DueDiligenceQuestions
IntheFuture
ImportantRippleInfrastructure
FAQs
Glossary
AbouttheAuthor
Copyright2014AndrewWhite
RippleLabs
RippleisspearheadedbythecompanynamedRippleLabs,Inc.inSan
Francisco.OriginallyformedasOpencoinIncin2012,itwasreformed
in2013byChrisLarsen,JedMcCaleb,andafewothers,RippleLabs
ownstheintellectualpropertyoftheRippleprotocol.Thecodeand
programsthatmakeupRippleareavailableforfreeforanyoneto
download,useandmodify.RippleLabsissupportedbyacommunity
ofRippleenthusiastsaroundtheworldwhoarepassionateabout
makingthetechnologymoreuseful.Thesepeopleprovideessential
feedbacktoproductteamsandengineersleadingtheoverall
implementationofRipplesdevelopment.TheknowninvestorsinRipple
LabsincludeGoogleVentures,AndressonandHorowitz,Lightspeed
Ventures,BryanBradford,andothers.AsofMarch2014,RippleLabs
hasastaffof40peopleledbyCEOChrisLarsen.Mr.Larsenisthe
formerCEOofELoanandlaterProsper.com,bothofwhichwere
pioneeringcompaniesinpeertopeerlending.
Asanoutsider,IcantsayanythingdefinitiveaboutRippleLabs
businessstrategies.Buttheirplaniscommittedtoincreasingthevalue
oftheRipplenetwork.Theydothisthroughavarietyofstrategiesto
showthepublicandworldofbusinessthatRippleprovidesabetter
systemforpaymentsthanthealternatives.Oneofthewaysof
accomplishingthisisbymakingusefulsoftwareandgivingitawayfor
free.ThesourcecodeofthesoftwarefromRippleLabscanberead
andusedbyprogrammersatnocharge,whichisanopeninvitationfor
curiousengineersandprogrammerstomakecontributionstothecode
andexpeditethedevelopmentofthecorefunctionality.Thisalso
providesavaluablesafetymechanism.Sincemoreeyescanlookat
theunderlyingcode,potentialissuescanbeidentifiedandfixedearly,
Copyright2014AndrewWhite
beforebecomingaseriousissue.RippleLabscangiveawaythe
softwareforfreebecausethecorevaluepropositionofRippleisthat
anopenpaymentnetworkthatanyonecanuseandimproveismore
valuablethanaclosedalternative.Sofartheplanseemstobeworking
wellandRippleisstartingtomakebigwaves!
Wallets
Touseadigitalcurrencysystem,peoplestartbycreatingadigital
versionofawallet.ARipplewalletisidentifiedbyitsRippleaddress
thatbeginswiththelowercaserandlookslikethis:
r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstothe
authorarewelcome!).
ThisisanexampleofwhataRIpplelookslikeavailableat
https://www.rippletrade.com
Copyright2014AndrewWhite
Thewalletisalwaysavailableonawebpagewiththemain
functionalitydisplayed:wallettransactionhistory,anaddressbook,a
sectiontosendandreceivepayments,andasectionofthewalletfor
youtomakecurrencytrades.ItisimportanttonotethatRipplewallets
arenotinsuredbytheFederalDepositInsuranceCorporation(FDIC),
whichwascreatedbytheU.S.governmenttoprotectconsumersfrom
bankfailures.
Formostconsumers,themagicofRipplepaymentshappenswhen
paymentsaresentacrossthenetworkwithinafewseconds.To
anyoneaccustomedtotheslowandcumbersomeprocessoftraditional
paymentnetworks,thisisanincredibleadvanceinpayments
technology.Nolongerdopeopleneedtowaitfordaysforabankwire
transfertobecompleted,orweeksforacreditcardpaymenttobe
processedwithRipple,havingtowaitforpaymentprocessingisa
thingofthepast.Eveninareaswithmodernbankingsystems(like
EuropeandChina)withsamedaybanktransfers,theexistingpayment
systemisstillarelativelyslowandcostlyprocessthatcreatesan
unnecessarydragontheeconomy.Justimaginewhatkindoflowcost
newserviceswillbecomeavailablewithRippletomerchants,
consumers,andinvestorsacrosstheentireglobaleconomy.
Asfarasmostinvestorsareconcerned,theRipplewalletisalsowhere
magichappensinitsroleinredefiningthepaymentexperiencearound
theworld.Tobehonest,inmyopinion,walletsarenotallthat
interestingvisually,orconceptually,norshouldtheybeparticularly
interesting.Theyaredesignedtobeassimpleaspossiblehencethere
isntmuchtoseeordoinaRipplewallet(withtheexceptionof
trading).
Advancedconceptwarning!IliketodescribeRipplewalletsusingthe
followingexamplebutitisnotapreciseanalogy.Ijustmentionedthat
RipplewalletsarenotFDICinsuredbecausetheyarenotissuedbya
Copyright2014AndrewWhite
U.S.charteredbank.Allowmeartisticlicensewiththefollowing
analogy:aRipplewalletiskindoflikeabankaccountbutyouasthe
walletowner(accountowner)areempoweredtocontrolhowmuch
moneyyoutrusttobeheldbyyourvariousbanklikeentities
(gateways,moreaboutthemlater).
RippleWalletsaregreatbecausewhentheycanstoreormake
paymentsinanycurrency.Theauthorcantthinkofanyotherwallet
evercreatedthatisabletoacceptanycurrencyevercreated,including
governmentissuedcurrenciesandprivatecurrencies!Forthefirsttime
inhistory,digitalwalletuserscanholdanycurrencyeverissued.Thisis
aBigIdeathatmaytakeyearstobewidelyunderstood,appreciated,
andacceptedbythemarket.
Ripples
RipplesarethenativecurrencyoftheRippleprotocolandare
referredtotheircurrencycodeofXRP(whichislikeUSDorBTC).The
protocolconsistsoftherulesofhowRippleworksandtheserulesare
translatedbyprofessionalprogrammersintosoftwaretoperformall
thefunctionsthatRippledelivers.Moregenerally,peoplemake
protocolstosolveaprobleminaconsistentandentirelyreliable
manner.Welldesignedprotocolstendtohavemanypeopleusingthem
andthebestprotocolshavealongservicelife.Forexample,thinkof
theprotocolofshakinghandswhengreetingsomeone.Thisprotocol
hasbecomeinstantlyrecognizableworldwide.Itsnotabletraitsare
thatitissimple,easilyreproducible,andcooperativeinnature.The
bestcomputerprotocolsandmonetarysystemsaimforsimilarresults.
Tobecompliantwithinternationalnamingconventions,Ripplesare
knownbyathreeletteracronym,comparabletohowUSdollarsare
representedasUSD.ThethreelettercodeisXRP.Ripplewas
releasedwithonly100billionunitsofXRPtoeverexist.Thelogicis
Copyright2014AndrewWhite
thataverageconsumersmightonlyneedtousearelativelyfewRipples
acrosstheirentirelifetime.The100billionnumberwasjudgedtobe
largeenoughtobeusefulfortheRipplenetworkforhundredsofyears,
andquantifiableenoughtoprovideabusinessmodelforRippleLabs.
Ripplesaredistributedinavarietyofways.RippleLabssellsbulk
quantitiesforlargeordersandgivesawaysmalleramountsforfree.It
iscriticaltotheRippleLabsbusinessstrategythatXRPbedistributed
toawidenumberofmarketparticipantswhointendtouseRippleasa
systemforpayments,currencytrading,orassetissuance.Acool
featureofXRPisthatasthenativecurrency(Ialsolikethetermmeta
currencybutitisnotasobviouswhatthatmeans),XRPcanbespent
tosend(orreceive)anyothercurrencyofferedforsaleinsidethe
Ripplenetwork.
TherearedifferentinvestmentstrategiesinvolvingRipples.Before
gettingintothevariouschoicesavailable,Iwouldsuggestwouldbe
investorsaskthemselvesafewquestionssuchas:
AmItechnicallyproficientenoughtohandledigitalcurrenciesonmy
own?
DoIalwaysfollowbestpracticesforcomputersecurity?
ShouldIrelyonareputableconsultant,broker,orhedgefundto
managemyinvestment?
AmIwellversedinthenatureofonlinescams,walletsecurityissues,
andlegalissuesbeforebuying?
ShouldIuseXRPasahedgeagainstmyotherinvestments?
Youranswerstothesebasicquestionsshouldhelppointyouinthe
directionthatsrightforyou.Itdoesnthelptobelessthanentirely
Copyright2014AndrewWhite
honestwithyourself,sobecandidandassessyourstrengthsand
weaknessesbeforemakinganyinvestment.
Investorsmustbeawarethatthereareinherentrisksassociatedwith
digitalassets.Theftsandscamsareanunfortunatebutinevitable
aspectofonlineofferingsandtheinvestormustalwaysperformdue
diligencebeforetrustingotherswiththeirmoney.Evenifaninvestment
isnotfraudulent,thereisnoguaranteethatthevalueoftheinvestment
willyieldprofits.Youarecompletelyonyourownonthisone.Ripple
LabscannotandwillnotcommentontheinvestmentfitnessofRipple,
XRP,orthevalueandsafetyofclaimsmadebynonRippleLabsstaff.
Duediligenceistheprocessofinvestigatingaproposedinvestment,
andtheresponsibilityforduediligenceisentirelyuptoyou.Be
appropriatelyskepticalandcautiousinallyourdealings.
Ripplewasreleasedtothepublicinthebeginningof2013.Atfirstthey
wereworthnothingatmarketrates,butXRPhassteadilyincreasedin
valuethroughasteadilyincreasingnumberofservicesbuiltforit.
AlthoughthepriceofXRPhasbeenrelativelystable,itisnotimmune
fromdrasticpriceswingssimilartoapennystock.Althoughcurrently
valuedforlessthanapenny,Ripplesarereallyonlyusefulformaking
transactionsontheripplenetworkbutspeculatorsontheRipple
networkliketotradeitagainstotherassets.Becautioushoweveras
onrareoccasionsthevaluehaschangedhundredsorthousandsof
percentaday.
Gateways
Copyright2014AndrewWhite
GatewaysareserviceprovidersthatletRippleusersdeposit,transfer,
andwithdrawmoneybymeansoftheirgatewayaccounts,including
transfersbetweenaconsumerswalletandtheconsumersgateway
account.Toattractandretainusersoftheirservice,gatewayswill
innovateandofferbeneficialservicestotheircustomers.
Asgatewayscompeteformarketshare,Ifullyexpectthatmore
gatewayswillbelaunchedthattheywillincreasinglyofferinnovative
rewardsprogramslikeairlinemiles,coupons,andpremiumservice
discounts.
Thereareanumberofservicesavailabletopeoplewhowanttocreate
andoperateagateway.Iftheyhaveastrongtechnicalbackground,
theycanusuallysetoneupthemselves.Iftheydonthavethetechnical
skills,theycanuseahostedwallet(moreonthatinamoment)oruse
consultants.Iftheyareseriousaboutgettingintothegateway
business.Inthefuture,cloudbasedoptionswillbeavailablesuchas
OMGsOneMillionGatewayshostedservice.
BecauseofRipplesdesign,anyonewithaRipplewalletcantechnically
becomeagateway.
Copyright2014AndrewWhite
However,thatisneitherlikelyornecessaryinalmostallconsumeror
investorcases.Whenpeopletalkaboutgatewaystheyareusually
referringtoabusinesssetuptooperateassuch.ARippleWalletcan
becomeagatewaywhenpeopleaddtrusttoawalletyoucontrol.
TrustinthecontextofRipplemeanshowmuchofmymoneydoI
trustthisgatewaytohold?Gatewayswithanestablishedhistorywith
agoodreputationforcustomerservicetendtobemoretrustedby
usersthannewgatewaysthatarelessknownandhavealimited
historyofoperation.
ThisisanexampleofagatewayserviceloginpageusingSnapSwapInc.asanexample.
Copyright2014AndrewWhite
Hereiswhatabasicgatewayaccountexperiencelookslike.
Gatewaysasabusinesshaveafewdifferentbusinessmodels
availabletoguidethem.Oneexampleisagatewayprimarilyusedfor
moneytransmission,anotherexampleisremittance.Asagateway
operator,youmightbeinterestedinenablingpeopletosendpayments
toanothercountry.Aconsumeropensanaccountonyourgateway
andsendsyoumoneytogointhataccount.Thegatewayoperator
issuesIOUs(moreaboutthoseinthenextsection)totheaccount
holderandthoseIOUsappearintheholdersRipplewallet.The
accountholdercanthantradetheseIOUsforanothercurrency.Inthe
othercountry,apersoncanwithdrawtheseIOUsfromthegateway
andreceivetherealcurrency.Thegatewaymakesmoneybycharging
atransactionfee.Iftheoriginalgatewayswebsiteorservicebecomes
unavailable,theIOUsdonotdisappearfromRipplewallets.Inthe
eventofbankruptcyorotherseriousdisruption,theIOUsmaylose
someoftheirmarketvaluefortheIOUsofcurrencytheyrepresent,but
theycouldberedeemedwhenthegatewaybusinessreturns.The
Copyright2014AndrewWhite
uniquecircumstancesofthegatewaysissuewilldecidewhatrecourse
isavailabletotheIOUholders.
ThechartsonRippleCharts.comcontainthemajorcurrencymarketson
Ripple.ThesearetypicallywrittenintheformofBitstampUSD/XRP
toindicatethattheseIOUsareissuedbytheBitstampgatewayinthe
USDcurrencyandistradingagainstXRP.Anotherexampleisthe
ChinesegatewayRippleCN.TheirIOUsfortheChineseYuanlooklike
this:RippleCNCNY/XRP.BackoveratBitstamp,youwillseethat
BitstampUSDisalsoabletobetradedforBitstampBTC.Gateways
cansetrulesonthefeesoftradesorpoliciesastowhatisallowedto
betradedbutingeneralalltheIOUswillbetradableforallthe
equivalentIOUsonagivengateway.
Aquickwordaboutaddingtrusttoagateway.Sinceanyonecan
createagatewayitiscriticalthatyouonlytrustaproperlyestablished
gateway.Thismeansitisattheveryleastincorporatedandisrunby
publiclyknowncorporateofficers.Ifthegatewayisoperatedinan
anonymousmanner,thatmeansthereisnoaccountabilityiftheservice
disappears.Thisisimportant:inyourRippleWallet,youshouldonly
givetrusttogatewaycompaniesthatyoutrusttobereliableand
responsiblewithyourtokensofvalue,e.g.money.Sinceagatewayis
notusuallyabank(atleastatthetimeofthiswriting),notethatthereis
noFDICstyleinsurancefordepositsmadetoagatewaybusiness.A
gatewaythatmakesanefforttobelegitimatehaspubliclyknownstaff,
abusinessaddress,customersupportdetails,and/oraphonenumber
withpeoplewhoanswerthephoneduringestablishedhoursof
businessoperation.IfaRipplegatewaywebsitedisappears,your
IOUsdonotdisappearfromyourRippleWallet.Theproblemisthat
redeemingthoseIOUsfortheircashvalueisimpossibleunlessa
thirdpartygatewayacceptsthemfortheircashequivalents.Icansum
Copyright2014AndrewWhite
thisupinaveryeasytounderstandmanner,whenitcomesto
anonymousgateways:donttrustthem.
Astandardsgroupforgatewayshasbeenformedcalledthe
InternationalRippleBusinessAssociation(IRBA),whichoperates
independentlyofRippleLabs.IwilldiscusstheIRBAmorebelowbut
fornowyoushouldknowtheIRBAhasasetofrequirementstomake
surethatthegatewayslistedonIRBAswebsiteathttp://xrpga.orgare
legitimateorganizations,operateusingbestpracticesforbusinesses,
etc.Thereareroughly170membersoftheIRBAatthepresenttime,
includingpeoplewhohaveexpressedtheirinterestinforminga
gatewayforcertainmarketsorareasintheworld.
Consensus
Consensusiswherewestarttogetintothereallynittygrittytechnical
detailsofhowRippleworks.Youdontneedtoknowallofthisinfoifit
isnotrightforyou.Understandinghoweverythingworksisnota
requirementtoinvestinaRipplebasedasset.Therearealotof
complexthingsinlifethatdonotrequiredafullunderstandingofhowit
works.Acoupleoftechexamplesincludeareexactlyhowcomputers
workorexactlyhowawebbrowserworks.Weassumethatthe
professionalsthatmakethesetoolsknowwhattheyaredoingandthey
canspareusthegorydetailsandletusmoveontodowhatwewant
todowiththetool.Sowiththatsaid,Ijustwanttomakesurethatyou
understandRippletothelowlevelcodeandprotocolislikewisenota
requirementtounderstandtheideasofRipplesoifthetechnicaldetails
donotinterestyoufeelfreetoskipoverthissection.Ifyouarefamiliar
withBitcoinlikecurrenciesyoumayhaveheardthatBitcoinworks
throughaschemecalledproofofwork.Proofofworkisaprocessin
Copyright2014AndrewWhite
whichcomputerscooperateonsolvingahardmathproblemthat
initiallynoneofthemknowtheanswerto.Whentheanswerisfound,
thecomputerthatsolvestheproblemisawardedablock,anaward
ofBitcoin(25atthetimeofthiswriting)andtheblockisdistributed
alongtoalltheothercomputerswithacopyofallthetransactionsthat
tookplaceinthepriorblock.Thisiswhatallowstransactionstotake
place.Intechnicalterms,thissolvesanimportantproblemofhowto
solvethedoublespendingproblem.Adoublespendissomeone
spendingthesameunitsofcurrencytwice.Ifeveryonethoughtthey
couldjustusespreadsheetstocreateacryptocurrency,theywould
soonfindthatsomeonewouldcheatbymanuallychanginghowmany
paymentsweresent.Anotherproblemthissolvesisreferredtoin
academiccirclesastheByzantineGeneralsproblemwhichishowto
communicatealonguntrustworthypaths.Thisproblemhasexistedfora
longtimeandonewayofsolvingitwasreleasedtothepublicin2008
bySatoshiNakomoto,theanonymouscreatorofBitcoin.In2011Jed
McCalebwasthinkingofwaystosolvesomeoftheproblemswiththe
proofofworksystem.Inparticular,Jedwantedtosolvetheslow
transactiontimeofBitcoin.Waitingforcomputerstosolvetheproofof
workproblemonBitcoincantaketenminutesorhoursintimeandthat
waittimeisnotgoodformerchantsorconsumersusingthesystem.
WhathecameupwasanewapproachcalledConsensus.Ifthe
majorityofcomputersonadigitalcurrencynetworkcouldagreethata
transactionhappenedtherewouldbenoreasontodoubtthata
transactiontranspired.Theproofofworksystemreliesonseveral
computersagreeingthatatransactionoccurred,whichiscalled
confirmations.Afterenoughconfirmationsoccuritcanbereasonably
beassumedthatatransactiondidinfacttakeplace.Withaconsensus
basedapproach,transactionscouldtakeplaceinsecondsratherthan
minutes.Therecanalsobealotmoretransactionssincethe
Copyright2014AndrewWhite
computationalcostofthissystemislow.Thisbringsustoanother
problemthathaslongbeenanacademicpuzzle,theByzantineGenerals'
Problem.Thisproblemasks,howdotwogeneralscometoan
unanimousagreementwhentheyareseparatedbydistancesthat
createobstaclestocommunication?
OneanswertothisproblemisdonewiththeRipplesoftware,the
networkissetuptovalidateatransactionif80%ofvalidatornodes
agreeatransactiontookplace.
RippleLabsEngineerDavidSchwartzhasthistosay:Thenumber
wasdeterminedbysimulation.Ifyousetthethresholdtoolow,the
consensusprocesscompletesveryquicklybutmorefrequentlydoesn't
actuallyreachconsensus.Ifyousetthethresholdtoohigh,the
consensusprocesstakesmuchlonger,butonlyveryrarelyfailsto
actuallyreachconsensus.(Whenyousay,"Ibelievethere'sa
consensus",youcan'tactuallybe100%surethereisinfacta
consensusornobodycandeclareaconsensusfirst.)
OntheRippleforumrecently,amathematicallymindedmemberasked
DavidthefollowingquestionHowdoesRipplesolveByzantine
Generals'Problemsuchasnosolutionunlessn3t+1,n=numberof
processesinthesystemandt=numberoftraitors?
HowRipplesolvestheByzantineGeneralsproblemissimple.The
consensusprocessispermittedtofailbecauseitdoessoharmlessly.
Iftheconsensusprocessformsaledgeronwhichthereactuallyisno
consensus,thentherewillbeinsufficientvalidationsandtheconsensus
processwillrepeat.ToputitinByzantineGeneralstermsifyougetto
Copyright2014AndrewWhite
thebattleandtheotherarmiesaren'tthere,youjuststartover,nothing
catastrophichappens.Inotherwords,keeptryinguntilthevast
majorityofmessagesagreeatransactionisaccurate.Perhapsnot
surprisinglythissimplebutelegantsolutionhaswideranging
ramifications.
AndwiththatwecanwrapourreviewofhowConsensusworks.For
moreinformationpleasecheckouttheRipplewikipagesat
https://ripple.com/wikiorhttps://ripple.com/wiki/How_it_works
Validators
SincewearediscussingthetechnicaldetailsofhowRippleworks,for
completenessIjusttomentionValidatornodesandwhattheydo.
TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocol
dependsonacollectionofvalidatorswhoparticipateintheconsensus
processandproducesignedledgerswhichgetbroadcastintothepeer
topeernetwork.Clientsandpeerscollectanddependonthesesigned
ledgerstodeterminewhatistheconsensusledger,orthe"true"state
oftheledger.CrucialtothesecurityofthenetworkisthateachRipple
serverchoosetopayattentiontoasufficientlylargediversesetof
validatorswhoarenotcolludingtodefraud.When80%ofvalidator
nodesagreethataedgerisvaliditgetssignedandconfirmedacross
theentireRipplenetwork.Thisisanalternativesolutiontothe
ByzantineGeneralsproblemfirstsolvedbyBitcoinwithmining.
Copyright2014AndrewWhite
CurrencyIOUs
IOUs(Ioweyouspronouncedhowitisspelled,eyeohu)arethe
heartofhowmostpeoplewilluseandtradeonRipple.IOUsstandfor
Ioweyou(something).WearemostfamiliarwithIOUsfromour
bankingorinvestorstatementthatismailedmonthlybyfinancialservice
providers.AnIOUisapromisethatacertainamountoffundsthatthe
IOUissuercontrolsarefundsinyouraccount.Therealityisthatthe
IOUholderhasatotalamountoffundsthatitcontrolsand,fromthis
total,theyuseadatabasetoorganizewhattheyowetheircustomers
andthenumberdisplayedtoyouistheIOU.IOUsonRipplenetwork
operateonthesameprinciple,butinsteadofabankingorinvestment
entitycreatinganddisplayingtheIOUtoyou,anIOUontheRipple
networkisanassetcreatedbyaRipplegatewayindicatingIpromise
toredeemyouaspecificamountofthiscurrencyasset.Ifyou
receivedapaymentforUSdollars,youwouldseethedepositofthe
USDIOUsinyourRippleWallet.
IOUsarewhatmakeRippletheemailofcurrencies.Theemail
protocoldoesnotcarewhoyouaresendingamessageto,orthe
contentofyouremailandRippleworksthesameway.Thesenderand
recipientofanemailislikethesenderandreceiverofRipplewallets,
themessageinanemailissimilartowhatcurrencyandhowmuch
issentinthetransaction(themessage,inouremailanalogy).Thefinal
lessonyoushouldtakeawayfromthisisthatanIOUhasnovalue
whenitisnotbackedbyanassetthatcanberedeemed.
Pathfinding
Copyright2014AndrewWhite
PathfindingisanotheroneofthetechnicaldetailsthatIincludefor
completenessandisfairlyselfexplanatory.ThisishowRipplefinds
waystomakethebestavailablepayment.Thepriceonatransaction
feecanvaryinRipplebasedonthebestpossibleexchangerateonthe
orderbooksofRipplecurrencies.Pathfindingisofmostinterestto
marketmakersandtechnicaltypestobeabletoservemarketactivity.
ItisimportanttonotethatalthoughRippleisfastitisslowenoughas
tomakehighfrequencytradingimpossibleandapartofthereason
whythatisisbecauseofthetimeittakesPathfindingtowork,afew
secondsistooslowforHFTtobeeffective.
Traders
AnyonewithaRipplewalletcantradethedigitalcurrencyassetson
Ripple.SendingapaymentofanysortusingtheRipplenetworkis
equivalenttomakingatradeontheforeignexchange(alsoknownas
forexandFX)currencymarkets.
Copyright2014AndrewWhite
Eachcurrencyhasathreeletterabbreviation,andeachcurrencytrade
isexpressedasapairthatincludesthebasecurrencyandacounter
currency.Eachcurrencypair(USD/XRPorEUR/JPYorCNY/BTC,
etc.)issupportedbyagatewaythathasanorderbookofbuyersand
sellersofaparticularcurrencypair.Thedailytradingvolumeonthe
Ripplemarketisgrowingrapidly.Atthetimeofthiswriting(March
2014),themostpopularcurrenciestradedareChineseYuan(CNY),
USD,andBTC.
Automatedtradingisapopularchoiceforinvestorswiththetechnical
knowhowtoworkwithprogrammingscriptstomakeatradingbot.
ThesebotsconnecttotheRipplenetworkandlookatthebidsand
asksincertaincurrenciesandtradeaccordingtouserdefined
parameters.Mostofthesebotsrequireafairamountoftechnical
knowledgeandskilltosetupanduse.Althoughtherearenoalgorithmic
tradingservicesavailabletoinvestorsatthemoment,theseareknown
tobeindevelopment.Tradeandforgetbotscanbeextremely
valuableastheyworkforyouaroundtheclockwithouttiringor
miscalculating.
Copyright2014AndrewWhite
Offmarkettradingcanalsobeverylucrative.Findingamarketthat
wantsXRPbutdoesnothavetheknowhowhowtogetitisan
excellentwaytobuildabusinessandincreaseRippleadoption.Ifyou
wanttoengageinoffmarkettrading,pleasegetinformedoflocallaws
beforebeginning.IntheUnitedStates,tociteoneexample,
transactionsgreaterthan$10,000needtobereportedtotheFederal
FinancialCrimesNetwork(Fincen).
MarketMakers
Marketmakersarepeoplewhoprovideliquidity(i.e.,money)between
gatewaystoallowpaymentsthroughapathwayofcurrenciestobe
made.Muchlikehowaroadprovidesapathforacartoreachits
destination,apathwayistherouteatransactiontakestocompletea
payment.Althoughthereareafewwaystobecomeamarketmaker,
theeasiestiswithasimpleorderintheRipplewalletforthesame
currencybetweenthetwoormoregatewaysyouwanttomarketmake
for.
Enterprises
TheRippleecosystemislikelytoseepowerfulwaves(ha!)ofnew
servicesdevelopedtotakeadvantageofthenewfoundpossibilities
thatRippleprovides.Themostobviousareaatthetimeofwritingis
gatewayservices.Merchantservices,remittanceoptions,charities,
Copyright2014AndrewWhite
experimentalhobbies,andcommoditiesalsoareallpromisingareasfor
innovatorstoplacetheirstake.
Anumberofinterestingcompanieshaveformedbasedentirelyonthe
Rippleprotocol.CompaniessuchasFortuneHarbor,Coinst,
RippleWise,SnapSwap,andothersareleadingthewayintermsof
innovationandprovingthattheRipplesystemisaviablebusiness
model.CompaniesolderthanRipplehavealsosignedontousethe
service,mostnotabletodateisBitcoinexchangeBitstamp.
CreatingorinvestinginanewcompanyintheRippleecosystemisan
attractiveoptiontotheinvestorfamiliarwithmanagingequityassets.
Rippleissonewandtheopportunitiesitofferssolargelyuntapped,
thatthedooriswideopenforenterprisingindividualsandstartupsto
makeasubstantialimpactwithlittlestartupcosts.
DueDiligenceQuestions
Investorsshouldbeaskingthemselvessomehardquestionsandhave
honestanswersbeforebeginningtoinvestinRipple.Herearesome
basicsforyoutoconsider:
HowwelldoIunderstandRipple?
WhatdoInotunderstandaboutRipple?
Whataretherisksinvolved?
WhatarethelegalandregulatoryissuesimpactingRippleinmy
countryofresidence?
Copyright2014AndrewWhite
WhatdoIknowabouttheprincipalsintheenterpriseinwhichImight
invest?
DoIunderstandallthecounterpartyrisks?
WhathappensiftheRipplesoftwarebecomesfundamentallybroken
andcantbefixed?
Whoarethemajorcustomersandtheapplicationsrelatedto
investmentopportunities?
Whatarehistoricalandprojectedgrowthrates?
Whatistheexpectedmarkettimingofnewproducts,services,or
enhancements?
Alongwiththesespecificinvestorquestions,Iwantedtosharethislist
ofbestpracticesfromtheRipplewiki:
Youmustprotectyourself:
RippleLabsInc.doesnotendorse,qualify,orguaranteethe
performanceofanymerchantorgateway.
Donottrustservicesoperatedanonymously,youhavenorecourseif
theyfailtodeliverontheirpromises.
DonotenteryourRippleusernameandpasswordonanysiteyoudo
nottrustwithyourfunds.
DonotenteryourRippleusernameandpasswordonanysitethat
doesnotusehttps.Youcanusuallytellwhenasiteuseshttpswhen
yourwebbrowserhasagreenlocknexttothewebsiteaddressinthe
addressbar.
Copyright2014AndrewWhite
Donotuseaclientprovidedbyanentityyoudonotfullytrust.You
musttrustyourclientprovidertobehonest,secure,competent,upto
date,andperhapsmore.
ForlongtermstorageofXRPorIOUsinacoldwalletconsider
usingtheDesktopClient.
IntheFuture
Thefuturewillcertainlybringmanyexcitingandinterestingareasfor
Rippleinvestorstoconsider.Inparticular,Imexcitedforthetimewhen
optionstradingbecomesmorewidelyavailable(whichwilllikelybe
easierwiththeadventofsmartcontractslaterin2014).Smart
Contractscouldbecomethekillerappformathbasedcurrencies.For
example,byusingsomeparticularmathfunctionsitispossibletoissue
sharesforacompanyorraisefunds.InJuly2014RippleLabs
announcedCodius,anewprojecttoenablesmartcontracts.Codius
willallowpeopletocreateoffersorcontractsacrossanydigital
currencysystemsothattheycanallbenefit.Theydothisthroughsome
innovativedesignchoicesthatallowpeopletomakeusefulapplications
withanypreexistingprogramminglanguage.Tolearnmoreonthe
subjectofsmartcontracts,Ihighlysuggestathoroughreadingof
GreatChainsofNumbersbyTimSwanson.Ripple,likeanyactive
protocol,facesintensescrutinytoidentifyandcorrectanyinefficiencies
aswellasforwaystheprotocolcanbeimproved.Rippleissuchanew
technologythatitsfullimpactonbusinessandsocietywillnotbeknown
formanyyears.Thedaywillcomewhenpeoplewillbesoaccustomed
toamulticurrencywalletthattheywillaskwhydidntIthinkofthat?
Inmyopinionwearewitnessingthedawnofadisruptivetechnologyas
bigasanadvancementasstockmarketsorpapercurrencies.
Copyright2014AndrewWhite
ImportantRippleInfrastructure
BeyondRippleLabsthereareanumberofimportantresourcesand
servicesthatisavailabletotheRipplecommunity.Foremostabout
thosearecommunityforumswhereissuesrelatedtoRippleare
discussed.ThemostactiveoftheseareXRPTalkranbyacommunity
memberinFranceandtheRippleLabsForum.Acoupleofnew
serviceshavecomeintobeingrecentlythatareusefulaswell,LibreTax
fortaxesintheU.S.andCoinistforpublicreviewsofgatewayservices.
ThemostwellknownRipplegatewayrightnowisBitstamp,theworlds
largestBitcoinexchange.Thereareavarietyofotherprojectsunder
developmentrightnow.Thereareatleastfourventurecapitalbacked
companiescreatedspecificallyfortheRippleecosystemthatIknow
of.ThereisalsoalotofdiscussionaboutwaystoimprovetheRipple
worldwithnewfeaturesandmoreservices.Itisgoingtobeanexciting
fewyearsforimportantinnovationstobebroughttomarket.For
technicalinfrastructure,Iexpecttoseemoreservicestoenterthe
markettoserveasenginestodrivethegrowthofdigitalassetsand
usefulthingsthatcanbedonewiththem.
FAQs
HowisRippledifferentfromBitcoin?
Thetwoarecompletelydifferent.ThemostbasicansweristhatRipple
isnotdesignedtobeusedasacurrency.Insteaditisapayments
protocol.Bitcoinusestheproofofworkmechanismcommonlyknown
asminingtoverifythevalidityoftransactions.Instead,Rippleusesa
Copyright2014AndrewWhite
systemcalledconsensus.ThisfundamentaldifferencewithBitcoin
meansthattheyworkdifferentlyandthattheyaredesignedfor
differentpurposes.Bitcoinorothercurrenciesarenotcompetitionfor
Ripple.MyunderstandingisthatRippleLabswantstoseeother
paymentsystemssettledortradedonRippleandnotcompetewith
them.
Iheardthatminingdigitalcurrenciesrequiresanincredibleamountof
electricity,isRipplesimilar?
Thankfullyno.Ripplerequiresnomoreelectricitytorunsecurelythana
normalhighendcomputerserver.ThemegatonsofCO2and
megawattsofelectricityandpowerbillsusedbyotheralternativesis
notanissuewithRipple.
IheardthatRippleisapreminedcurrency,isthattrue?
Theanswerisbothyesandno.Ripplewasnotcreatedorreleased
asacurrencyplatformthatusedminingtoverifytransactions.People
thatmineorbelieveintheideathatminingisfairduetotheequal
probabilityofbeingrewardedfordoingtheproofofwork.Thereis
nothingwrongwiththatopinion.HoweverRipplesuccessfullysolved
someoftheinherentandfundamentalproblemsthatminingbringstoa
digitalcurrency:theslownessoftransactions,the51%attackproblem,
blockchainsplits,etc.Indefiningtheutilityofcrosscurrency
payments,afundamentaldesignprincipleisthatlongdelaysfor
paymentsisnotacceptable.Letsfaceit,nobodywantstheuncertainty
Copyright2014AndrewWhite
ofwaitingforapaymenttoconfirmandRipplecanmaketradingthose
kindsofassetsfasterandmoresecure.
DoanybanksuseRipple?
AtthetimeofthiswritingFidorwithoperationsinGermany,theUK,
andRussiaistheonlybankknowntobeusingit.
Whatarevalidators?TheRipplenetworkreliesondedicated
computerscalledvalidatorstoconfirmthattransactionsarevalid,why
isthis?
Validatorsarethelightweightwaytoverifythattransactionsarevalid
comparedtotheheavyweightuseofcryptocurrencymining
algorithms.Theyarelightweightbecauseyouonlyneedafew
computersdoingthis(insteadofthousandsintraditionaldigital
currencies).Bydesign,RippleLabscreatedtheRipplenetworktorely
onvalidatorsthattheyrunandtheyknowcanbetrustedtomakesure
thattransactionsarevalid.Themajorityofthevalidatorsthata
gatewaytrustsmustbetrustworthy.Ifthemajorityofthembecome
maliciousorconspireagainstthegateway,theycanmakefraudulent
paymentsagainstthegateway.Thewaytomitigatethisthreatisby
usingcommunityacceptedtrustednodessuchasthoserunbyRipple
Labs.
IheardsomeoneforgottheirpasswordorhadtheirRipplecoins
stolen,arethosecoinsorwalletsinaccessibleforever?
Copyright2014AndrewWhite
Yes,unfortunatelytheyareinaccessibleforever.NeitherRippleLabs
noranyoneelsecanrestoreyourpasswordorrecoverstolencoins.
PaymentsinRippleareirreversibleduetohowsomeofthelowlevel
mathfunctionswork(formoreinformationontheunderlying
technologies,youcanresearchpublickeycryptographyand
messagesigning).
Iwanttoknowmoreabouthowtosetupagateway,wheredoIstart?
https://ripple.com/wiki/index.php?title=Ripple+for+Gatewaysisagood
resource.Iwouldalsolovetotalktoyouaboutyourideaandhelpyou
becomesuccessful.
WhatisaSecretKey?
YourwalletsSecretKeyisyoursecretentranceintoyourwalletif
youeverforgetyourpassword.Onatechnicallevel,yourSecretKey
canalsobeusedaspartofaprogramtodothingsforyousuchas
runningatradingbot.SecretKeysarenamedsecretbecausethey
mustbeabsolutelyunavailabletoanyonebutthosetrustedtoaccess
theaccount.IfsomeonegetsyourSecretKey,theycandowhatever
theywantwithyourassets.Ifyouarehavereasontobelievesomeone
hasgainedunauthorizedknowledgeofyourSecretKey,youshould
createanewwalletandsendyourassetsovertothenewwalletas
soonaspossible.
WhatkindofventurecapitalorincubatorsareavailabletoRipple
developers?
Copyright2014AndrewWhite
TherecentlylaunchedCrosscoinVenturesisagoodstartingpointfor
Rippledevelopersseekingfunding.Headedbyentrepreneurialstartup
andVCveterans,Crosscoinhastheenviablepositionofbeinglocated
inthesameofficebuildinginSanFranciscoasRippleLabs.Lookfora
numberofhighqualityandinnovativeservicestoemergefromthe
Crosscoinaccelerator.
WhatisthebesttechnicalresourceforRipple?
TheRippledocumentationresourceislocatedathttps://ripple.com/
wiki/Forfurtherinformation,Isuggestconnectingwiththedevelopers
ontheIRCchannelontheFreenodenetwork#ripple.
IdontlikehowRippleLabsdoesXYorZ,whatdoyouhavetosay
aboutthat?
RippleLabsisaveryyoungstartup.Expectationsforthisserviceare
high,perhapstoohigh.Ittakestimetobuildworldclassteams,and
staffingresourcesarealwayslimited.GiveyourissuesometimeandI
amcertainthatyouwilleventuallyseeimprovementstotheissueyou
areconcernedwith.
Whataresoftwareforks?
Softwareforkshappenwhenonegroupofsoftwaredevelopers
decidestotakethesourcecodefromaprojectandmaketheirown
Copyright2014AndrewWhite
possiblyincompatiblechangesfromthepriorversionofthesoftware.
Thiscanhappenforvariousreasonsbutthemostlikelyreasonisthat
onegroupofdevelopersdisagreedwiththedirectionaprojectwas
going.Thiscanbeeitheragoodorabadthing.Itisbadwhenit
dividesthenumberofpeopleworkingonaproject.Itcanbegood
whentheforkedsoftwaremakesimprovementstheotherdevelopers
werenotwillingtomake.
Whataregoodcommunityresourcesforgettinganswerstomy
additionalquestions?
Myfavoriteresourceistheforumathttps://ripple.com/forum/but
alternativesexistincludinghttps://xrptalk.org/
IhavesomethingIwanttodiscusswithRippleLabs,whatisthebest
wayformetodoso?
Talktothebusinessdevelopmentteamatpartners@ripple.comorthe
developerrelationsteamatdevelopers@ripple.com.
Glossary
CodiusThisisatechnologyneutralframeworkforcreatingsmart
contracts.
Copyright2014AndrewWhite
Gatewayaserviceproviderthatenableuserstodepositmoneyinto
andwithdrawmoneyoutoftheirgatewayaccountsontheRipple
network.Intechnicaltermsagatewayisanassetissuer.
RippleLabs,Inc.ownstheintellectualpropertyoftheRippleprotocol,
andpromotesRippleswideruseandgreaterusefulness.
Walletthedigitalaccountwhereindividualshold,access,anduse
theirdigitalcurrenciesinRipple.
RipplestheRipplenetworksnativecurrency,representedbythe
lettersXRP.
IOUisapromisethatacertainamountoffundsthattheIOUissuer
controlsarefundsinyouraccount.AnIOUontheRipplenetworkisan
assetcreatedbyaRipplegatewayindicatingIpromisetoredeemyou
aspecificamountofthiscurrencyasset.
TraderpeoplewhousetheirRippleWalletstoexchangecurrencies
(govt.issuedcurrencieslikeUSD,CNY,etc.anddigitalcurrencieslike
XRP,BTC,etc.),functionallysimilartotradesmadeontheForeign
Exchange(FX)currencymarkets.
MarketMakersprovideliquidity(i.e.,money)thatallowspaymentsto
followapathwaybetweengateways.
Copyright2014AndrewWhite
EnterprisesincludebusinessstartupsintheRippleecosystem,such
asnewgatewayservices,merchantservices,remittanceoptions,
charities,experimentalhobbies,andcommoditiesallarepromising
areasforbusinessinnovatorsandearlystageinvestors.
DueDiligenceistheprocessofthoroughresearchbeforemaking
investments.
Validatorsdedicatedcomputernodesthatconfirmatransactionis
validthroughtheConsensusprocess.
AbouttheAuthor
AndrewWhiteservesasthefounderofOneMillionGatewaysaRipple
consultingcompanyandvolunteersattheInternationalRippleBusiness
Association,whichisthepremierorganizationofmerchantsand
businessesthatacceptrippleXRPaspaymentforgoodsandservices.
AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSan
FranciscoandtheBayArea,andbeganbuyingandsellingrippleXRP
soonafteritsintroduction.
Copyright2014AndrewWhite