RippleInvestmentGuide

Version1.9

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!

IfwelookatthehierarchyoffinancialservicesintheUnitedStates,
RippleisdesignedtoreplacetheACHpaymentsettlementsystem.
ThisiswhysomepeoplehavebeencallingitSwift2.0butitisreallya
lotmorethanthat.LetsdiveintowhatusingusingtheRipplesystem
lookslike.
Wallets
Copyright2014AndrewWhite
Touseadigitalcurrencysystem,peoplestartbycreatingadigital
versionofawallet.ARipplewalletisidentifiedbyitsRippleaddress
thatbeginswiththelowercaserandlookslikethis:
r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstothe
authorarewelcome!).

ThisisanexampleofwhataRIpplelookslikeavailableat
https://www.rippletrade.com

Thewalletisalwaysavailableonawebpagewiththemain
functionalitydisplayed:wallettransactionhistory,anaddressbook,a
sectiontosendandreceivepayments,andasectionofthewalletfor
youtomakecurrencytrades.ItisimportanttonotethatRipplewallets
arenotinsuredbytheFederalDepositInsuranceCorporation(FDIC),
whichwascreatedbytheU.S.governmenttoprotectconsumersfrom
bankfailures.
Formostconsumers,themagicofRipplepaymentshappenswhen
paymentsaresentacrossthenetworkwithinafewseconds.To
anyoneaccustomedtotheslowandcumbersomeprocessoftraditional
Copyright2014AndrewWhite
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
U.S.charteredbank.Allowmeartisticlicensewiththefollowing
analogy:aRipplewalletiskindoflikeabankaccountbutyouasthe
walletowner(accountowner)areempoweredtocontrolhowmuch
moneyyoutrusttobeheldbyyourvariousbanklikeentities
(gateways,moreaboutthemlater).
RippleWalletsaregreatbecausewhentheycanstoreormake
paymentsinanycurrency.Theauthorcantthinkofanyotherwallet
evercreatedthatisabletoacceptanycurrencyevercreated,including
governmentissuedcurrenciesandprivatecurrencies!Forthefirsttime
inhistory,digitalwalletuserscanholdanycurrencyeverissued.Thisis
Copyright2014AndrewWhite
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
thataverageconsumersmightonlyneedtousearelativelyfewRipples
acrosstheirentirelifetime.The100billionnumberwasjudgedtobe
largeenoughtobeusefulfortheRipplenetworkforhundredsofyears,
andquantifiableenoughtoprovideabusinessmodelforRippleLabs.
Ripplesaredistributedinavarietyofways.RippleLabssellsbulk
quantitiesforlargeordersandgivesawaysmalleramountsforfree.It
iscriticaltotheRippleLabsbusinessstrategythatXRPbedistributed
toawidenumberofmarketparticipantswhointendtouseRippleasa
systemforpayments,currencytrading,orassetissuance.Acool
featureofXRPisthatasthenativecurrency(Ialsolikethetermmeta
Copyright2014AndrewWhite
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
honestwithyourself,sobecandidandassessyourstrengthsand
weaknessesbeforemakinganyinvestment.
Investorsmustbeawarethatthereareinherentrisksassociatedwith
digitalassets.Theftsandscamsareanunfortunatebutinevitable
aspectofonlineofferingsandtheinvestormustalwaysperformdue
diligencebeforetrustingotherswiththeirmoney.Evenifaninvestment
isnotfraudulent,thereisnoguaranteethatthevalueoftheinvestment
willyieldprofits.Youarecompletelyonyourownonthisone.Ripple
LabscannotandwillnotcommentontheinvestmentfitnessofRipple,
XRP,orthevalueandsafetyofclaimsmadebynonRippleLabsstaff.
Duediligenceistheprocessofinvestigatingaproposedinvestment,
Copyright2014AndrewWhite
andtheresponsibilityforduediligenceisentirelyuptoyou.Be
appropriatelyskepticalandcautiousinallyourdealings.
Ripplewasreleasedtothepublicinthebeginningof2013.Atfirstthey
wereworthnothingatmarketrates,butXRPhassteadilyincreasedin
valuethroughasteadilyincreasingnumberofservicesbuiltforit.
AlthoughthepriceofXRPhasbeenrelativelystable,itisnotimmune
fromdrasticpriceswingssimilartoapennystock.Althoughcurrently
valuedforlessthanapenny,Ripplesarereallyonlyusefulformaking
transactionsontheripplenetworkbutspeculatorsontheRipple
networkliketotradeitagainstotherassets.Becautioushoweveras
onrareoccasionsthevaluehaschangedhundredsorthousandsof
percentaday.

Gateways
GatewaysareserviceprovidersthatletRippleusersdeposit,transfer,
andwithdrawmoneybymeansoftheirgatewayaccounts,including
transfersbetweenaconsumerswalletandtheconsumersgateway
account.Toattractandretainusersoftheirservice,gatewayswill
innovateandofferbeneficialservicestotheircustomers.

Copyright2014AndrewWhite
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.

However,thatisneitherlikelyornecessaryinalmostallconsumeror
investorcases.Whenpeopletalkaboutgatewaystheyareusually
referringtoabusinesssetuptooperateassuch.ARippleWalletcan
becomeagatewaywhenpeopleaddtrusttoawalletyoucontrol.
TrustinthecontextofRipplemeanshowmuchofmymoneydoI
trustthisgatewaytohold?Gatewayswithanestablishedhistorywith
agoodreputationforcustomerservicetendtobemoretrustedby
Copyright2014AndrewWhite
usersthannewgatewaysthatarelessknownandhavealimited
historyofoperation.

ThisisanexampleofagatewayserviceloginpageusingSnapSwapInc.asanexample.

Hereiswhatabasicgatewayaccountexperiencelookslike.

Gatewaysasabusinesshaveafewdifferentbusinessmodels
availabletoguidethem.Oneexampleisagatewayprimarilyusedfor
moneytransmission,anotherexampleisremittance.Asagateway
Copyright2014AndrewWhite
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
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
Copyright2014AndrewWhite
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
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
Copyright2014AndrewWhite
requirementtoinvestinaRipplebasedasset.Therearealotof
complexthingsinlifethatdonotrequiredafullunderstandingofhowit
works.Acoupleoftechexamplesincludeareexactlyhowcomputers
workorexactlyhowawebbrowserworks.Weassumethatthe
professionalsthatmakethesetoolsknowwhattheyaredoingandthey
canspareusthegorydetailsandletusmoveontodowhatwewant
todowiththetool.Sowiththatsaid,Ijustwanttomakesurethatyou
understandRippletothelowlevelcodeandprotocolislikewisenota
requirementtounderstandtheideasofRipplesoifthetechnicaldetails
donotinterestyoufeelfreetoskipoverthissection.Ifyouarefamiliar
withBitcoinlikecurrenciesyoumayhaveheardthatBitcoinworks
throughaschemecalledproofofwork.Proofofworkisaprocessin
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
Copyright2014AndrewWhite
transactiontimeofBitcoin.Waitingforcomputerstosolvetheproofof
workproblemonBitcoincantaketenminutesorhoursintimeandthat
waittimeisnotgoodformerchantsorconsumersusingthesystem.
WhathecameupwasanewapproachcalledConsensus.Ifthe
majorityofcomputersonadigitalcurrencynetworkcouldagreethata
transactionhappenedtherewouldbenoreasontodoubtthata
transactiontranspired.Theproofofworksystemreliesonseveral
computersagreeingthatatransactionoccurred,whichiscalled
confirmations.Afterenoughconfirmationsoccuritcanbereasonably
beassumedthatatransactiondidinfacttakeplace.Withaconsensus
basedapproach,transactionscouldtakeplaceinsecondsratherthan
minutes.Therecanalsobealotmoretransactionssincethe
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
Copyright2014AndrewWhite
consensus",youcan'tactuallybe100%surethereisinfacta
consensusornobodycandeclareaconsensusfirst.)

OntheRippleforumrecently,amathematicallymindedmemberasked
DavidthefollowingquestionHowdoesRipplesolveByzantine
Generals'Problemsuchasnosolutionunlessn3t+1,n=numberof
processesinthesystemandt=numberoftraitors?

HowRipplesolvestheByzantineGeneralsproblemissimple.The
consensusprocessispermittedtofailbecauseitdoessoharmlessly.
Iftheconsensusprocessformsaledgeronwhichthereactuallyisno
consensus,thentherewillbeinsufficientvalidationsandtheconsensus
processwillrepeat.ToputitinByzantineGeneralstermsifyougetto
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.
Copyright2014AndrewWhite

TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocol
dependsonacollectionofvalidatorswhoparticipateintheconsensus
processandproducesignedledgerswhichgetbroadcastintothepeer
topeernetwork.Clientsandpeerscollectanddependonthesesigned
ledgerstodeterminewhatistheconsensusledger,orthe"true"state
oftheledger.CrucialtothesecurityofthenetworkisthateachRipple
serverchoosetopayattentiontoasufficientlylargediversesetof
validatorswhoarenotcolludingtodefraud.When80%ofvalidator
nodesagreethataedgerisvaliditgetssignedandconfirmedacross
theentireRipplenetwork.Thisisanalternativesolutiontothe
ByzantineGeneralsproblemfirstsolvedbyBitcoinwithmining.

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
Copyright2014AndrewWhite
receivedapaymentforUSdollars,youwouldseethedepositofthe
USDIOUsinyourRippleWallet.

IOUsarewhatmakeRippletheemailofcurrencies.Theemail
protocoldoesnotcarewhoyouaresendingamessageto,orthe
contentofyouremailandRippleworksthesameway.Thesenderand
recipientofanemailislikethesenderandreceiverofRipplewallets,
themessageinanemailissimilartowhatcurrencyandhowmuch
issentinthetransaction(themessage,inouremailanalogy).Thefinal
lessonyoushouldtakeawayfromthisisthatanIOUhasnovalue
whenitisnotbackedbyanassetthatcanberedeemed.

Pathfinding

PathfindingisanotheroneofthetechnicaldetailsthatIincludefor
completenessandisfairlyselfexplanatory.ThisishowRipplefinds
waystomakethebestavailablepayment.Thepriceonatransaction
feecanvaryinRipplebasedonthebestpossibleexchangerateonthe
orderbooksofRipplecurrencies.Pathfindingisofmostinterestto
marketmakersandtechnicaltypestobeabletoservemarketactivity.
ItisimportanttonotethatalthoughRippleisfastitisslowenoughas
tomakehighfrequencytradingimpossibleandapartofthereason
whythatisisbecauseofthetimeittakesPathfindingtowork,afew
secondsistooslowforHFTtobeeffective.

Traders

Copyright2014AndrewWhite
AnyonewithaRipplewalletcantradethedigitalcurrencyassetson
Ripple.SendingapaymentofanysortusingtheRipplenetworkis
equivalenttomakingatradeontheforeignexchange(alsoknownas
forexandFX)currencymarkets.

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
Copyright2014AndrewWhite
knowledgeandskilltosetupanduse.Althoughtherearenoalgorithmic
tradingservicesavailabletoinvestorsatthemoment,theseareknown
tobeindevelopment.Tradeandforgetbotscanbeextremely
valuableastheyworkforyouaroundtheclockwithouttiringor
miscalculating.

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

Copyright2014AndrewWhite
TheRippleecosystemislikelytoseepowerfulwaves(ha!)ofnew
servicesdevelopedtotakeadvantageofthenewfoundpossibilities
thatRippleprovides.Themostobviousareaatthetimeofwritingis
gatewayservices.Merchantservices,remittanceoptions,charities,
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?
Copyright2014AndrewWhite
WhatdoInotunderstandaboutRipple?
Whataretherisksinvolved?
WhatarethelegalandregulatoryissuesimpactingRippleinmy
countryofresidence?
WhatdoIknowabouttheprincipalsintheenterpriseinwhichImight
invest?
DoIunderstandallthecounterpartyrisks?
WhathappensiftheRipplesoftwarebecomesfundamentallybroken
andcantbefixed?
Whoarethemajorcustomersandtheapplicationsrelatedto
investmentopportunities?
Whatarehistoricalandprojectedgrowthrates?
Whatistheexpectedmarkettimingofnewproducts,services,or
enhancements?

Alongwiththesespecificinvestorquestions,Iwantedtosharethislist
ofbestpracticesfromtheRipplewiki:

Youmustprotectyourself:

RippleLabsInc.doesnotendorse,qualify,orguaranteethe
performanceofanymerchantorgateway.

Donottrustservicesoperatedanonymously,youhavenorecourseif
theyfailtodeliverontheirpromises.
Copyright2014AndrewWhite
DonotenteryourRippleusernameandpasswordonanysiteyoudo
nottrustwithyourfunds.
DonotenteryourRippleusernameandpasswordonanysitethat
doesnotusehttps.Youcanusuallytellwhenasiteuseshttpswhen
yourwebbrowserhasagreenlocknexttothewebsiteaddressinthe
addressbar.
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
willallowpeopletocreateoffersorcontractsacrossforanydigital
ledgersystemsothattheycanallbenefit.Theydothisthroughsome
innovativedesignchoicesthatallowpeopletomakeusefulapplications
withanypreexistingprogramminglanguage.IspokewithStefan
ThomastheCTOofRippleLabswhoexplainedtomethatthedesign
wasinformedfromtheexamplethatbusinesslogicanddatastorage
(databasesordecentralizedledgerslikeBitcoin)aretwoseparate
Copyright2014AndrewWhite
topics.Everywebserviceinexistenceusesadatabasetostore
informationandbusinesslogicontopofthedatabasetodecidewhat
goesintoit.Ishouldprobablymentionacomputersciencetermthat
willbehelpfultounderstandwhythisdesigndecisionwastaken.
Computersrunsoftwareinoneoftwoways.Oneisdeterministic,code
executesinthesamewayeverytime.Theotherisnondeterministic
whichmeansitcanexecutedifferentlyeverytime.Whatisgoodabout
thisapproachisthatitmakesCodiuscompletelyplatformneutral.Any
programminglanguagecanuseitandanydigitalassetsystemcanuse
itsapproach.CodiususesanotherconceptcalledSmartOracles.A
smartoracleisanythingthatcanbeaskedaquestionanda
nonbiasedanswerisreturning.Oneexamplecouldbeaskingthestock
marketwhatthepriceofagivenstockis.Anotherexampleisasking
theBitcoinnetworkifacertaintransactionhappened.Theimportant
thingtounderstandisthatCodiusisneutralastowhomyouaskyour
verifiedquestionsandhowyoudoit.Youmightwanttomakea
contractonstockfuturesandhedgeonthepriceofBitcoinandorthe
temperatureofDalyCity,ifalltheanswersadduptothethresholdof
truthaswritteninyourcontractthetermswillbemetandthecode
executes.Thisisverydifferentfromeveryothersystemoutthereand
somethingthatcreativepeoplewillmakeamazingapplicationswith.

TheCodiusapproachtosmartcontractsfreesdevelopersfrombeing
lockedintoanyonesystemwhichistheHolyGrailfornextgeneration
financialandbusinessapplications.Tolearnmoreonthesubjectof
smartcontracts,IhighlysuggestathoroughreadingofGreatChains
ofNumbersbyTimSwanson.

Likeanyactiveprotocol,facesintensescrutinytoidentifyandcorrect
anyinefficienciesaswellasforwaystheprotocolcanbeimproved.
Copyright2014AndrewWhite
Ripple(andCodius)issuchadisruptivenewtechnologythatitsfull
impactonbusinessandsocietywillnotbeknownformanyyears.The
daywillcomewhenpeoplewillbesoaccustomedtoamulticurrency
walletthattheywillaskwhydidntIthinkofthat?Inmyopinionwe
arewitnessingthedawnofadisruptivetechnologyasbigasan
advancementasstockmarketsorpapercurrencies.

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

Copyright2014AndrewWhite
HowisRippledifferentfromBitcoin?

Thetwoarecompletelydifferent.ThemostbasicansweristhatRipple
isnotdesignedtobeusedasacurrency.Insteaditisapayments
protocol.Bitcoinusestheproofofworkmechanismcommonlyknown
asminingtoverifythevalidityoftransactions.Instead,Rippleusesa
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
Copyright2014AndrewWhite
digitalcurrency:theslownessoftransactions,the51%attackproblem,
blockchainsplits,etc.Indefiningtheutilityofcrosscurrency
payments,afundamentaldesignprincipleisthatlongdelaysfor
paymentsisnotacceptable.Letsfaceit,nobodywantstheuncertainty
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.
Copyright2014AndrewWhite

IheardsomeoneforgottheirpasswordorhadtheirRipplecoins
stolen,arethosecoinsorwalletsinaccessibleforever?

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
Copyright2014AndrewWhite
createanewwalletandsendyourassetsovertothenewwalletas
soonaspossible.

WhatkindofventurecapitalorincubatorsareavailabletoRipple
developers?

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.
Copyright2014AndrewWhite

Whataresoftwareforks?

Softwareforkshappenwhenonegroupofsoftwaredevelopers
decidestotakethesourcecodefromaprojectandmaketheirown
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.

Copyright2014AndrewWhite
Glossary

CodiusThisisatechnologyneutralframeworkforcreatingsmart
contracts.Moreinfocanbefoundathttp://codius.org/

DueDiligenceistheprocessofthoroughresearchbeforemaking
investments.

EnterprisesincludebusinessstartupsintheRippleecosystem,such
asnewgatewayservices,merchantservices,remittanceoptions,
charities,experimentalhobbies,andcommoditiesallarepromising
areasforbusinessinnovatorsandearlystageinvestors.

Gatewayaserviceproviderthatenableuserstodepositmoneyinto
andwithdrawmoneyoutoftheirgatewayaccountsontheRipple
network.Intechnicaltermsagatewayisanassetissuer.

GatewaydGatewaydisanopensourceserverthatmakesbuilding
applicationsontopofrippleeasier.Formoreinformationpleasesee
https://gatewayd.org/

RipplestheRipplenetworksnativecurrency,representedbythe
lettersXRP.InordertousetheRipplenetworkXRPmustbeused.
EachtransactiondeletesatinyamountontheRippleledgerforever.

RippleClientThisisthesoftwarethatisusefulforuserexperiences
onwebservices.
Copyright2014AndrewWhite

RippleLabs,Inc.ownstheintellectualpropertyoftheRippleprotocol,
andpromotesRippleswideruseandgreaterusefulness.

RippleserverAlsoknowsasrippled,thisisthesoftwarethat
connectsallrippleserverstogetherintoadecentralizednetwork
aroundtheworld.Gatewayoperatorsneedtouseoneinordertohave
theirserviceuseteRippleprotocol.

Walletthedigitalaccountwhereindividualshold,access,anduse
theirdigitalcurrenciesinRipple.

IOUisapromisethatacertainamountoffundsthattheIOUissuer
controlsarefundsinyouraccount.AnIOUontheRipplenetworkisan
assetcreatedbyaRipplegatewayindicatingIpromisetoredeemyou
aspecificamountofthiscurrencyasset.

TraderpeoplewhousetheirRippleWalletstoexchangecurrencies
(govt.issuedcurrencieslikeUSD,CNY,etc.anddigitalcurrencieslike
XRP,BTC,etc.),functionallysimilartotradesmadeontheForeign
Exchange(FX)currencymarkets.

MarketMakersprovideliquidity(i.e.,money)thatallowspaymentsto
followapathwaybetweengateways.

Validatorsdedicatedcomputernodesthatconfirmatransactionis
validthroughtheConsensusprocess.Validatorsarethekeyto
Copyright2014AndrewWhite
transactionverificationthresholdbeingreachedandshouldonlybe
usedbyexperts.

WalletVaultAwalletvaultorwalletblobisthedatastoreofRipple
walletsecrets.Thewalletvaultiscreatedinsuchawaythatthe
servicehostingthewalletblobcannotreadthecontentsofthedataor
compromiseintegrity.

AbouttheAuthor

AndrewWhiteservesasthefounderofOneMillionGatewaysaRipple
consultingcompanyandvolunteersattheInternationalRippleBusiness
Association,whichisthepremierorganizationofmerchantsand
businessesthatacceptrippleXRPaspaymentforgoodsandservices.
AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSan
FranciscoandtheBayArea,andbeganbuyingandsellingrippleXRP
soonafteritsintroduction.
Copyright2014AndrewWhite