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RippleExplainedGuide
Version1.97
byAndrewWhite
andrew@onemilliongateways.com
twitter@OMGateway
Copyright2014AndrewWhite
HelloandwelcometotheRippleExplainedGuide.Thisbookisonlyfor
educationalpurposes,andisnotintendedtoprovideinvestmentadvice.
Mygoalforthisbookistobelargelynontechnicaland,astheauthor,I
feelacertainresponsibilitytomakesureeveryonewhoreadsthisbook
learnssomethingofvalue.Iapologizeinadvanceifthereisanythingin
thisbookthatistootechnicalortoocomplicated.Ifthereisapassage
inthisguidethatdoesnotseemtomakesenseoristoocomplicatedI
askthatyoudontgiveup,keepreadingandcomebacktoitlater.
Takeyourtimewitheachsectionandsupplementyourlearningwith
Googlesearchestohelpgettheanswersontermsorareasof
interest.ThroughoutthetextIincludelinksforyoutofollowuponfor
furtherresearch.Whenyouaredonelearningalltheinformationbelow
dontbesurprisedifafterreadingthisguideyoubecomethegoto
expertaboutRippleinyoursocialnetwork!
InmyopiniontheRipplepaymentsystemisoneofthemostexciting
technologiestobedevelopedinrecentyears.Forthefirsttime,
paymentscanbesenttoanyoneintheworldinanycurrencywithina
fewseconds.IdescribeRipplelikeemailformoney.Butevenbetter
thanthatisthatactivitiesthatwereoncethesolepurviewofthe
bankingindustry,suchaslendingormakingpayments,havebecome
democratizedintheRipplesystem.Themyriadopportunitiesand
challengesthesenewoptionsbringtothemassesopenawholenew
setofpossibilitiesforthediscerningentrepreneurorinvestorto
consider.Thisebookpresentsabriefoverviewofbusiness
opportunitiesintheRippleecosystemandwhatrolesyoucanplayin
thisexcitingnewareaoffinance.IhavebeeninvolvedwithRipplesince
early2013andIhaveexperiencedallofthedifficultquestionsoftrying
towrapmyheadaroundit.AfterIbegantalkingtopublicaboutitI
Copyright2014AndrewWhite
quicklylearnedthateveryoneasksthesamequestionsandonewayto
satisfythosequestionsistowriteabookaheadoftime.Soonthat
noteIwanttocoverthemajorcomponentsofRippleasitexiststoday
anddivedeeperintoeachtopicbutwithoutgettingintothegritty
details.Sowiththatsaidwithanynewtechnologytherearetradeoffs
betweensophisticationandeaseofuse,newfeaturesand
complications,newcapabilitiesandnewrisks,andRippleisno
different.ThisbookwasstartedinDecember2013inadozenpages.
Overtimeithasexpandedover39pagesandmyintentismakeyou
conversantinthemainareasofRippleandinviteyoutocontinuein
yourownareaofresearch.
Bestwishes,
AndrewWhite
Acknowledgments:Iwouldliketothankthefollowingpeoplewiththeir
helpinthisdocument:FredLaughterforediting,RippleLabsfor
permissiontoreusetheirimages,andtheRipplecommunityformaking
valuablefeedbackandsuggestions.
Copyright2014AndrewWhite
TableofContents
RippleLabs
Wallets
Ripples
Gateways
Consensus
CurrencyIOUs
Traders
MarketMakers
Enterprises
DueDiligenceQuestions
IntheFuture
ImportantRippleInfrastructure
FAQs
Glossary
AbouttheAuthor
WhyDigitalCurrency?
Copyright2014AndrewWhite
BeforewegetintoRippleIdliketoprovidesomebackground
informationaboutwhatcurrencyisandwhatishappeningwith
currenciesingeneral.Irecentlygotbackfromaconferencecalled
Money2020andhadadiscussionwithafriendthatexplainedthe
importanceofdigitalcurrencyintermsofhumanhistoryandIthoughtI
wouldrelatethatstoryhere.
Beforewebeginweshoulddefinewhatacurrencyis,anditisusually
definedtohavethefollowingsixtraits:Durability,portability,divisibility,
uniformity,limitedsupply,andacceptability.Someoneelse(Ihavenot
beenabletofindthenameoftheoriginalauthor)explainedtheseinthe
followingmanner:
Acceptability:Intermsofaformofcurrencybeingacceptedwithin
society,moneymustbeacceptedbyeveryoneintheeconomy.This
acceptanceisforthepurposeoftheexchangeofmoneyforgoodsand
differenttypesofservices.
Divisibility:Thisrelatestomoneybeingeasilydividedintosmaller
denominationsfortransactionalpurposes.Peoplewillonlyneedas
muchmoneyasisnecessaryfortheirpurchases,thereforeitis
necessaryformoneytobeeasilybrokendownfordifferenttypesof
transactions.
Durability:Thissimplyreferstothephysicalwearanduseofmoney
overaperiodoftime.Ifsomemoneyiseasilydestroyedordamagedit
islikelythatitisfraudulentandthereforecannotbetrusted.Yet,
Copyright2014AndrewWhite
moneyismadefromapapersource,sosomewearandtearmustbe
expected.
Limitedsupply:Inorderformoneytoretainitsworth,theremustbea
typeoflimitedsupply.Themoremoneythatisincirculationthelessit
isvaluedbytheeconomy.
Portability:Quitesimplyitisnecessaryformoneytobeeasily
transportedsothatpeoplecancarryitaroundwiththemonadaily
basis.Thisalsoallowsfortheeaseoftransactionsothatmoneycan
betransferredfromoneplacetoanother.
Uniformity:Dependingonthedifferenttypesofcurrencythatare
available,moneywithinthatspecificcurrencymustlookthesame.This
alsoallowsformoneytobecountedandmeasuredaccurately.
Analternativewayfordistinguishingthecharacteristicsofmoneyisthat
itiseasilyrecognized.Moneyissubjecttothetypeofcurrencythatis
incirculationwithinaspecificplace,soifitiseasilyrecognizedandit
followstheabovecharacteristics,thenitislikelytobegenuine.
Forthesereasons,thephysicalmetalgoldhasbeenusedascurrency
forthelastfivethousandyears.Thereasonforthisisthatthegold
metalhascharacteristicsthatmakecounterfeitingitimpossible.For
centuriesalchemistsattemptedtheimpossiblebytransformingbaser
metalslikeleadintogoldbutwiththemoremodernscienceof
chemistryitquicklybecameunderstoodthatthiswasimpossible.
Howeverusinggoldasthesolecurrencyisproblematicforeconomic
Copyright2014AndrewWhite
reasons.Firstofallitcanhavesubstantialweight.Itsdifficultor
expensivetosecure.Sendingittosomeoneelseisdifficulttodo
securelyorinatimelymanner.Andtheresimplyisntenoughofitfor
theworldsexpandingpopulationasonlyafiniteamountcaneverbe
minedoutoftheearth.Thusitbecamepopularinrecentcenturiesto
representgoldinpapermoney.Toassurepeopleoftheintrinsicvalue
ofthepaperbills,thefacevalueofthedollarswasbackedbycertain
amountsofgoldorsilverwaspromisedtothenoteholder.Howeveras
mostpeopleknow,thiscreatesanadditionalproblemascounterfeiting
papermoneyiseasy.Famously(orinfamouslyaccordingtosome)in
1972,RichardNixontooktheUnitedStatesoffthegoldstandardand
peggedthevalueoftheUSdollartoanewmeasureofeconomic
fitnesscalledtheGrossNationalProduct(butwewontgetintoallthe
reasonsforthat).WiththeGNPthevalueofthedollarbegantobe
createdindigitalsystems.Inthepresentdaythishasevolvedsomuch
thatsomeeconomistsbelievethatelectronicsystemsmakeup95%or
moreofallmonetarytransactions.Thishasbeengoodforsociety
becauseitmakesthecostofusingmoneylowerforeveryone(and
thatsagoodthing).Creditcardsareoneofthemostfrequentlyused
toolsfordoingthis.Creditcardswereinventedinthetimebeforethe
Internet(WesternUnionstartedacardprogramin1921!).Howeveras
mostpeopleknowtheunderlyingproblemsofearliergenerationsof
currency,fraudulentuseofthetoolisaveryexpensiveproblemthat
theincumbentplayershavenotbeenabletofixandabout1%ofall
creditcardtransactionsarefraudulent.In2009,Bitcoinsrelease
solvedtheissueofhowtomakeadigitalcurrencyandbepractically
impossibletocounterfeit.Bitcoinusessomespecialapplicationsof
mathandcryptographytomakecounterfeitingitnearlyimpossible.This
iswonderfulformerchantssincethehighcostsofhandlingfraudulent
transactionsiseliminated.Understandthatthenearimpossibilityof
Copyright2014AndrewWhite
beingcounterfeitedisthekeyfundamentalreasonforthegrowthof
Bitcoinstylecurrenciesonline.Itisnearlyimpossibletocounterfeitfor
reasonsthatwillbeexplainedlaterbutthemainreasonisduetothe
relianceonaparticularmathfunctionofcryptography,moredetailscan
befoundintheFAQattheendofthisbook.Proponentsofdigital
currenciesthatunderstandthisclaimthatthismakesdigitalcurrencies
abetterstoreofvalueandexchangethangold,whichisanawe
inspiringleapinhumanprogressifthepremiseholdstobetruefora
sufficientlylongperiodoftime.Onlytimewilltelliftheclaimstandsup
toscrutiny.Nowthatweunderstandthebasicreasonstojustifyapeer
topeerdigitalcurrency,soonwewilllearnhowtobuildapeertopeer
exchangeusingRipple.
RippleLabs
Firstletsstartwithadefinitionofterms.Rippleisthenameofanew
paymentstechnology.Rippleisdevelopedbyacompanynamed
RippleLabsInc.inSanFrancisco.Originallythecompanywas
formedasOpencoinIncin2012,andlaterreformedin2013byChris
Larsen,JedMcCaleb,DavidSchwartz,andafewothers.RippleLabs
ownstheintellectualpropertyoftheRippleprotocolandtheRipple
namebutthecodeandprogramsthatmakeupRippleareavailablefor
freeforanyonetodownload,useandmodifyastheyseefit.Ripple
LabssoftwareisextendedbyacommunityofRippleenthusiasts
aroundtheworldwhoarepassionateaboutmakingthetechnology
moreuseful.Thesepeopleprovideessentialfeedbacktoproduct
teamsandengineersleadingtheoverallimplementationofRipples
development.TheknowninvestorsinRippleLabsincludeGoogle
Copyright2014AndrewWhite
Ventures,AndressonandHorowitz,LightspeedVentures,Bryan
Bradford,andothers.AsofOctober2014,RippleLabshasastaffof
60peopleledbyCEOChrisLarsen.Mr.LarsenistheformerCEOof
ELoanandlaterProsper.com,bothofwhichwerepioneering
companiesinpeertopeerlending.
Asanoutsider,IcantsayanythingdefinitiveaboutRippleLabs
specificbusinessstrategies.Buttheiractionsshowthattheyare
committedtoincreasingthevalueoftheRipplenetwork.Theydothis
throughavarietyofstrategiestoshowthepublicthatRippleprovidesa
bettersystemforpaymentsthanthealternatives.Oneofthewaysof
accomplishingthisisbymakingusefulsoftwareandgivingitawayfor
free.ThesourcecodeofthesoftwarefromRippleLabscanberead
andusedbyprogrammersatnocharge,whichisanopeninvitationfor
curiousengineersandprogrammerstomakecontributionstothecode
andexpeditethedevelopmentofthecorefunctionality.Thisalso
providesavaluablesafetymechanism.Sincemoreeyescanlookat
theunderlyingcode,potentialissuescanbeidentifiedandfixedearly,
beforebecomingaseriousissue.RippleLabscangiveawaythe
softwareforfreebecausethecorevaluepropositionofRippleisthat
anopenpaymentnetworkthatanyonecanuseandimproveismore
valuablethanaclosedalternative.Sofartheplanseemstobeworking
wellandRippleisstartingtomakebigwaves.
Copyright2014AndrewWhite
IfwelookatthehierarchyoffinancialservicesintheUnitedStates,
RippleisdesignedtoreplacetheAmericanClearinghouse(ACH)
paymentsettlementsystem.ACHwasinventedinpreInterneteraand
isamajordragontheefficiencyofmovingmoney.Anothersystemthat
EuropeanswouldbefamiliariscalledSwift.Swiftisanewerprotocol
forpaymentmessaginganditworksalotbetterthanACHbutthe
problemisthatUSbanksdontuseitdomestically.Swiftisfasterthan
ACH,sameornextdaypaymentsisthenormandothercountrieslike
ChinaandMexicouseasimilarsystem.ButwhereasSwiftis
specificallyapaymentmessagingprotocolandnotapayment
settlementprotocolitstillinvolvesalotmoreworkforfinancial
institutionstolearnwhohaswhat.Rippleoffersasolutionthatoffers
realtime(aboutfivesecond)paymentsettlementandpayment
messaging(thatmightbeastatementthatlookslikeThispaymentis
forBobsnewshoes).SinceRipplecombinesmessagingand
settlementsomesmartpeoplehavebeencallingitSwift2.0but
Copyright2014AndrewWhite
Rippleisreallyalotmorethanthat.Sowiththatinmindletsdiveright
intoexperiencewhatusingusingtheRipplepaymentsystemlooks
like.
Wallets
Touseanonlinepaymentssystem,peoplestartbycreatingadigital
versionofawallet.Awalletconsistsofanameofwhoownsthewallet
andsomesortofsecuritymechanism,likeapassword,tolimitaccess
totheaccount.Itshouldbeimportanttokeepinmindthatnotall
walletsarecreatedequally.Manytraditionalonlinewalletsolutions
allowthemselvestheprivilegetocloseyouraccountforanyreason.
TheirareavarietyreasonsforthisbutaRipplewalletisdifferent,itis
impossibleforanyone,includingthemakersRippleLabs,tostop
someonefromaccessingtheirRipplewallet.Iwillexplainabitmore
abouthowthatworkslaterbutfornowletsmoveontowhatthewallet
lookslike.
Therearetwowaystoidentifywhoownsawallet.Thefirstiscalleda
Ripplenameanditlookslike~SomeRandomWalletName.Anyone
thatknowsthiswalletsnamecansendpaymentstoit.Underthehood
thenameistiedtothepublicnameoftheRippleaddressthatbegins
withthelowercaserandlookslikethis:
r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstothe
authorarewelcome!).
Copyright2014AndrewWhite
ThisisanexampleofwhataRIpplelookslikeavailableat
https://www.rippletrade.com
ARippleaddressshouldbethoughtoflikeaphysicaladdresswhere
mail(orpaymentmessages)canbedelivered.Thepasswordshould
bethoughtofasthekeytoopenthedoortothehouse.Inthepriortwo
sentencesIjusttaughtyouthebasicsofpublickeycryptography,feel
freetoGooglethatformoreinformation.
Sothewalletisalwaysavailableonawebpageandhasthefollowing
functionality:wallettransactionhistory,anaddressbook,asectionto
sendandreceivepayments,andasectionofthewalletforyouto
makecurrencytrades.Andthatisaboutit.
ItisimportanttonotethatRipplewalletsarenotinsuredbytheFederal
DepositInsuranceCorporation(FDIC),whichwascreatedbytheU.S.
governmenttoprotectconsumersfrombankfailures.
Formostconsumers,thepowerofRipplepaymentshappenswhen
paymentsaresentacrossthenetworkwithinafewseconds.To
anyoneaccustomedtotheslowandcumbersomeprocessoftraditional
Copyright2014AndrewWhite
paymentnetworks,thisisanincredibleadvanceinpayments
technology.Nolongerdopeopleneedtowaitfordaysforabankwire
transfertobecompleted,orweeksforacreditcardpaymenttobe
processedwithRipple,havingtowaitforpaymentprocessingisa
thingofthepast.Eveninareaswithmodernbankingsystems(like
EuropeandChina)withsamedaybanktransfers,theexistingpayment
systemisstillarelativelyslowandcostlyprocessthatcreatesan
unnecessarydragontheeconomy.Justimaginewhatkindoflowcost
newserviceswillbecomeavailablewithRippletomerchants,
consumers,andinvestorsacrosstheentireglobaleconomy.
Asfarasmostusersareconcerned,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
RipplesareaccesstokensusedbytheRippleprotocolandare
referredtoacurrencycodeofXRP(whichislikeUSDorBTC).The
protocolconsistsoftherulesofhowRippleworksandtheserulesare
translatedbyprofessionalprogrammersintosoftwaretoperformall
thefunctionsthatRippledelivers.Moregenerally,peoplemake
protocolstosolveaprobleminaconsistentandentirelyreliable
manner.Welldesignedprotocolsshareanumberoftraits.For
example,thinkoftheprotocolofshakinghandswhengreeting
someone.Thisprotocolhasbecomeinstantlyrecognizableworldwide.
Itsnotabletraitsarethatitissimple,easilyreproducible,and
cooperativeinnature.Thebestcomputerprotocolsandmonetary
systemsaimforsimilarresults.
Tobeconsistentwithinternationalnamingconventions,Ripplesare
knownbyathreeletteracronym,comparabletohowUSdollarsare
representedasUSD.ThethreelettercodeisXRP.TheRippleconcept
hasbeenaroundpriortoRippleLabs.Itwasfirstworkedonin2004
andlateronin2011thecoreteamaroundRippleLabswasformed
whothenreleasedittothepublicinthebeginningof2013.Everytime
youuseRipple,areallytinyamountisdeletedtomakesurethe
networkdoesnotgetoverloadedbypaymentmessages.Thelogicis
thataverageconsumersmightonlyneedtousearelativelyfewRipples
acrosstheirentirelifetime.Ripplewasreleasedwithahardlimitof100
billionunitsofXRPtoeverexist.The100billionnumberwasjudgedto
belargeenoughtobeusefulfortheRipplenetworkforhundredsof
years,andquantifiableenoughtoprovideabusinessmodelforRipple
Labs.
Copyright2014AndrewWhite
OnceRippleswerecreatedthenextstepwastofigureoutthebest
wayonhowtodistributetheminthemosteffectivemanner.Itiscritical
totheRippleLabsbusinessstrategythatXRPbedistributedtoawide
numberofmarketparticipantswhointendtouseRippleasasystem
forpayments,currencytrading,orassetissuance.Acoolfeatureof
XRPisthatasthenativecurrency(Ilikethetermmetacurrencybutit
isnotascompletelyobviousastowhatthatmeans),XRPcanbe
spenttosend(orreceive)anyothercurrencyofferedforsaleinside
theRipplenetwork.RippleLabsalsosellsbulkquantitiesforlarge
ordersandgivesawaysmalleramountsforfree.Inlargeparttheir
targetmarketarebankstouseXRPtomakeinterbankpaymentsand
facilitateinternationaltrade.
SonowthatwehavecoveredabitofhowmuchXRPthereis,whatit
isusedfor,andRippleLabsroleinthedistributionofXRP,letsmove
ontoinvestmentopportunitiesinthespace.
TherearedifferentinvestmentstrategiesinvolvingRipplesandalarge
numberofpeopletradethemagainstothercurrenciesforspeculation.
Beforegettingintothevariouschoicesavailable,Iwouldsuggestwould
beinvestorsaskthemselvesafewquestionssuchas:
AmItechnicallyproficientenoughtohandledigitalcurrenciesonmy
own?
DoIalwaysfollowbestpracticesforcomputersecurity?
ShouldIrelyonareputableconsultant,broker,orhedgefundto
managemyinvestment?
Copyright2014AndrewWhite
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,
andtheresponsibilityforduediligenceisentirelyuptoyou.Be
appropriatelyskepticalandcautiousinallyourdealings.
Atfirsttheywereworthnothingatmarketrates,butXRPhassteadily
increasedinvaluethroughasteadilyincreasingnumberofservicesbuilt
forit.AlthoughthepriceofXRPhasbeenrelativelystable,itisnot
immunefromdrasticpriceswingssimilartoapennystock.Although
currentlyvaluedforlessthanapenny,Ripplesarereallyonlyusefulfor
makingtransactionsontheripplenetworkbutspeculatorsonthe
Ripplenetworkliketotradeitagainstotherassets.Becautious
howeverasonrareoccasionsthevaluehaschangedhundredsor
thousandsofpercentaday.
Copyright2014AndrewWhite
Gateways
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.
Copyright2014AndrewWhite
BecauseofRipplesdesign,anyonewithaRipplewalletcantechnically
becomeagateway.
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
thisupsimply.Whenitcomestoanonymousgateways:donttrust
them.
Astandardsgroupforgatewayshasbeenformedcalledthe
InternationalRippleBusinessAssociation(IRBA),whichoperates
independentlyofRippleLabs.IwilldiscusstheIRBAmorebelowbut
fornowyoushouldknowtheIRBAhasasetofrequirementstomake
surethatthegatewayslistedonIRBAswebsiteathttp://xrpga.orgare
legitimateorganizations,operateusingbestpracticesforbusinesses,
etc.Thereareroughly170membersoftheIRBAatthepresenttime,
includingpeoplewhohaveexpressedtheirinterestinforminga
gatewayforcertainmarketsorareasintheworld.
Consensus
Consensusiswherewestarttogetintothenittygrittytechnicaldetails
ofhowRippleworks.Youdontneedtoknowallofthisinfoifitisnot
rightforyou.Iliketotellpeopleunderstandinghoweverythingworksis
notarequirementtoinvestinaRipplebasedasset.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.
NextImgoingtoextensivelyquoteRippleLabsChiefCryptographer
DavidSchwartzwhohasalottosayonthisimportanttopic:The
numberwasdeterminedbysimulation.Ifyousetthethresholdtoolow,
theconsensusprocesscompletesveryquicklybutmorefrequently
doesn'tactuallyreachconsensus.Ifyousetthethresholdtoohigh,the
consensusprocesstakesmuchlonger,butonlyveryrarelyfailsto
actuallyreachconsensus.(Whenyousay,"Ibelievethere'sa
consensus",youcan'tactuallybe100%surethereisinfacta
consensusornobodycandeclareaconsensusfirst.)Theconclusion
thatnoconsensushasbeenreachedisavalidconclusionandcan
resultduetopoortopologyorByzantinefailure.Certaintyisalways
withrespecttosomethingthathasoccurredinthepast.Itisnot
possibletoknowwithcertaintythepresentstatewithoutobservingat
morepointsthanwillnormallybepossible.
Soeachserverrunsoutaheadofwhatitknowsforcertain,applying
transactionsandattemptingtoreachconsensusonthem.Whenandif
Copyright2014AndrewWhite
aconsensusisinfactproduced,theserverlaterdeterminesthiswith
certainty,andthuscanadvancewhatitknowsforcertain.
Essentially,theconsensusprocessproducesastreamofsigned
messagescalled"validations"fromwhichit'spossibletodeterminewith
certaintywhetheraconsensushadactuallybeenreachedatsome
pointinthepast.
ItispossibletocreateUNLtopologiesthatfrequentlyfailtoreach
consensus.TheplanistohaveRippleserversbuildtheirUNLsusingan
algorithmthatmakessuchtopologiesexceedinglyunlikely.
Evenwithaperfecttopology,twotypesofByzantinefailuresare
possible.
One,whichisnotthatuncommon(oneoutofevery200roundsorso),
isalocalfailure.Inorderforaconsensustoeverarise,someonehas
todeclareaconsensus.Andforthattohappen,someonemustdeclare
aconsensusfirst.Whenthathappens,whoevermakesthatdeclaration
can'tknowforcertainthatotherswilldeclarethatsameconsensus(or
theywouldhavealreadydoneso,andsohewouldn'tbefirst).Soit's
alwayspossiblethathedeclaresthewrongconsensus.
Inthiscase,theserverthatsufferedtheByzantinefailurequickly
discoversthattheothervalidatorshavebuiltadifferentledgerthanit
didanditbeginsitsresynchronizationprocess.Otherserverswillstill,
fromthevalidations,whichledgerwasthemajorityledger.
AmuchlesscommontypeoffailureiscompleteByzantinefailure.In
thiscase,severalserversdeclaredifferentconsensusesandthereis
Copyright2014AndrewWhite
noclearmajorityledger.Inthisrarecase,thenetworkasawholemust
reconvergebeforeatrueconsensuswillemerge.Ripplehasan
algorithmtodoexactlythis.Serverswillseetheconflictingvalidations
andknowwithcertaintythattherewasnoactualconsensus.
OntheRippleforumrecently,amathematicallymindedmemberasked
DavidthefollowingquestionHowdoesRipplesolveByzantine
Generals'Problemsuchasnosolutionunlessn3t+1,n=numberof
processesinthesystemandt=numberoftraitors?
SohowRipplesolvestheByzantineGeneralsproblemissimple.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
Copyright2014AndrewWhite
SincewearediscussingthetechnicaldetailsofhowRippleworks,for
completenessIjusttomentionValidatornodesandwhattheydo.
TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocol
dependsonacollectionofvalidatorswhoparticipateintheconsensus
processandproducesignedledgerswhichgetbroadcastintothepeer
topeernetwork.Clientsandpeerscollectanddependonthesesigned
ledgerstodeterminewhatistheconsensusledger,orthe"true"state
oftheledger.CrucialtothesecurityofthenetworkisthateachRipple
serverchoosetopayattentiontoasufficientlylargediversesetof
validatorswhoarenotcolludingtodefraud.When80%ofvalidator
nodesagreethataedgerisvaliditgetssignedandconfirmedacross
theentireRipplenetwork.Thisisanalternativesolutiontothe
ByzantineGeneralsproblemfirstsolvedbyBitcoinwithmining.
CurrencyIOUs
IOUs(Ioweyouspronouncedhowitisspelled,eyeohu)are
creditsandarewhatmostpeoplewilluseonRipple.IOUsstandforI
oweyou(something).WearemostfamiliarwithIOUsfromour
bankingorinvestorstatementthatismailedmonthlybyfinancialservice
providers.AnIOUisapromisethatacertainamountoffundsthatthe
IOUissuercontrolsarefundsinyouraccount.Therealityisthatthe
IOUholderhasatotalamountoffundsthatitcontrolsand,fromthis
total,theyuseadatabasetoorganizewhattheyowetheircustomers
andthenumberdisplayedtoyouistheIOU.IOUsonRipplenetwork
operateonthesameprinciple,butinsteadofabankingorinvestment
Copyright2014AndrewWhite
entitycreatinganddisplayingtheIOUtoyou,anIOUontheRipple
networkisanassetcreatedbyaRipplegatewayindicatingIpromise
toredeemyouaspecificamountofthiscurrencyasset.Ifyou
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.AsthisdiagramfromRippleLabs
illustrates:
Copyright2014AndrewWhite
Pathfindingisofmostinteresttomarketmakersandtechnicaltypesto
beabletoservemarketactivity.Itisimportanttonotethatalthough
Rippleisfastitisslowenoughastomakehighfrequencytrading
impossibleandapartofthereasonwhythatisisbecauseofthetime
ittakesPathfindingtowork,afewsecondsistooslowforHFTtobe
effective.
Traders
AnyonewithaRipplewalletcantradethedigitalcurrencyassetson
Ripple.SendingapaymentofanysortusingtheRipplenetworkis
Copyright2014AndrewWhite
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
knowledgeandskilltosetupanduse.Althoughtherearenoalgorithmic
tradingservicesavailabletoinvestorsatthemoment,theseareknown
Copyright2014AndrewWhite
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.Itshouldbenotedthatanyonecanbeamarketmakerbutithelps
tohavealotofcapitaltomakeitmoreworthwhileforthemarketsyou
aretryingtosupport.
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.Ifthisissomething
thatinterestsyouinpursuingabusinessIstronglyencourageyoutodo
so.ComplementaryservicesthataddvaluetotheRipplenetworkis
somethingRippleLabsisveryinterestedinsupportingandyoushould
letthemknowaboutitonceyouarereadytolaunch.
DueDiligenceQuestions
Investorsshouldbeaskingthemselvessomehardquestionsandhave
honestanswersbeforebeginningtoinvestinRipple.Herearesome
basicsforyoutoconsider:
Copyright2014AndrewWhite
HowwelldoIunderstandRipple?
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.
Youshoulduseapasswordsolongandrandomyoucannot
rememberit(onlystoreandcopyitsecurely).
IntheFuture
Thefuturewillcertainlybringmanyexcitingandinterestingareasfor
Rippleinvestorstoconsider.Inparticular,Imexcitedforthetimewhen
optionstradingbecomesmorewidelyavailable(whichwilllikelybe
easierwiththeadventofsmartcontractslaterin2015).Smart
Contractscouldbecomethekillerappformathbasedcurrencies.For
example,byusingsomeparticularmathfunctionsitispossibletoissue
sharesforacompanyorraisefunds.InJuly2014RippleLabs
announcedCodius,anewprojecttoenablesmartcontracts.Codius
willallowpeopletocreateoffersorcontractsacrossforanydigital
ledgersystemsothattheycanallbenefit.Theydothisthroughsome
innovativedesignchoicesthatallowpeopletomakeusefulapplications
withanypreexistingprogramminglanguage.IspokewithStefan
ThomastheCTOofRippleLabswhoexplainedtomethatthedesign
Copyright2014AndrewWhite
wasinformedfromtheexamplethatbusinesslogicanddatastorage
(databasesordecentralizedledgerslikeBitcoin)aretwoseparate
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.
Copyright2014AndrewWhite
NewservicesforRipplewalletsarecomingoutallthetimeincluding
ShiftPaymentswhoarereleasingacreditcardthattiesintoaRipple
walletinlate2014.
Likeanyactiveprotocol,Ripplefacesintensescrutinytoidentifyand
correctanyinefficienciesaswellasforwaystheprotocolcanbe
improved.Ripple(andCodius)issuchadisruptivenewtechnologythat
itsfullimpactonbusinessandsocietywillnotbeknownformany
years.Thedaywillcomewhenpeoplewillbesoaccustomedtoa
multicurrencywalletthattheywillaskwhydidntIthinkofthat?In
myopinionwearewitnessingthedawnofadisruptivetechnologyas
bigasanadvancementasdigitalstockmarketsorpapercurrencies.
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
Copyright2014AndrewWhite
fewyearsforimportantinnovationstobebroughttomarket.For
technicalinfrastructure,Iexpecttoseemoreservicestoenterthe
markettoserveasenginestodrivethegrowthofdigitalassetsand
usefulthingsthatcanbedonewiththem.MyowncompanyOneMillion
GatewaysInc.wasestablishedtohelpthesecompaniesreachtheirfull
potential.
FAQs
HowisRippledifferentfromBitcoin?
Thetwoarecompletelydifferent.ThemostbasicansweristhatRipple
isnotdesignedtobeusedasjustacurrency.Insteaditisapayments
protocol.ThedifferenceisbetweenBitcoinbeingap2pvirtualcurrency
andRippleasap2pexchange.Bitcoinusestheproofofwork
mechanismcommonlyknownasminingtogenerateBitcoinandor
verifythevalidityoftransactions.Instead,Rippleusesasystemcalled
consensus.ThisfundamentaldifferencewithBitcoinmeansthatthey
workdifferentlyandthattheyaredesignedfordifferentpurposes.
BitcoinorothercurrenciesarenotcompetitionforRipple.My
understandingisthatRippleLabswantstoseeotherpaymentsystems
settledortradedonRippleandnotcompetewiththem.
Iheardthatminingdigitalcurrenciesrequiresanincredibleamountof
electricity,isRipplesimilar?
Thankfullyno.Ripplerequiresnomoreelectricitytorunsecurelythana
normalhighendcomputerserver.ThemegatonsofCO2and
Copyright2014AndrewWhite
megawattsofelectricityandpowerbillsusedbyotheralternativesis
notanissuewithRipple.
IheardthatRippleisapreminedcurrency,isthattrue?
Theanswerisbothyesandno.Ripplewasnotcreatedorreleased
asacurrencyplatformthatusedminingtogeneratethecurrencyand
verifytransactions.Peoplethatmineorbelieveintheideathatmining
isfairduetotheequalprobabilityofbeingrewardedfordoingthe
proofofwork.Thereisnothingwrongwiththatopinion.However
Ripplesuccessfullysolvedsomeoftheinherentandfundamental
problemsthatminingbringstoadigitalcurrency:theslownessof
transactions,the51%attackproblem,blockchainsplits,etc.In
definingtheutilityofcrosscurrencypayments,afundamentaldesign
principleisthatlongdelaysforpaymentsisnotacceptable.Letsface
it,nobodywantstheuncertaintyofwaitingforapaymenttoconfirm
andRipplecanmaketradingthosekindsofassetsfasterandmore
secure.
DoanybanksuseRipple?
Atthetimeofthiswritingthereareafewbankswhohaveclaimedthey
willbeusingtheRippleprotocol.
Whatarevalidators?TheRipplenetworkreliesondedicated
computerscalledvalidatorstoconfirmthattransactionsarevalid,why
isthis?
Copyright2014AndrewWhite
Validatorsarethelightweightwaytoverifythattransactionsarevalid
comparedtotheheavyweightuseofcryptocurrencymining
algorithms.Theyarelightweightbecauseyouonlyneedafew
computersdoingthis(insteadofthousandsintraditionaldigital
currencies).Bydesign,RippleLabscreatedtheRipplenetworktorely
onvalidatorsthattheyrunandtheyknowcanbetrustedtomakesure
thattransactionsarevalid.Themajorityofthevalidatorsthata
gatewaytrustsmustbetrustworthy.Ifthemajorityofthembecome
maliciousorconspireagainstthegateway,theycanmakefraudulent
paymentsagainstthegateway.Thewaytomitigatethisthreatisby
usingcommunityacceptedtrustednodessuchasthoserunbyRipple
Labs.
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.
Copyright2014AndrewWhite
WhatisaSecretKey?
YourwalletsSecretKeyisyoursecretentranceintoyourwalletif
youeverforgetyourpassword.Onatechnicallevel,yourSecretKey
canalsobeusedaspartofaprogramtodothingsforyousuchas
runningatradingbot.SecretKeysarenamedsecretbecausethey
mustbeabsolutelyunavailabletoanyonebutthosetrustedtoaccess
theaccount.IfsomeonegetsyourSecretKey,theycandowhatever
theywantwithyourassets.Ifyouarehavereasontobelievesomeone
hasgainedunauthorizedknowledgeofyourSecretKey,youshould
createanewwalletandsendyourassetsovertothenewwalletas
soonaspossible.
WhatkindofventurecapitalorincubatorsareavailabletoRipple
developers?
TherecentlylaunchedCrosscoinVenturesisagoodstartingpointfor
Rippledevelopersseekingfunding.Headedbyentrepreneurialstartup
andVCveterans,Crosscoinhastheenviablepositionofbeinglocated
inthesameofficebuildinginSanFranciscoasRippleLabs.Lookfora
numberofhighqualityandinnovativeservicestoemergefromthe
Crosscoinaccelerator.
WhatisthebesttechnicalresourceforRipple?
ThebestRippledocumentationresourceislocatedat
https://ripple.com/wiki/Developerscanalsocheckout
Copyright2014AndrewWhite
http://dev.ripple.com/Forfurtherinformation,Isuggestconnectingwith
thedevelopersontheIRCchannelontheFreenodenetwork#ripple.
IwanttolearnmoreaboutConsensus,wheredoIfindmoreinfo?
TheConsensusWhitepaperreleasedinAugust2014:
http://dev.ripple.com/consensuswhitepaper.html
IdontlikehowRippleLabsdoesXYorZ,whatdoyouhavetosay
aboutthat?
RippleLabsisaveryyoungstartup.Expectationsforthisserviceare
high,perhapstoohigh.Ittakestimetobuildworldclassteams,and
staffingresourcesarealwayslimited.GiveyourissuesometimeandI
amcertainthatyouwilleventuallyseeimprovementstotheissueyou
areconcernedwith.
Whataresoftwareforks?
Softwareforkshappenwhenonegroupofsoftwaredevelopers
decidestotakethesourcecodefromaprojectandmaketheirown
possiblyincompatiblechangesfromthepriorversionofthesoftware.
Thiscanhappenforvariousreasonsbutthemostlikelyreasonisthat
onegroupofdevelopersdisagreedwiththedirectionaprojectwas
going.Thiscanbeeitheragoodorabadthing.Itisbadwhenit
dividesthenumberofpeopleworkingonaproject.Itcanbegood
whentheforkedsoftwaremakesimprovementstheotherdevelopers
werenotwillingtomake.AlternativeversionsofRippleareexpectedto
Copyright2014AndrewWhite
bereleasedinthefutureandthisisgoodfortheRippleprotocolsince
newideascanbetestedindifferentnetworks.
Whataregoodcommunityresourcesforgettinganswerstomy
additionalquestions?
Myfavoriteresourceistheforumathttps://ripple.com/forum/butthe
mostpopularcommunityforumishttps://xrptalk.org/
HowdoesRippleLabssellRipples?Dotheysellontheopenmarket?
AccordingtoDirectorofCommunicationsMonicaLongtheydonot:
RippleLabsisn'tandhasneversoldXRPintheopenmarket.Wesell
theportionofXRPreservedforbusinessoperationsthroughdirect
wholesalepurchasesonameasuredbasis.Whatwe'veseenrecently
isawholesalebuyersellingasignificantvolumeinmarket.We've
changedthetermsofwholesalepurchasingtolimitmarketimpactin
thefuture.
IhavesomethingIwanttodiscusswithRippleLabs,whatisthebest
wayformetodoso?
Talktothebusinessdevelopmentteamatpartners@ripple.comorthe
developerrelationsteamatdevelopers@ripple.com.
Copyright2014AndrewWhite
Iwanttostartacurrencyissuinggateway,butIhavenoexperience
andnocapital,howdoIgetstarted?
FirstofallIapplaudyourenthusiasmforRippleandaddingvaluetothe
network.HoweverIwouldadviseagainststartingagatewayonyour
own.Gatewaysarepowerfultoolsandwithnobackgroundin
compliance,regulations,orthetechnicalriskswithusingRippleyou
wouldbedoingyourcustomersadisservicestartingoutwithno
experience.Iwouldsuggestyoufindsomeequallyexcitedpartners
withexperienceinthepaymentsindustryordigitalcurrenciesbefore
movingforward.
Glossary
BitcoinAproofofworkdigitalcurrencycreatedin2009.The
benefitsofBitcoinisthatitisnearlyimpossibletocounterfeit(i.e.,
makefakeBitcoin)whichmakesitusefulforonlinepayments.Bitcoin
solvedtwolongstandingacademicproblems,thedoublespend
problemandtheByzantineGeneralsproblemthatallowsittoworkin
asecure,decentralizedmanner.
CodiusThisisatechnologyneutralframeworkforcreatingsmart
contracts.Moreinfocanbefoundathttp://codius.org/
DueDiligenceistheprocessofthoroughresearchbeforemaking
investments.
Copyright2014AndrewWhite
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
onwebservicessuchasawallet.
RippleLabs,Inc.ownstheintellectualpropertyoftheRippleprotocol,
andpromotesRippleswideruseandgreaterusefulness.
RippleserverAlsoknowsasrippled,thisisthesoftwarethat
connectsallrippleserverstogetherintoadecentralizednetwork
aroundtheworld.Gatewayoperatorsneedtouseoneinordertohave
theirserviceusetheRippleprotocol.
Copyright2014AndrewWhite
IOUisapromisethatacertainamountoffundsthattheIOUissuer
controlsarefundsinyouraccount.AnIOUontheRipplenetworkisan
assetcreatedbyaRipplegatewayindicatingIpromisetoredeemyou
aspecificamountofthiscurrencyasset.
TraderpeoplewhousetheirRippleWalletstoexchangecurrencies
(govt.issuedcurrencieslikeUSD,CNY,etc.anddigitalcurrencieslike
XRP,BTC,etc.),functionallysimilartotradesmadeontheForeign
Exchange(FX)currencymarkets.
MarketMakersprovideliquidity(i.e.,money)thatallowspaymentsto
followapathwaybetweengateways.
StellarARippleclonefundedbyStripe.com.Themaindifferencewith
RippleisthatStellartokensareaninflationaryassetinsteadofa
deflationaryone.
Validatorsdedicatedcomputernodesthatconfirmatransactionis
validthroughtheConsensusprocess.Validatorsarethekeyto
transactionverificationthresholdbeingreachedandonlyneedtobe
usedbyexpertsorpeoplerunningprofessionalgateways.
Walletthedigitalaccountwhereindividualshold,access,anduse
theirdigitalcurrenciesinRipple.
WalletVaultAwalletvault,alsocalledawalletblobistheencrypted
storageofRipplewalletsecrets.Thewalletvaultiscreatedinsucha
Copyright2014AndrewWhite
waythattheservicehostingthewalletblobcannotreadthecontentsof
thedataorcompromiseintegrity.
AbouttheAuthor
AndrewWhiteservesasthefounderofOneMillionGatewaysInc.a
digitalcurrencyconsultingcompany.HealsoservesasSecretaryat
theInternationalRippleBusinessAssociation,whichisthepremier
organizationofmerchantsandbusinessesthatusetheRippleprotocol.
AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSan
FranciscoandtheBayArea,andbeganusingXRPsoonafterits
introduction.
Copyright2014AndrewWhite