Documente Academic
Documente Profesional
Documente Cultură
Version1.99
byAndrewWhite
andrew@onemilliongateways.com
twitter@OMGateway
Copyright20142015AndrewWhite
HelloandwelcometotheRippleExplainedGuide.Mymissioninlifeisto
helpmakeotherpeoplesuccessfulintheareastheycareaboutandI
hopetheinformationcontainedhereinisabletotranslateintoyourown
successwithdigitalcurrencies.
Mymaingoalforthisbookistobenontechnicalandexplainthemost
importantconceptsforyoutoderivebusinessandfinancialbenefitsfrom
thistechnology.Ifthereisapassageinthisguidethatdoesnotseemto
makesenseoristoocomplicatedIaskthatyoudontgiveup,keep
readingandcomebacktoitlater.Takeyourtimewitheachsectionandif
needbesupplementyourlearningwithGooglesearchestohelpgetthe
answersontermsorareasofinterest.ThroughoutthetextIincludelinks
foryoutofollowuponforfurtherresearch.Whenyouaredonelearning
alltheinformationbelowdontbesurprisedifafterreadingthisguideyou
becomethegotoexpertaboutRippleinyoursocialnetwork!
InmyopiniontheRipplepaymentsystemisoneofthemostexciting
technologiestobedevelopedinrecentyears.Forthefirsttime,payments
canbesenttoanyoneintheworldinanycurrencywithinafewseconds.I
describeRipplelikeemailformoney.Activitiesthatwereoncethesole
purviewofthebankingindustry,suchaslendingormakingpayments,
havebecomedemocratizedintheRipplesystem.Thisebookpresentsa
briefoverviewofbusinessopportunitiesintheRippleecosystemandwhat
rolesyoucanplayinthisexcitingnewareaoffinance.Ihavebeen
involvedwithRipplesinceearly2013andIhaveexperiencedallofthe
difficultquestionsoftryingtowrapmyheadaroundhowitworks.AfterI
beganspeakingtothepublicaboutitIquicklylearnedhowmostpeople
askthesamequestionsandonewaytosatisfythosequestionsistowrite
abookaheadoftime.SoonthatnoteIwanttocoverthemajor
componentsofRippleasitexiststodayanddivedeeperintoeachtopic
butwithoutgettingintothegrittydetails.
Copyright20142015AndrewWhite
Sowiththatsaidwithanynewtechnologytherearetradeoffsbetween
sophisticationandeaseofuse,newfeaturesandnewrisks,andRippleis
nodifferent.ThisbookwasstartedinDecember2013inadozenpages.
Overtimeithasexpandedto50pagesandmyintentismakeyou
conversantinthemainareasofRippleandinviteyoutocontinueinyour
ownareaofresearch.Forareminder,thisbookisonlyforeducational
purposes,andisnotintendedtoprovideinvestmentadvice.
Bestwishes,
AndrewWhite
Acknowledgments:Iwouldliketothankthefollowingpeoplewiththeir
helpinthisdocument:RippleLabsforpermissiontoreusetheirimages,
andtheRipplecommunityformakingvaluablefeedbackandsuggestions.
Copyright20142015AndrewWhite
TableofContents
WhyDigitalCurrency?
RippleLabs
Wallets
Ripples
Gateways
Consensus
CurrencyIOUs
Traders
MarketMakers
Enterprises
DueDiligenceQuestions
IntheFuture
ImportantRippleInfrastructure
FAQs
Glossary
AbouttheAuthor
Copyright20142015AndrewWhite
WhyDigitalCurrency?
BeforeIgetstartedintothemaintopicofwhatRippleisandwhyitis
important,Iwouldliketoprovidesomebackgroundinformationabout
whatcurrenciesareandwhatishappeningwithcurrenciesingeneral.
Therearethreebasicreasonswhymoderndigitalcurrenciesare
important:1)theysolveproblemsoffraudand
counterfeiting,2)they
reducecounterpartyriskwith3rdparties,and3)efficientlysolvethe
ByzantineGeneralsProblemwhichishowtoderiveatrueanswerfrom
questionablesourcesofinformation.Moreaboutthesetopicswillbe
discussedlaterintheguide.
FirstofallIwouldliketobeginbydefiningwhatacurrencyis,anditis
usuallydefinedtohavethefollowing6TraitsofCurrency:
Durability,
portability,divisibility,uniformity,limitedsupply,andacceptability.
Someoneelse(Ihavenotbeenabletofindthenameoftheoriginal
author,ifitisyouletmeknowandIwillcredityou)explainedtheseinthe
followingmanner:
Acceptability:Intermsofaformofcurrencybeingacceptedwithin
society,moneymustbeacceptedbyeveryoneintheeconomy.This
acceptanceisforthepurposeoftheexchangeofmoneyforgoodsand
differenttypesofservices.
Divisibility:Thisrelatestomoneybeingeasilydividedintosmaller
denominationsfortransactionalpurposes.Peoplewillonlyneedasmuch
moneyasisnecessaryfortheirpurchases,thereforeitisnecessaryfor
moneytobeeasilybrokendownfordifferenttypesoftransactions.
Copyright20142015AndrewWhite
Durability:Thissimplyreferstothephysicalwearanduseofmoneyover
aperiodoftime.Ifsomemoneyiseasilydestroyedordamageditislikely
thatitisfraudulentandthereforecannotbetrusted.Yet,moneyismade
fromapapersource,sosomewearandtearmustbeexpected.
Limitedsupply:Inorderformoneytoretainitsworth,theremustbeatype
oflimitedsupply.Themoremoneythatisincirculationthelessitisvalued
bytheeconomy.
Portability:Quitesimplyitisnecessaryformoneytobeeasilytransported
sothatpeoplecancarryitaroundwiththemonadailybasis.Thisalso
allowsfortheeaseoftransactionsothatmoneycanbetransferredfrom
oneplacetoanother.
Uniformity:Dependingonthedifferenttypesofcurrencythatare
available,moneywithinthatspecificcurrencymustlookthesame.This
alsoallowsformoneytobecountedandmeasuredaccurately.
Analternativewayfordistinguishingthecharacteristicsofmoneyisthatit
iseasilyrecognized.Moneyissubjecttothetypeofcurrencythatisin
circulationwithinaspecificplace,soifitiseasilyrecognizedanditfollows
theabovecharacteristics,thenitislikelytobegenuine.
Inanutshell,thatistheentireusecaseofacurrencyinoureconomy.The
modernsystemofbankingwasdevelopedin197274withthennew
digitalaccountingsystemsbyIBMandothersthatmightofheardbefore
suchastheAmericanClearingHouse(ACH).Soletsdescribewhatkind
ofproblemsadigitalcurrencyplatformwilltrytosolveandseeiftheway
solvestheproblemscanbeusefulforimprovingpaymentsinfrastructure.
Copyright20142015AndrewWhite
SolvingtheCounterfeitingProblem
IrecentlygotbackfromaconferencecalledMoney2020thatbrings
togetherbankers,thepaymentsindustry,andcryptocurrencyadvocates,
andIhadadiscussionwithafriendthatexplainedtheimportanceof
digitalcurrencyintermsofhumanhistory.
Onecurrencythathassomeofthedesirabletraitslistedaboveforthe6
TraitsofCurrencyisgold.Becausethephysicalmetalofgoldhasallof
theabovetraitsithasbeenusedascurrencyforthelastfivethousand
years.Oneofthemainreasonsforthisisthatgoldmetalhas
characteristicsthatmakecreatingfakegoldvirtuallyimpossible.Since
goldismoney,forcenturiesbeforethescienceofmaterialsandchemistry
waswellunderstood,aprofessionnamedalchemyattemptedtotransform
metalslikeleadintogold.Alchemistscouldmakeagoodlivingconvincing
sovereignkingstheycouldperformthistrick.Ultimatelynonewere
successfulandeventuallywiththemoremodernscienceofchemistryit
becameunderstoodthatthiswasindeedanimpossiblefeat.Howeverthe
propertiesthatmakegoldagoodchoiceforamediumofexchangealso
makeitproblematicforeconomicreasons:goldcanhavesubstantial
weight,itsdifficultandorexpensivetosecure,sendingittosomeoneelse
isdifficulttodoinatimelymanner,andtheresimplyisntenoughofitfor
theworldsexpandingpopulationasonlyafiniteamountcaneverbe
minedoutoftheearth.
Thusitbecamepopularinrecentcenturiestorepresentgoldinpaper
moneywhichiseasiertotransportanddocommercewith.However,as
thetitleofthissectionmayhavegivenyouaclue,counterfeitingpaper
billshasbeenalongstandingproblem.
Copyright20142015AndrewWhite
Toassurepeopleoftheintrinsicvalueofthepaperbills,thefacevalueof
thepaperandUSdollarswasbackedbycertainamountsofgoldorsilver
waspromisedtothenoteholder.Thiswasoimportanttothefoundersof
theUnitedStatesthattheyevenspecifiedhowmuchadollarwas
supposedtobebackedby.Howeverasmostpeoplerealize,thepaper
billshaveaproblemwithbeingrelativelyeasytoforgeandthishasbeen
alawenforcementproblemforever.Counterfeitingcurrencywassucha
seriousproblemthatintheancientworldthepenaltyforcounterfeitcoin
makingwasoftenthedeathpenalty.
Famously(orinfamouslyaccordingtosome)in1972,RichardNixontook
theUnitedStatesoffthegoldstandardandpeggedthevalueoftheUS
dollartoanewmeasureofeconomicfitnesscalledtheGrossNational
Product(wewontgetintoallthereasonsforthisimpor).WiththeGNP
metricthevalueofthedollarbegantobecreatedindigitalsystemsandin
1974theAmericanClearingHousewasestablishedtoprocesselectronic
transactionsforbanks.Inthepresentdaythishasevolvedsomuchthat
someeconomistsbelievethatdigitalsystemsmakeup98%ormoreofall
monetarytransactions.
Thishashadsometangiblebenefitsforsocietysinceingeneralithas
madethecostofusingmoneylowerforeveryone(andthatsagood
thing).Inthelastcoupleofdecadescreditcardsareoneofthemost
frequentlyusedtoolsfordoingthis.Creditcardswereinventedinthetime
beforetheInternet(WesternUnionstartedacardprogramin1921!).
Howeverasmostpeopleknowtheunderlyingproblemsofearlier
generationsofcurrency,fraudulentuseofthetoolisaveryexpensive
problemthattheincumbentplayershavenotbeenabletofixandabout
1%ofallcreditcardtransactionsarefraudulent.
In2009,thereleaseoftheBitcoinwhitepaperrevealedonewayonhow
tosolvetheissueofhowtomakeadigitalcurrencyandbepractically
impossibletocounterfeit.Bitcoinwasasignificantadvanceinthe
technologyofpaymentsbecauseitusessomespecialapplicationsof
mathandcryptographytomakecounterfeitingitnearlyimpossible,a
Copyright20142015AndrewWhite
problemthathasexistedeversincehumanshavebeenusingcurrency.
Thisiswonderfulformerchantssincethehighcostsofhandling
fraudulenttransactionsiseliminated.Understandthatthenear
impossibilityofbeingcounterfeitedisthekeyreasonforthegrowthof
Bitcoinstylecurrenciesonline.Itisnearlyimpossibletocounterfeitfor
reasonsthatwillbeexplainedlaterbutthemainreasonisduetothe
relianceonaparticularmathfunctionofcryptography,moredetailscan
befoundintheFAQattheendofthisbook.Proponentsofdigital
currenciesthatunderstandthisclaimthatthismakesdigitalcurrenciesa
betterstoreofvalueandexchangethengold,whichisanaweinspiring
leapinhumanprogressifthepremiseholdstobetrueforasufficiently
longperiodoftime.Onlytimewilltelliftheclaimstandsuptoscrutiny.In
myview,theeliminationoffraudisabigenoughofanimprovementto
justifyapeertopeerdigitalcurrencyonitsownmerits,butthereisalot
morethatwewillbegettingto.
CounterpartyRisk
Nowthatweunderstandhowdigitalcurrenciessolvesthecounterfeiting
problemletsmoveontocounterpartyrisk.Wealreadydiscussedgold
andhowitisintrinsicallyafinancialinstrumentduetoitstraits.Theother
reasonwhythisissoisbecausephysicalgoldhasnoneedfora
counterparty,itisinherentlymoney.Counterpartyriskisthe
riskthateach
partyofacontracthavethattheotherpartymaynotliveuptoitscontractual
obligations,suchasdepositingmoneywithathirdparty.Nativedigitalcurrencies
likeBitcoinandRipplesXRPdonothavecounterpartyriskbecauseyouownthe
secretkeystoyourcurrencyinasimilarfashiontoowninggold,youarenot
beholdentotrustingthirdpartiesforyourbalancesheet,andthatisaninherently
beneficialaspectofdigitalcurrencies.Priortonowalmostalldigitalcurrency
systemswerecentrallycontrolledandthecontrollingorganizationscando
whatevertheywantwithyourfundswhichlogicallyhasinherentcounterpartyrisks
associatedwithit.
Copyright20142015AndrewWhite
ByzantineGeneralsProblem
Thisbizarresoundingproblemhasa
longacademichistory
thatisquite
fascinatingifyouareinterestedinsuperdryandacademicallyrigorous
researchpaperslikeme.Butwhatitboilsdownissolvinghowdistributed
decisionmakingprocess(likeapaymentssystemorledger)canreconcile
inaccurateandfalsemessagesandsafelytocometoanagreementona
matterthatistruthfulandaccurateupuntilacertainthresholdtobetruein
almostallcircumstances.Foranelementaryexampleofwhatthislooks
like,youandyourgroupoffriendswanttogosomewherefunbutyou
havesomefriendswithquestionablemotivesofwhatsomethingfunmight
entail.Soyousetupasimpletest,ifsixoutoftenfriendsagreethata
destinationmeetsyourstandards,youagreetogoalongwiththeride,but
ifonlyfiveorlessagree,yourejecttheinvitation.Thisisaveryinformal
wayofdescribingtheByzantineGeneralsProblemanditiscriticaltohow
systemslikeBitcoinchangedworldhistorybyapplyingthissolutiontoa
decentralizedpaymentssystem(moreaboutthatlater).
RippleLabs
Firstletsstartwithadefinitionofterms.Rippleisthenameofanew
paymentstechnology.RippleisdevelopedbyacompanynamedRipple
LabsInc.inSanFrancisco.Somepeoplemakethemistakeofequating
RippleandRippleLabstobethesamethingandthatisamistakeyou
shouldavoidmakingasIwilltrytoexplainwhythatisthroughoutthis
ebook.SooriginallythecompanywasformedasOpencoinInc.in2012
andlaterreformedin2013byChrisLarsen,JedMcCaleb,David
Schwartz,andafewothers.RippleLabsownstheintellectualpropertyof
theRippleprotocolandtheRipplenamebutthecodeandprogramsthat
makeupRippleareavailableforfreeforanyonetodownload,use,and
Copyright20142015AndrewWhite
modifyastheyseefit.RippleLabssoftwareisusedbyacommunityof
Rippleenthusiastsaroundtheworldwhoarepassionateaboutmakingthe
technologymorewidelyused.Thesepeoplealsoprovideessential
feedbacktoproductteamsandengineersleadingtheoverall
implementationofRipplesdevelopment.TheknowninvestorsinRipple
LabsincludeGoogleVentures,AndreessenandHorowitz,Lightspeed
Ventures,BryanBradford,andothers.AsofOctober2014,RippleLabs
hasastaffof60peopleledbyCEOChrisLarsen.Mr.Larsenisthe
formerCEOofELoanandlaterProsper.com,bothofwhichwere
pioneeringcompaniesinpeertopeerlending.
Asanoutsider,IcantsayanythingdefinitiveaboutRippleLabsspecific
businessstrategies.Buttheiractionsshowthattheyarecommittedto
increasingthevalueoftheRipplenetwork.Theydothisthroughavariety
ofstrategiestoshowthepublicthatRippleprovidesabettersystemfor
paymentsthanthealternatives.Oneofthewaysofaccomplishingthisis
bymakingusefulsoftwareandgivingitawayforfree.Thesourcecodeof
thesoftwarefromRippleLabscanbereadandusedbyprogrammersat
nocharge,whichisanopeninvitationforcuriousengineersand
programmerstomakecontributionstothecodeandexpeditethe
developmentofthecorefunctionality.Thisalsoprovidesavaluablesafety
mechanism.Sincemoreeyescanlookattheunderlyingcode,potential
issuescanbeidentifiedandfixedearly,beforebecomingaseriousissue.
RippleLabscangiveawaythesoftwareforfreebecausethecorevalue
propositionofRippleisthatanopenpaymentnetworkthatanyonecan
useandimproveismorevaluablethanaclosedalternative.Sofarthe
planseemstobeworkingwellandRippleisstartingtomakebigwaves.
Copyright20142015AndrewWhite
IfwelookatthehierarchyoffinancialservicesintheUnitedStates,Ripple
isdesignedtoreplacetheAmericanClearinghouse(ACH)payment
settlementsystem.ACHwasinventedinpreInterneteraandisamajor
dragontheefficiencyofmovingmoneysinceittakes35daystomove
moneyanddoesnotuseanytransactionverificationlikedigitalsignatures
todeterfraud.AnothersystemthatEuropeanswouldbefamiliariscalled
Swift.Swiftisanewerprotocolforpaymentmessaginganditworksalot
betterthanACHbutUSbanksdontuseitdomestically.Swiftisfaster
thanACH,sameornextdaypaymentsisthenormandothercountries
likeChinaandMexicouseasimilarsystem.ButwhereasSwiftis
specificallyapaymentmessagingprotocolandnotapaymentsettlement
protocolitstillinvolvesalotmoreworkforfinancialinstitutionstolearn
whohaswhat.Rippleoffersasolutionthatoffersrealtime(aboutfive
second)paymentsettlementandpaymentmessaging(thatmightbea
statementthatlookslikeThispaymentisforBobsnewshoes).Since
Ripplecombinesmessagingandsettlementsomesmartpeoplehave
beencallingitSwift2.0butRippleisreallyalotmorethanthat.Sowith
Copyright20142015AndrewWhite
thatinmindletsdiverightintoexperiencewhatusingusingtheRipple
paymentsystemlookslike.
Wallets
Touseanonlinepaymentssystem,peoplestartbycreatingadigital
versionofawallet.Awalletconsistsofanameofwhoownsthewallet
andsomesortofsecuritymechanism,likeapassword,tolimitaccessto
theaccount.Itshouldbeimportanttokeepinmindthatnotallwalletsare
createdequally.Manytraditionalonlinewalletsolutionsallowthemselves
theprivilegetocloseyouraccountforanyreason.Thereareavariety
reasonsforthisbutaRipplewalletisdifferent,itisimpossibleforanyone,
includingthemakersRippleLabs,tostopsomeonefromaccessingtheir
Ripplewallet.Iwillexplainabitmoreabouthowthatworkslaterbutfor
nowletsmoveontowhatthewalletlookslike.
Therearetwowaystoidentifywhoownsawallet.Thefirstiscalleda
Ripplenameanditlookslike~SomeRandomWalletName.Anyonethat
knowsthiswalletsnamecansendpaymentstoit.Underthehoodthe
nameistiedtothepublicnameoftheRippleaddressthatbeginswiththe
lowercaserandlookslikethis:
r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstothe
authorarewelcome!).
Copyright20142015AndrewWhite
ThisisanexampleofwhataRIpplelookslikeavailableat
https://www.rippletrade.com
ARippleaddressshouldbethoughtoflikeaphysicaladdresswheremail
(orpaymentmessages)canbedelivered.Thepasswordshouldbe
thoughtofasthekeytoopenthedoortothehouse.Inthepriortwo
sentencesIjusttaughtyouthebasicsofpublickeycryptography,feel
freetoGooglethatformoreinformation.
Sothewalletisalwaysavailableonawebpageandhasthefollowing
functionality:wallettransactionhistory,anaddressbook,asectionto
sendandreceivepayments,andasectionofthewalletforyoutomake
currencytrades.Andthatisaboutit.
ItisimportanttonotethatRipplewalletsarenotinsuredbytheFederal
DepositInsuranceCorporation(FDIC),whichwascreatedbytheU.S.
governmenttoprotectconsumersfrombankfailures.
Formostconsumers,thepowerofRipplepaymentshappenswhen
paymentsaresentacrossthenetworkwithinafewseconds.Toanyone
accustomedtotheslowandcumbersomeprocessoftraditionalpayment
networks,thisisanincredibleadvanceinpaymentstechnology.Nolonger
Copyright20142015AndrewWhite
dopeopleneedtowaitfordaysforabankwiretransfertobecompleted,
orweeksforacreditcardpaymenttobeprocessedwithRipple,havingto
waitforpaymentprocessingisathingofthepast.Eveninareaswith
modernbankingsystems(likeEuropeandChina)withsamedaybank
transfers,theexistingpaymentsystemisstillarelativelyslowandcostly
processthatcreatesanunnecessarydragontheeconomy.Justimagine
whatkindoflowcostnewserviceswillbecomeavailablewithRippleto
merchants,consumers,andinvestorsacrosstheentireglobaleconomy.
Asfarasmostusersareconcerned,theRipplewalletisalsowhere
magichappensinitsroleinredefiningthepaymentexperiencearound
theworld.Tobehonest,inmyopinion,walletsarenotallthatinteresting
visually,orconceptually,norshouldtheybeparticularlyinteresting.They
aredesignedtobeassimpleaspossiblehencethereisntmuchtoseeor
doinaRipplewallet(withtheexceptionoftrading).
IliketodescribeRipplewalletsusingthefollowingexamplebutitisnota
preciseanalogy.IjustmentionedthatRipplewalletsarenotFDICinsured
becausetheyarenotissuedbyaU.S.charteredbank.Allowmeartistic
licensewiththefollowinganalogy:aRipplewalletiskindoflikeabank
accountbutyouasthewalletowner(accountowner)areempoweredto
controlhowmuchmoneyyoutrusttobeheldbyyourvariousbanklike
entities(gateways,moreaboutthemlater).
RippleWalletsaregreatbecausewhentheycanstoreormakepayments
inanycurrency.Theauthorcantthinkofanyotherwalletevercreated
thatisabletoacceptanycurrencyevercreated,includinggovernment
issuedcurrenciesandprivatecurrencies!Forthefirsttimeinhistory,
digitalwalletuserscanholdanycurrencyeverissued.ThisisaBigIdea
thatmaytakeyearstobewidelyunderstood,appreciated,andaccepted
bythemarket.
Ripples
Copyright20142015AndrewWhite
RipplesareaccesstokensusedbytheRippleprotocolandare
referredtoacurrencycodeofXRP(whichislikeUSDorBTC).The
protocolconsistsoftherulesofhowRippleworksandtheserulesare
translatedbyprofessionalprogrammersintosoftwaretoperformallthe
functionsthatRippledelivers.Moregenerally,peoplemakeprotocolsto
solveaprobleminaconsistentandentirelyreliablemanner.Well
designedprotocolsshareanumberoftraits.Forexample,thinkofthe
protocolofshakinghandswhengreetingsomeone.Thisprotocolhas
becomeinstantlyrecognizableworldwide.Itsnotabletraitsarethatitis
simple,easilyreproducible,andcooperativeinnature.Thebestcomputer
protocolsandmonetarysystemsaimforsimilarresults.
Tobeconsistentwithinternationalnamingconventions,Ripplesare
knownbyathreeletteracronym,comparabletohowUSdollarsare
representedasUSD.ThethreelettercodeisXRP.TheRippleconcept
hasbeenaroundpriortoRippleLabs.Itwasfirstworkedonin2004and
lateronin2011thecoreteamaroundRippleLabswasformedwhothen
releasedittothepublicinthebeginningof2013.Everytimeyouuse
Ripple,areallytinyamountisdeletedtomakesurethenetworkdoesnot
getoverloadedbypaymentmessages.Thelogicisthataverage
consumersmightonlyneedtousearelativelyfewRipplesacrosstheir
entirelifetime.Ripplewasreleasedwithahardlimitof100billionunitsof
XRPtoeverexist.The100billionnumberwasjudgedtobelargeenough
tobeusefulfortheRipplenetworkforhundredsofyears,andquantifiable
enoughtoprovideabusinessmodelforRippleLabs.
OnceRippleswerecreatedthenextstepwastofigureoutthebestway
onhowtodistributetheminthemosteffectivemanner.Itiscriticaltothe
RippleLabsbusinessstrategythatXRPbedistributedtoawidenumber
ofmarketparticipantswhointendtouseRippleasasystemforpayments,
currencytrading,orassetissuance.AcoolfeatureofXRPisthatasthe
nativecurrency(Ilikethetermmetacurrencybutitisnotascompletely
obviousastowhatthatmeans),XRPcanbespenttosend(orreceive)
Copyright20142015AndrewWhite
anyothercurrencyofferedforsaleinsidetheRipplenetwork.RippleLabs
alsosellsbulkquantitiesforlargeordersandgivesawaysmalleramounts
forfree.InlargeparttheirtargetmarketarebankstouseXRPtomake
interbankpaymentsandfacilitateinternationaltrade.
SonowthatwehavecoveredabitofhowmuchXRPthereis,whatitis
usedfor,andRippleLabsroleinthedistributionofXRP,letsmoveonto
investmentopportunitiesinthespace.
TherearedifferentinvestmentstrategiesinvolvingRipplesandalarge
numberofpeopletradethemagainstothercurrenciesforspeculation.
Beforegettingintothevariouschoicesavailable,Iwouldsuggestwould
beinvestorsaskthemselvesafewquestionssuchas:
AmItechnicallyproficientenoughtohandledigitalcurrenciesonmy
own?
DoIalwaysfollowbestpracticesforcomputersecurity?
ShouldIrelyonareputableconsultant,broker,orhedgefundtomanage
myinvestment?
AmIwellversedinthenatureofonlinescams,walletsecurityissues,
andlegalissuesbeforebuying?
ShouldIuseXRPasahedgeagainstmyotherinvestments?
Youranswerstothesebasicquestionsshouldhelppointyouinthe
directionthatsrightforyou.Itdoesnthelptobelessthanentirelyhonest
withyourself,sobecandidandassessyourstrengthsandweaknesses
beforemakinganyinvestment.
Investorsmustbeawarethatthereareinherentrisksassociatedwith
digitalassets.Theftsandscamsareanunfortunatebutinevitableaspect
ofonlineofferingsandtheinvestormustalwaysperformduediligence
beforetrustingotherswiththeirmoney.Evenifaninvestmentisnot
Copyright20142015AndrewWhite
fraudulent,thereisnoguaranteethatthevalueoftheinvestmentwillyield
profits.Youarecompletelyonyourownonthisone.RippleLabscannot
andwillnotcommentontheinvestmentfitnessofRipple,XRP,orthe
valueandsafetyofclaimsmadebynonRippleLabsstaff.Duediligence
istheprocessofinvestigatingaproposedinvestment,andthe
responsibilityforduediligenceisentirelyuptoyou.Beappropriately
skepticalandcautiousinallyourdealings.
Atfirsttheywereworthnothingatmarketrates,butXRPhassteadily
increasedinvaluethroughasteadilyincreasingnumberofservicesbuilt
forit.AlthoughthepriceofXRPhasbeenrelativelystable,itisnot
immunefromdrasticpriceswingssimilartoapennystock.Although
currentlyvaluedforlessthanapenny,Ripplesarereallyonlyusefulfor
makingtransactionsontheripplenetworkbutspeculatorsontheRipple
networkliketotradeitagainstotherassets.Becautioushoweverason
rareoccasionsthevaluehaschangedhundredsorthousandsofpercent
aday.
Gateways
GatewaysareserviceprovidersthatletRippleusersdeposit,transfer,and
withdrawmoneywiththeiraccounts,includingtransfersbetweena
consumerswalletandtheconsumersgatewayaccount.Toattractand
retainusersoftheirservice,gatewayswillinnovateandofferbeneficial
servicestotheircustomers.
Copyright20142015AndrewWhite
Asgatewayscompeteformarketshare,Ifullyexpectthatmoregateways
willbelaunchedthattheywillincreasinglyofferinnovativerewards
programslikeairlinemiles,coupons,andpremiumservicediscounts.
Thereareanumberofservicesavailabletopeoplewhowanttocreate
andoperateagateway.Iftheyhaveastrongtechnicalbackground,they
canusuallysetoneupthemselves.Iftheydonthavethetechnicalskills,
theycanuseahostedwallet(moreonthatinamoment)oruse
consultants.Iftheyareseriousaboutgettingintothegatewaybusiness.In
thefuture,cloudbasedoptionswillbeavailablesuchasOMGsOne
MillionGatewayshostedservice.
BecauseofRipplesdesign,anyonewithaRipplewalletcantechnically
becomeagateway.
Copyright20142015AndrewWhite
However,thatisneitherlikelyornecessaryinalmostallconsumeror
investorcases.Whenpeopletalkaboutgatewaystheyareusually
referringtoabusinesssetuptooperateassuch.ARippleWalletcan
becomeagatewaywhenpeopleaddtrusttoawalletyoucontrol.Trust
inthecontextofRipplemeanshowmuchofmymoneydoItrustthis
gatewaytohold?Gatewayswithanestablishedhistorywithagood
reputationforcustomerservicetendtobemoretrustedbyusersthannew
gatewaysthatarelessknownandhavealimitedhistoryofoperation.
ThisisanexampleofagatewayloginpagefromSnapSwapInc.
Thisexampleiswhatabasicgatewayexperiencelookslike.
Copyright20142015AndrewWhite
Gatewaysasabusinesshaveafewdifferentbusinessmodelsavailable
toguidethem.Oneexampleisagatewayprimarilyusedformoney
transmission,anotherexampleisremittance.Asagatewayoperator,you
mightbeinterestedinenablingpeopletosendpaymentstoanother
country.Aconsumeropensanaccountonyourgatewayandsendsyou
moneytogointhataccount.ThegatewayoperatorissuesIOUs(more
aboutthoseinthenextsection)totheaccountholderandthoseIOUs
appearintheholdersRipplewallet.Theaccountholdercanthantrade
theseIOUsforanothercurrency.Intheothercountry,apersoncan
withdrawtheseIOUsfromthegatewayandreceivetherealcurrency.The
gatewaymakesmoneybychargingatransactionfee.Iftheoriginal
gatewayswebsiteorservicebecomesunavailable,theIOUsdonot
disappearfromRipplewallets.Intheeventofbankruptcyorotherserious
disruption,theIOUsmaylosesomeoftheirmarketvaluefortheIOUsof
currencytheyrepresent,buttheycouldberedeemedwhenthegateway
businessreturns.Theuniquecircumstancesofthegatewaysissuewill
decidewhatrecourseisavailabletotheIOUholders.
Thechartson
RippleCharts.com
containthemajorcurrencymarketson
Ripple.ThesearetypicallywrittenintheformofBitstampUSD/XRPto
indicatethattheseIOUsareissuedbytheBitstampgatewayintheUSD
currencyandistradingagainstXRP.AnotherexampleistheChinese
gatewayRippleCN.TheirIOUsfortheChineseYuanlooklikethis:
RippleCNCNY/XRP.BackoveratBitstamp,youwillseethatBitstamp
USDisalsoabletobetradedforBitstampBTC.Gatewayscansetrules
onthefeesoftradesorpoliciesastowhatisallowedtobetradedbutin
generalalltheIOUswillbetradableforalltheequivalentIOUsona
givengateway.
Aquickwordaboutaddingtrusttoagateway.Sinceanyonecancreatea
gatewayitiscriticalthatyouonlytrustaproperlyestablishedgateway.
Thismeansitisattheveryleastincorporatedandisrunbypublicly
Copyright20142015AndrewWhite
knowncorporateofficers.
Ifthegatewayisoperatedinananonymous
manner,thatmeansthereisnoaccountabilityiftheservice
disappears.
Thisisimportant:inyourRippleWallet,youshouldonlygive
trusttogatewaycompaniesthatyoutrusttobereliableandresponsible
withyourtokensofvalue,e.g.money.Sinceagatewayisnotusuallya
bank(atleastatthetimeofthiswriting),notethatthereisnoFDICstyle
insurancefordepositsmadetoagatewaybusiness.Agatewaythat
makesanefforttobelegitimatehaspubliclyknownstaff,abusiness
address,customersupportdetails,and/oraphonenumberwithpeople
whoanswerthephoneduringestablishedhoursofbusinessoperation.If
aRipplegatewaywebsitedisappears,yourIOUsdonotdisappearfrom
yourRippleWallet.TheproblemisthatredeemingthoseIOUsfortheir
cashvalueisimpossibleunlessathirdpartygatewayacceptsthemfor
theircashequivalents.Icansumthisupsimply.Whenitcomesto
anonymousgateways:
donttrustthem
.Youwillknowtheyare
anonymousbecausetheoperatorsdonotmakeitobviouswhothe
ownersare,wheretheyareincorporated,whattheirantimoney
launderingpoliciesare,etc.
Tohelpmaketrustworthystandardsforgatewaysastandardsgrouphas
beenformedcalledtheInternationalRippleBusinessAssociation(IRBA),
whichoperatesindependentlyofRippleLabs.IwilldiscusstheIRBA
morebelowbutfornowyoushouldknowtheIRBAhasasetof
requirementstomakesurethatthegatewayslistedonIRBAswebsiteat
http://ripplebusiness.orgarelegitimateorganizations,operateusingbest
practicesforbusinesses,etc.Thereareroughly170membersofthe
IRBAatthepresenttime,includingpeoplewhohaveexpressedtheir
interestinformingagatewayforcertainmarketsorareasintheworld.
TheauthorhasbeenelectedtoserveasSecretarytothisorganizationto
helpensureitmeetstheseexactingrequirements.
Consensus
Copyright20142015AndrewWhite
Consensusiswherewestarttogetintothenittygrittytechnicaldetailsof
howRippleworks.Youdontneedtoknowallofthisinfoifitisnotright
foryou.Iliketotellpeopleunderstandinghoweverythingworksisnota
requirementtoinvestinaRipplebasedasset.Therearealotofcomplex
thingsinlifethatdonotrequiredafullunderstandingofhowitworks.A
coupleoftechexamplesincludeareexactlyhowcomputersworkor
exactlyhowawebbrowserworks.Weassumethattheprofessionalsthat
makethesetoolsknowwhattheyaredoingandtheycanspareusthe
gorydetailsandletusmoveontodowhatwewanttodowiththetool.So
withthatsaid,IjustwanttomakesurethatyouunderstandRippletothe
lowlevelcodeandprotocolislikewisenotarequirementtounderstand
theideasofRipplesoifthetechnicaldetailsdonotinterestyoufeelfree
toskipoverthissection.IfyouarefamiliarwithBitcoinlikecurrenciesyou
mayhaveheardthatBitcoinworksthroughaschemecalledproofof
work.Proofofworkisaprocessinwhichcomputerscooperateon
solvingahardmathproblemthatinitiallynoneofthemknowtheanswer
to.Whentheanswerisfound,thecomputerthatsolvestheproblemis
awardedablock,anawardofBitcoin(25atthetimeofthiswriting)and
theblockisdistributedalongtoalltheothercomputerswithacopyofall
thetransactionsthattookplaceinthepriorblock.Thisiswhatallows
transactionstotakeplace.Intechnicalterms,thissolvesanimportant
problemofhowtosolvethedoublespendingproblem.Adoublespend
issomeonespendingthesameunitsofcurrencytwice.Ifeveryone
thoughttheycouldjustusespreadsheetstocreateacryptocurrency,they
wouldsoonfindthatsomeonewouldcheatbymanuallychanginghow
manypaymentsweresent.Anotherproblemthissolvesisreferredtoin
academiccirclesastheByzantineGeneralsproblemwhichishowto
communicatealonguntrustworthypaths.Thisproblemhasexistedfora
longtimeandonewayofsolvingitwasreleasedtothepublicin2008by
SatoshiNakomoto,theanonymouscreatorofBitcoin.In2011Jed
McCalebwasthinkingofwaystosolvesomeoftheproblemswiththe
proofofworksystem.Inparticular,Jedwantedtosolvetheslow
Copyright20142015AndrewWhite
transactiontimeofBitcoin.Waitingforcomputerstosolvetheproofof
workproblemonBitcoincantaketenminutesorhoursintimeandthat
waittimeisnotgoodformerchantsorconsumersusingthesystem.What
hecameupwasanewapproachcalledConsensus.Ifthemajorityof
computersonadigitalcurrencynetworkcouldagreethatatransaction
happenedtherewouldbenoreasontodoubtthatatransaction
transpired.Theproofofworksystemreliesonseveralcomputers
agreeingthatatransactionoccurred,whichiscalledconfirmations.After
enoughconfirmationsoccuritcanbereasonablybeassumedthata
transactiondidinfacttakeplace.Withaconsensusbasedapproach,
transactionscouldtakeplaceinsecondsratherthanminutes.Therecan
alsobealotmoretransactionssincethecomputationalcostofthis
systemislow.Thisbringsustoanotherproblemthathaslongbeenan
academicpuzzle,theByzantineGenerals'Problem.Thisproblemasks,
howdotwogeneralscometoanunanimousagreementwhentheyare
separatedbydistancesthatcreateobstaclestocommunication?
OneanswertothisproblemisdonewiththeRipplesoftware,thenetwork
issetuptovalidateatransactionif80%ofvalidatornodesagreea
transactiontookplace.Ledgersthemselvesaredeterminedtobevalidby
deterministicrules,i.e.,theycannotcreatefundsoutofnowhere,make
fundsdisappear,andalltransactionsmustbeproperlysigned.
NextImgoingtoextensivelyquoteRippleLabsChiefCryptographer
DavidSchwartzwhohasalottosayonthisimportanttopic:Thenumber
wasdeterminedbysimulation.Ifyousetthethresholdtoolow,the
consensusprocesscompletesveryquicklybutmorefrequentlydoesn't
actuallyreachconsensus.Ifyousetthethresholdtoohigh,theconsensus
processtakesmuchlonger,butonlyveryrarelyfailstoactuallyreach
consensus.(Whenyousay,"Ibelievethere'saconsensus",youcan't
actuallybe100%surethereisinfactaconsensusornobodycandeclare
Copyright20142015AndrewWhite
aconsensusfirst.)
Theconclusionthatnoconsensushasbeenreachedis
avalidconclusionandcanresultduetopoortopologyorByzantine
failure.Certaintyisalwayswithrespecttosomethingthathasoccurredin
thepast.Itisnotpossibletoknowwithcertaintythepresentstatewithout
observingatmorepointsthanwillnormallybepossible.
Soeachserverrunsoutaheadofwhatitknowsforcertain,applying
transactionsandattemptingtoreachconsensusonthem.Whenandifa
consensusisinfactproduced,theserverlaterdeterminesthiswith
certainty,andthuscanadvancewhatitknowsforcertain.
Essentially,theconsensusprocessproducesastreamofsigned
messagescalled"validations"fromwhichit'spossibletodeterminewith
certaintywhetheraconsensushadactuallybeenreachedatsomepoint
inthepast.
ItispossibletocreateUNLtopologiesthatfrequentlyfailtoreach
consensus.TheplanistohaveRippleserversbuildtheirUNLsusingan
algorithmthatmakessuchtopologiesexceedinglyunlikely.
Evenwithaperfecttopology,twotypesofByzantinefailuresarepossible.
One,whichisnotthatuncommon(oneoutofevery200roundsorso),is
alocalfailure.Inorderforaconsensustoeverarise,someonehasto
declareaconsensus.Andforthattohappen,someonemustdeclarea
consensusfirst.Whenthathappens,whoevermakesthatdeclaration
can'tknowforcertainthatotherswilldeclarethatsameconsensus(or
theywouldhavealreadydoneso,andsohewouldn'tbefirst).Soit's
alwayspossiblethathedeclaresthewrongconsensus.
Copyright20142015AndrewWhite
Inthiscase,theserverthatsufferedtheByzantinefailurequickly
discoversthattheothervalidatorshavebuiltadifferentledgerthanitdid
anditbeginsitsresynchronizationprocess.Otherserverswillstill,from
thevalidations,whichledgerwasthemajorityledger.
AmuchlesscommontypeoffailureiscompleteByzantinefailure.Inthis
case,severalserversdeclaredifferentconsensusesandthereisnoclear
majorityledger.Inthisrarecase,thenetworkasawholemustreconverge
beforeatrueconsensuswillemerge.Ripplehasanalgorithmtodo
exactlythis.Serverswillseetheconflictingvalidationsandknowwith
certaintythattherewasnoactualconsensus.Andthattheymustadhere
tothefollowingpriorities:1)Validity.(Transactionsproperlysigned,rules
followed)2)Agreement.(Ledgersgetsupermajorities)3)Utility.(Asmany
transactionsincludedaspossible)2isuselesswithout1.3isuseless
without2.
OntheRippleforumrecently,amathematicallymindedmemberasked
DavidthefollowingquestionHowdoesRipplesolveByzantineGenerals'
Problemsuchasnosolutionunlessn3t+1,n=numberofprocesses
inthesystemandt=numberoftraitors?
SohowRipplesolvestheByzantineGeneralsproblemissimple.The
consensusprocessispermittedtofailbecauseitdoessoharmlessly.If
theconsensusprocessformsaledgeronwhichthereactuallyisno
consensus,thentherewillbeinsufficientvalidationsandtheconsensus
processwillrepeat.ToputitinByzantineGeneralstermsifyougettothe
battleandtheotherarmiesaren'tthere,youjuststartover,nothing
catastrophichappens.Inotherwords,keeptryinguntilthevastmajority
Copyright20142015AndrewWhite
ofmessagesagreeatransactionisaccurate.Perhapsnotsurprisinglythis
simplebutelegantsolutionhaswiderangingramifications.
AndwiththatwecanwrapourreviewofhowConsensusworks.Formore
informationpleasecheckouttheRipplewikipagesat
https://ripple.com/wiki
or
https://ripple.com/wiki/How_it_works
Validators
SincewearediscussingthetechnicaldetailsofhowRippleworks,for
completenessIjusttomentionValidatornodesandwhattheydo.
TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocol
dependsonacollectionof
validators
whoparticipateinthe
consensus
processandproduce
signedledgers
whichgetbroadcastintothepeerto
peernetwork.Clientsandpeerscollectanddependonthesesigned
ledgerstodeterminewhatisthe
consensusledger
,orthe"true"stateof
theledger.CrucialtothesecurityofthenetworkisthateachRippleserver
choosetopayattentiontoasufficientlylargediversesetofvalidatorswho
arenot
colluding
todefraud.When80%ofvalidatornodesagreethata
edgerisvaliditgetssignedandconfirmedacrosstheentireRipple
network.ThisisanalternativesolutiontotheByzantineGenerals
problemfirstsolvedbyBitcoinwithmintingnewtokensinadatabasefile
calledablockchain.
CurrencyIOUs
IOUs(Ioweyouspronouncedhowitisspelled,eyeohu)arecredits
andarewhatmostpeoplewilluseonRipple.IOUsstandforIoweyou
Copyright20142015AndrewWhite
(something).WearemostfamiliarwithIOUsfromourbankingorinvestor
statementthatismailedmonthlybyfinancialserviceproviders.AnIOUis
apromisethatacertainamountoffundsthattheIOUissuercontrolsare
fundsinyouraccount.TherealityisthattheIOUholderhasatotal
amountoffundsthatitcontrolsand,fromthistotal,theyuseadatabase
toorganizewhattheyowetheircustomersandthenumberdisplayedto
youistheIOU.IOUsonRipplenetworkoperateonthesameprinciple,
butinsteadofabankingorinvestmententitycreatinganddisplayingthe
IOUtoyou,anIOUontheRipplenetworkisanassetcreatedbyaRipple
gatewayindicatingIpromisetoredeemyouaspecificamountofthis
currencyasset.IfyoureceivedapaymentforUSdollars,youwouldsee
thedepositoftheUSDIOUsinyourRippleWallet.
IOUsarewhatmakeRippletheemailofcurrencies.Theemailprotocol
doesnotcarewhoyouaresendingamessageto,orthecontentofyour
emailandRippleworksthesameway.Thesenderandrecipientofan
emailislikethesenderandreceiverofRipplewallets,themessageinan
emailissimilartowhatcurrencyandhowmuchissentinthe
transaction(themessage,inouremailanalogy).Thefinallessonyou
shouldtakeawayfromthisisthatanIOUhasnovaluewhenitisnot
backedbyanassetthatcanberedeemed.
Pathfinding
PathfindingisoneofthetechnicaldetailsthatIincludeforcompleteness
andisfairlyselfexplanatory.PathfindingishowRipplefindswaysto
makethebestavailablepayment.Thepriceonatransactionfeecanvary
inRipplebasedonthebestpossibleexchangerateontheorderbooksof
Ripplecurrencies.AsthisdiagramfromRippleLabsillustrates:
Copyright20142015AndrewWhite
Pathfindingisofmostinteresttomarketmakersandtechnicaltypestobe
abletoservemarketactivity.ItisimportanttonotethatalthoughRippleis
fastitisslowenoughastomakehighfrequencytradingimpossibleanda
partofthereasonwhythatisisbecauseofthetimeittakesPathfindingto
work,afewsecondsistooslowforHFTtobeeffective.
Traders
AnyonewithaRipplewalletcantradethedigitalcurrencyassetson
Ripple.SendingapaymentofanysortusingtheRipplenetworkis
equivalenttomakingatradeontheforeignexchange(alsoknownas
forexandFX)currencymarkets.
Copyright20142015AndrewWhite
Eachcurrencyhasathreeletterabbreviation,andeachcurrencytradeis
expressedasapairthatincludesthebasecurrencyandacounter
currency.Eachcurrencypair(USD/XRPorEUR/JPYorCNY/BTC,etc.)is
supportedbyagatewaythathasanorderbookofbuyersandsellersofa
particularcurrencypair.ThedailytradingvolumeontheRipplemarketis
growingrapidly.Atthetimeofthiswriting(March2014),themostpopular
currenciestradedareChineseYuan(CNY),USD,andBTC.
Automatedtradingisapopularchoiceforinvestorswiththetechnical
knowhowtoworkwithprogrammingscriptstomakeatradingbot.
ThesebotsconnecttotheRipplenetworkandlookatthebidsandasksin
certaincurrenciesandtradeaccordingtouserdefinedparameters.Most
ofthesebotsrequireafairamountoftechnicalknowledgeandskillto
setupanduse.Althoughtherearenoalgorithmictradingservices
availabletoinvestorsatthemoment,theseareknowntobein
development.Tradeandforgetbotscanbeextremelyvaluableasthey
workforyouaroundtheclockwithouttiringormiscalculating.
Copyright20142015AndrewWhite
Offmarkettradingcanalsobeverylucrative.Findingamarketthatwants
XRPbutdoesnothavetheknowhowhowtogetitisanexcellentwayto
buildabusinessandincreaseRippleadoption.Ifyouwanttoengagein
offmarkettrading,pleasegetinformedoflocallawsbeforebeginning.In
theUnitedStates,tociteoneexample,transactionsgreaterthan$10,000
needtobereportedtotheFederalFinancialCrimesNetwork(FinCen).
MarketMakers
Marketmakersarepeoplewhoprovideliquidity(i.e.,money)between
gatewaystoallowpaymentsthroughapathwayofcurrenciestobe
made.Muchlikehowaroadprovidesapathforacartoreachits
destination,apathwayistherouteatransactiontakestocompletea
payment.Althoughthereareafewwaystobecomeamarketmaker,the
easiestiswithasimpleorderintheRipplewalletforthesamecurrency
betweenthetwoormoregatewaysyouwanttomarketmakefor.Itshould
benotedthatanyonecanbeamarketmakerbutithelpstohavealotof
capitaltomakeitmoreworthwhileforthemarketsyouaretryingto
support.
Enterprises
TheRippleecosystemislikelytoseepowerfulwaves(ha!sorry...)ofnew
servicesdevelopedtotakeadvantageofthenewfoundpossibilitiesthat
Rippleprovides.Themostobviousareaatthetimeofwritingisgateway
services.Merchantservices,remittanceoptions,charities,experimental
hobbies,andcommoditiesalsoareallpromisingareasforinnovatorsto
placetheirstake.
Copyright20142015AndrewWhite
Anumberofinterestingcompanieshaveformedbasedentirelyonthe
Rippleprotocol.CompaniessuchasFortuneHarbor,Coinst,RippleWise,
SnapSwap,andothersareleadingthewayintermsofinnovationand
provingthattheRipplesystemisaviablebusinessmodel.Companies
olderthanRipplehavealsosignedontousetheservice,mostnotableto
dateisBitcoinexchangeBitstamp.
CreatingorinvestinginanewcompanyintheRippleecosystemisan
attractiveoptiontotheinvestorfamiliarwithmanagingequityassets.
Rippleissonewandtheopportunitiesitofferssolargelyuntapped,that
thedooriswideopenforenterprisingindividualsandstartupstomakea
substantialimpactwithlittlestartupcosts.Ifthisissomethingthat
interestsyouinpursuingabusinessIstronglyencourageyoutodoso.
ComplementaryservicesthataddvaluetotheRipplenetworkis
somethingRippleLabsisveryinterestedinsupportingandyoushouldlet
themknowaboutitonceyouarereadytolaunch.
DueDiligenceQuestions
IfyouplanoninvestingintheRippleecosystemyoushouldbeasking
somehardquestionsandhavehonestanswersbeforethrowingmoney
around.Herearesomebasicsforyoutoconsider:
HowwelldoIunderstandRipple?
WhatdoInotunderstandaboutRipple?
Whataretherisksinvolved?
WhatarethelegalandregulatoryissuesimpactingRippleinmycountry
ofresidence?
WhatdoIknowabouttheprincipalsintheenterpriseinwhichImight
invest?
DoIunderstandallthecounterpartyrisks?
Copyright20142015AndrewWhite
WhathappensiftheRipplesoftwarebecomesfundamentallybroken
andcantbefixed?
Whoarethemajorcustomersandtheapplicationsrelatedtoinvestment
opportunities?
Whatarehistoricalandprojectedgrowthrates?
Whatistheexpectedmarkettimingofnewproducts,services,or
enhancements?
Alongwiththesespecificinvestorquestions,Iwantedtosharethislistof
bestpracticesfromtheRipplewiki:
Youmustprotectyourself:
RippleLabsInc.doesnotendorse,qualify,orguaranteethe
performanceofanymerchantorgateway.
Donottrustservicesoperatedanonymously,youhavenorecourseif
theyfailtodeliverontheirpromises.
DonotenteryourRippleusernameandpasswordonanysiteyoudo
nottrustwithyourfunds.
DonotenteryourRippleusernameandpasswordonanysitethatdoes
notusehttps.Youcanusuallytellwhenasiteuseshttpswhenyourweb
browserhasagreenlocknexttothewebsiteaddressintheaddressbar.
Donotuseaclientprovidedbyanentityyoudonotfullytrust.Youmust
trustyourclientprovidertobehonest,secure,competent,uptodate,and
perhapsmore.
ForlongtermstorageofXRPorIOUsinacoldwalletconsiderusing
theDesktopClient.
Youshoulduseapasswordsolongandrandomyoucannotremember
it(onlystoreandcopyitsecurely).
Copyright20142015AndrewWhite
Ialsotellmyclients:Idontwanttoknowyourpasswordorsecretkey,
youshouldnothavetotrustmetothatlevel.
Usingdigitalwalletsisarelativelynewphenomenaanditisfairtosaythat
thestateofcomputersecurityandconsumersarenotreadyforthe
responsibility.
IntheFuture
Thefuturewillcertainlybringmanyexcitingandinterestingareasfor
Rippleinvestorstoconsider.Inparticular,Imexcitedforthetimewhen
optionstradingbecomesmorewidelyavailable(whichwilllikelybeeasier
withtheadventofsmartcontractslaterin2015).Inmyopinion,smart
contractswillbethekillerappformathbasedcurrencies.Forexample,
byusingsomeparticularmathfunctionsitispossibletoissuesharesfora
companyorraisefunds.
InJuly2014RippleLabsannouncedCodius,anewprojecttoenable
smartcontracts.Codiuswillallowpeopletocreateoffersorcontracts
acrossforanydigitalledgersystemsothattheycanallbenefit.Theydo
thisthroughsomeinnovativedesignchoicesthatallowpeopletomake
usefulapplicationswithanypreexistingprogramminglanguage.Ispoke
withStefanThomastheCTOofRippleLabswhoexplainedtomethatthe
designwasinformedfromtheexamplethatbusinesslogicanddata
storage(databasesordecentralizedledgerslikeBitcoin)aretwo
separatetopics.Everywebserviceinexistenceusesadatabasetostore
informationandbusinesslogicontopofthedatabasetodecidewhat
goesintoit.Ishouldprobablymentionacomputersciencetermthatwill
behelpfultounderstandwhythisdesigndecisionwastaken.Computers
runsoftwareinoneoftwoways.Oneisdeterministic,codeexecutesin
thesamewayeverytime.Theotherisnondeterministicwhichmeansit
canexecutedifferentlyeverytime.Whatisgoodaboutthisapproachis
Copyright20142015AndrewWhite
thatitmakesCodiuscompletelyplatformneutral.Anyprogramming
languagecanuseitandanydigitalassetsystemcanuseitsapproach.
CodiususesanotherconceptcalledSmartOracles.Asmartoracleis
anythingthatcanbeaskedaquestionandanonbiasedansweris
returning.Oneexamplecouldbeaskingthestockmarketwhattheprice
ofagivenstockis.AnotherexampleisaskingtheBitcoinnetworkifa
certaintransactionhappened.Theimportantthingtounderstandisthat
Codiusisneutralastowhomyouaskyourverifiedquestionsandhowyou
doit.Youmightwanttomakeacontractonstockfuturesandhedgeon
thepriceofBitcoinandorthetemperatureofDalyCity,ifalltheanswers
adduptothethresholdoftruthaswritteninyourcontractthetermswill
bemetandthecodeexecutes.Thisisverydifferentfromeveryother
systemoutthereandsomethingthatcreativepeoplewillmakeamazing
applicationswith.
TheCodiusapproachtosmartcontractsfreesdevelopersfrombeing
lockedintoanyonesystemwhichistheHolyGrailfornextgeneration
financialandbusinessapplications.Tolearnmoreonthesubjectofsmart
contracts,IhighlysuggestathoroughreadingofGreatChainsof
NumbersbyTimSwanson.
NewservicesforRipplewalletsarecomingoutallthetimeincluding
Shift
Payments
whoarereleasingacreditcardthattiesintoaRipplewalletin
late2014.SnapSwapandothersarealsoreleasingRipplebackedVisa
cardsthatisveryexciting.Irecentlyhadausecaseforthis.Mywifewas
shoppingforsomethingandcalledmeupthathercardwasdeclinedat
thegrocerystore.Thiswouldnormallybeaverydisruptiveexperiencebut
IwasabletosendUSDtoherRipplewalletandtheshewasabletomake
thepaymentwithoutincident.Trydoingthatwithatraditionalcreditcard!
Likeanyactiveprotocol,Rippleisconstantlyevolving.Ripple(and
Codius)issuchadisruptivenewtechnologythatitsfullimpacton
Copyright20142015AndrewWhite
businessandsocietywillnotbeknownformanyyears.Thedaywillcome
whenpeoplewillbesoaccustomedtoamulticurrencywalletthatthey
willaskwhydidntIthinkofthat?Peoplewholivedthroughthe
beginningofdigitalstockmarketsandoptionscontractshavesaidtome
howtheythinkwearewitnessingthedawnofadisruptivetechnologyas
bigasanadvancementasdigitalstockmarketsorpapercurrencies.
ImportantRippleInfrastructure
BeyondRippleLabsthereareanumberofimportantresourcesand
servicesthatisavailabletotheRipplecommunity.Foremostaboutthose
arecommunityforumswhereissuesrelatedtoRipplearediscussed.The
mostactiveoftheseare
XRPTalk
ranbyacommunitymemberinFrance
andthe
RippleLabsForum
.Acoupleofnewserviceshavecomeinto
beingrecentlythatareusefulaswell,LibreTaxfortaxesintheU.S.and
Coinist
forpublicreviewsofgatewayservices.
ThemostwellknownRipplegatewayrightnowis
Bitstamp
,theworlds
largestBitcoinexchange.Thereareavarietyofotherprojectsunder
developmentrightnow.Thereareatleastfourventurecapitalbacked
companiescreatedspecificallyfortheRippleecosystemthatIknowof.
ThereisalsoalotofdiscussionaboutwaystoimprovetheRippleworld
withnewfeaturesandmoreservices.Itisgoingtobeanexcitingfew
yearsforimportantinnovationstobebroughttomarket.
Fortechnicalinfrastructure,Iexpecttoseemoreservicestoenterthe
markettoserveasenginestodrivethegrowthofdigitalassetsanduseful
thingsthatcanbedonewiththem.MyowncompanyOneMillion
Copyright20142015AndrewWhite
GatewaysInc.wasrecentlyfundedtohelpcompaniesreachtheirfull
potential.
FAQ
HowisRippledifferentfromBitcoin?
Thetwoarecompletelydifferent.ThemostbasicansweristhatRippleis
notdesignedtobeusedasjustacurrency.Insteaditisapayments
protocol.ThedifferenceisbetweenBitcoinbeingap2pvirtualcurrency
andRippleasap2pexchange.Bitcoinusestheproofofwork
mechanismcommonlyknownasminingtogenerateBitcoinandorverify
thevalidityoftransactions.Instead,Rippleusesasystemcalled
consensus.ThisfundamentaldifferencewithBitcoinmeansthatthey
workdifferentlyandthattheyaredesignedfordifferentpurposes.Bitcoin
orothercurrenciesarenotcompetitionforRipple.Myunderstandingis
thatRippleLabswantstoseeotherpaymentsystemssettledortradedon
Rippleandnotcompetewiththem.
Iheardthatminingdigitalcurrenciesrequiresanincredibleamountof
electricity,isRipplesimilar?
Thankfullyno.Ripplerequiresnomoreelectricitytorunsecurelythana
normalhighendcomputerserver.ThemegatonsofCO2andmegawatts
ofelectricityandpowerbillsusedbyotheralternativesisnotanissuewith
Ripple.
IheardthatRippleisapreminedcurrency,isthattrue?
Theanswerisbothyesandno.Ripplewasnotcreatedorreleasedas
acurrencyplatformthatusedasystemofminingtogeneratethecurrency
Copyright20142015AndrewWhite
andverifytransactions.Peoplethatmineorbelieveintheideathatmining
ismorefairduetothesupposedequalprobabilityofbeingrewardedfor
doingtheproofofwork.Thereisnothingwrongwiththatopinion.
HoweverRipplesuccessfullysolvedsomeoftheinherentand
fundamentalproblemsthatminingbringstoadigitalcurrency:the
slownessoftransactions,the51%attackproblem,blockchainsplits,etc.
Indefiningtheutilityofcrosscurrencypayments,afundamentaldesign
principleisthatlongdelaysforpaymentsisnotacceptable.Letsfaceit,
nobodywantstheuncertaintyofwaitingforapaymenttoconfirmand
Ripplecanmaketradingthosekindsofassetsfasterandmoresecure.
DoanybanksuseRipple?
Atthetimeofthiswritingthereareafewbankswhohaveclaimedthey
willbeusingtheRippleprotocol.Asofthiswritingtherehavebeen
announcementsforbanksinChina,Germany,andAustralia.
Whatarevalidators?TheRipplenetworkreliesondedicatedcomputers
calledvalidatorstoconfirmthattransactionsarevalid,whyisthis?
Validatorsarethelightweightwaytoverifythattransactionsarevalid
comparedtotheheavyweightneedforcomputingpowerin
cryptocurrencyminingalgorithms.Theyarelightweightbecauseyouonly
needafewcomputersdoingthis(insteadofthousandsintraditionaldigital
currencies).Bydesign,RippleLabscreatedtheRipplenetworktorelyon
validatorsthattheyrunandtheyknowcanbetrustedtomakesurethat
transactionsarevalid.Themajorityofthevalidatorsthatagatewaytrusts
mustbetrustworthy.Ifthemajorityofthembecomemaliciousorconspire
againstthegateway,theycanmakefraudulentpaymentsagainstthe
gateway.Thewaytomitigatethisthreatisbyusingcommunityaccepted
trustednodessuchasthoserunbyRippleLabs.
Copyright20142015AndrewWhite
HowmanypeopleuseRipple?
Thereare157,000walletsasofMay2015.Thelargestgatewayshave
between15,000to10,000walletsthattrustthem.
IheardsomeoneforgottheirpasswordorhadtheirRipplecoinsstolen,
arethosecoinsorwalletsinaccessibleforever?
Yes,unfortunatelytheyareinaccessibleforever.NeitherRippleLabsnor
anyoneelsecanrestoreyourpasswordorrecoverstolencoins.Payments
inRippleareirreversibleduetohowsomeofthelowlevelmathfunctions
work(formoreinformationontheunderlyingtechnologies,youcan
researchpublickeycryptographyandmessagesigning).Youmost
safelystoreyourprivatekeytoaccessyourwalletintheeventof
RippleTradedowntime.
Iwanttoknowmoreabouthowtosetupagateway,wheredoIstart?
https://ripple.com/wiki/index.php?title=Ripple+for+Gateways
isagood
resource.Iwouldalsolovetotalktoyouaboutyourideaandhelpyou
becomesuccessful.
WhatisaSecretKey?
YourwalletsSecretKeyisyoursecretentranceintoyourwalletifyou
everforgetyourpassword.YourSecretKeycanalsobeusedaspartofa
programtodothingsforyousuchasrunningatradingbot.SecretKeys
Copyright20142015AndrewWhite
arenamedsecretbecausetheymustbeabsolutelyunavailableto
anyonebutthosetrustedtoaccesstheaccount.Ifsomeonegetsyour
SecretKey,theycandowhatevertheywantwithyourassets.Ifyouare
havereasontobelievesomeonehasgainedunauthorizedknowledgeof
yourSecretKey,youshouldcreateanewwalletandsendyourassets
overtothenewwalletassoonaspossible.Youshouldnevershareyour
secretkeywithanyone(exceptperhapsyourattorney).
WhatisthebesttechnicalresourceforRipple?
ThebestRippledocumentationresourceislocatedat
https://ripple.com/wiki/
Developerscanalsocheckout
http://dev.ripple.com/
Forfurtherinformation,Isuggestconnectingwith
thedevelopersontheIRCchannelontheFreenodenetwork#ripple.
IwanttolearnmoreaboutConsensus,wheredoIfindmoreinfo?
TheConsensusWhitepaperreleasedinAugust2014:
http://dev.ripple.com/consensuswhitepaper.html
IdontlikehowRippleLabsdoesXYorZ,whatdoyouhavetosayabout
that?
RippleLabsisaveryyoungstartup.Expectationsforthisserviceare
high,perhapstoohigh.Ittakestimetobuildworldclassteams,and
staffingresourcesarealwayslimited.GiveyourissuesometimeandIam
certainthatyouwilleventuallyseeimprovementstotheissueyouare
concernedwith.
Copyright20142015AndrewWhite
Whataresoftwareforks?
Softwareforkshappenwhenonegroupofsoftwaredevelopersdecidesto
takethesourcecodefromaprojectandmaketheirownpossibly
incompatiblechangesfromthepriorversionofthesoftware.Thiscan
happenforvariousreasonsbutthemostlikelyreasonisthatonegroupof
developersdisagreedwiththedirectionaprojectwasgoing.Thiscanbe
eitheragoodorabadthing.Itisbadwhenitdividesthenumberof
peopleworkingonaproject.Itcanbegoodwhentheforkedsoftware
makesimprovementstheotherdeveloperswerenotwillingtomake.
AlternativeversionsofRippleareexpectedtobereleasedinthefuture
andthisisgoodfortheRippleprotocolsincenewideascanbetestedin
differentnetworks.
Whataregoodcommunityresourcesforgettinganswerstomyadditional
questions?
Myfavoriteresourceistheforumat
https://ripple.com/forum/
butthemost
popularcommunityforumis
https://xrptalk.org/
HowdoesRippleLabssellRipples?Dotheysellontheopenmarket?
AccordingtoDirectorofCommunicationsMonicaLong
theydonot
:
RippleLabsisn'tandhasneversoldXRPintheopenmarket.Wesellthe
portionofXRPreservedforbusinessoperationsthroughdirectwholesale
purchasesonameasuredbasis.Whatwe'veseenrecentlyisawholesale
buyersellingasignificantvolumeinmarket.We'vechangedthetermsof
wholesalepurchasingtolimitmarketimpactinthefuture.
Copyright20142015AndrewWhite
IhavesomethingIwanttodiscusswithRippleLabs,whatisthebestway
formetodoso?
Talktothebusinessdevelopmentteamatpartners@ripple.comorthe
developerrelationsteamatdevelopers@ripple.com.
Iwanttostartacurrencyissuinggateway,butIhavenoexperienceand
nocapital,howdoIgetstarted?
FirstofallIapplaudyourenthusiasmforRippleandaddingvaluetothe
network.HoweverIwouldadviseagainststartingagatewayonyourown.
Gatewaysarepowerfultoolsandwithnobackgroundincompliance,
regulations,orthetechnicalriskswithusingRippleyouwouldbedoing
yourcustomersadisservicestartingoutwithnoexperience.Iwould
suggestyoufindsomeequallyexcitedpartnerswithexperienceinthe
paymentsindustryordigitalcurrenciesbeforemovingforward.
AtOMG
weuseaveryrobustsystemofmultipleserverstodeploythegatewayfor
redundancy,security,andqualityofservice.Rippleisnotthekindof
softwarethatyoucaninstallonceandyourealldone.Rippleissomeof
themostcomplexanddemandingsoftwarearound.Settingupagateway
onyourownislikelearninghowtoflyahelicopterforthefirsttimeand
tryingnottocrash.Usingenterprisegradebankingsoftwareisnottobe
takenlightly.
Copyright20142015AndrewWhite
Iwanttolearnmoreaboutcryptography,wheredoIstart?
Imgladtohearyourinterestinthisitisahobbyofmineaswell!
Wikipediaisoneofmyfavoriteresources.Anothergreatexampletolearn
thebasicprincipalsisillustratedatthislink
http://www.moserware.com/2009/09/stickfigureguidetoadvanced.html
WherecanIlearnmoreaboutthesocalledByzantineGeneralsproblem?
Theoriginalpaperdescribingasolution(backin1982!)canbereadat
http://research.microsoft.com/enus/um/people/lamport/pubs/byz.pdf
Glossary
AnonymousUntraceableactivity.Contrarytosensationalmedia
reporting,neitherBitcoin(orRipple)areanonymous.
BitcoinAproofofworkdigitalcurrencycreatedin2009.Thebenefitsof
Bitcoinisthatitisnearlyimpossibletocounterfeit(i.e.,makefakeBitcoin)
whichmakesitusefulforonlinepayments.Bitcoinsolvedtwo
longstandingacademicproblems,thedoublespendproblemandthe
ByzantineGeneralsproblemthatallowsittoworkinasecure,
decentralizedmanner.
CodiusThisisatechnologyneutralframeworkforcreatingsmart
contracts.Moreinfocanbefoundat
http://codius.org/
DueDiligenceistheprocessofthoroughresearchbeforemaking
investments.
Copyright20142015AndrewWhite
EnterprisesincludebusinessstartupsintheRippleecosystem,suchas
newgatewayservices,merchantservices,remittanceoptions,charities,
experimentalhobbies,andcommoditiesallarepromisingareasfor
businessinnovatorsandearlystageinvestors.
Gatewayaserviceproviderthatenableuserstodepositmoneyintoand
withdrawmoneyoutoftheirgatewayaccountsontheRipplenetwork.In
technicaltermsagatewayisanassetissuer.Althoughmostuserswillnot
becomeagateway,thecapabilityforthemtobecomesoispresentin
everyRipplewallet.
HashAdigitalfingerprintofsomething.Ahashmeasuresthebytesofan
objectsuchasafileandcomputesanumberthatisspecifictoonlythe
specificarrangementofbytesinthatfile.Therearemanywaysof
producinghashesanddifferentstandardsareusedfordifferentpurposes.
MSBaregulatedactivityintheUnitedStatesrelatedtoaMoney
ServicesBusiness,i.e.,moneytransmission.
PublickeyAmathematicaladdressthatyoucangenerateforthe
purposeofsharingwithanyone.Apublickeyistiedtoaprivatekeyyou
shouldnotsharewithanyone.
RadrARippleforkstartedbyRadrLabsInc.http://radarlab.org/
Copyright20142015AndrewWhite
RipplestheRipplenetworksnativecurrency,representedbytheletters
XRP.InordertousetheRipplenetworkXRPmustbeused.Each
transactiondeletesatinyamountontheRippleledgerforever.
RippleClientThisisthesoftwarethatisusefulforuserexperienceson
webservicessuchasadigitalwallet.
RippleLabs,Inc.ownstheintellectualpropertyoftheRippleprotocol,
andpromotesRippleswideruseandgreaterusefulness.
RippleserverAlsoknowsasrippled,thisisthesoftwarethatconnectsall
rippleserverstogetherintoadecentralizednetworkaroundtheworld.
Gatewayoperatorsneedtouseoneinordertohavetheirserviceusethe
Rippleprotocol.
IOUisapromisethatacertainamountoffundsthattheIOUissuer
controlsarefundsinyouraccount.AnIOUontheRipplenetworkisan
assetcreatedbyaRipplegatewayindicatingIpromisetoredeemyoua
specificamountofthiscurrencyasset.
TraderpeoplewhousetheirRippleWalletstoexchangecurrencies
(govt.issuedcurrencieslikeUSD,CNY,etc.anddigitalcurrencieslike
XRP,BTC,etc.),functionallysimilartotradesmadeontheForeign
Exchange(FX)currencymarkets.
MarketMakersprovideliquidity(i.e.,money)thatallowspaymentsto
followapathwaybetweengateways.
SecurityTheattributeorprocessusedtosecuredatabymeansof
authentication,confidentiality,andintegritychecks.Thereisnosuchthing
Copyright20142015AndrewWhite
asaperfectsecuritysystemonlyincreasedcostsordifficultyforan
attackertoovercomeit.
StellarARippleclonefundedbyStripe.com.Themaindifferencewith
RippleisthatStellartokensareaninflationaryassetinsteadofa
deflationaryone.
Validatorsdedicatedcomputernodesthatconfirmatransactionisvalid
throughtheConsensusprocess.Validatorsarethekeytotransaction
verificationthresholdbeingreachedandonlyneedtobeusedbyexperts
orpeoplerunningprofessionalgateways.
Walletthedigitalaccountwhereindividualshold,access,andusetheir
digitalcurrenciesinRipple.
WalletVaultAwalletvault,alsocalledawalletblobistheencrypted
storageofRipplewalletsecrets.Thewalletvaultiscreatedinsuchaway
thattheservicehostingthewalletblobcannotreadthecontentsofthe
dataorcompromiseintegrity.
AbouttheAuthor
AndrewWhiteservesasthefounderof
OneMillionGateways
Inc.a
digitalcurrencyconsultingcompany.HealsoservesasSecretaryatthe
InternationalRippleBusinessAssociation,whichisthepremier
organizationofmerchantsandbusinessesthatusetheRippleprotocol.
AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSan
FranciscoandtheBayArea,andbeganusingXRPsoonafterits
introduction.
Copyright20142015AndrewWhite