ripple explained guide

RippleExplainedGuide

Version1.99

[email protected]@OMGateway

Copyright20142015AndrewWhite

HelloandwelcometotheRippleExplainedGuide.MymissioninlifeistohelpmakeotherpeoplesuccessfulintheareastheycareaboutandIhopetheinformationcontainedhereinisabletotranslateintoyourownsuccesswithdigitalcurrencies.Mymaingoalforthisbookistobenontechnicalandexplainthemostimportantconceptsforyoutoderivebusinessandfinancialbenefitsfromthistechnology.IfthereisapassageinthisguidethatdoesnotseemtomakesenseoristoocomplicatedIaskthatyoudontgiveup,keepreadingandcomebacktoitlater.TakeyourtimewitheachsectionandifneedbesupplementyourlearningwithGooglesearchestohelpgettheanswersontermsorareasofinterest.ThroughoutthetextIincludelinksforyoutofollowuponforfurtherresearch.WhenyouaredonelearningalltheinformationbelowdontbesurprisedifafterreadingthisguideyoubecomethegotoexpertaboutRippleinyoursocialnetwork!InmyopiniontheRipplepaymentsystemisoneofthemostexcitingtechnologiestobedevelopedinrecentyears.Forthefirsttime,paymentscanbesenttoanyoneintheworldinanycurrencywithinafewseconds.IdescribeRipplelikeemailformoney.Activitiesthatwereoncethesolepurviewofthebankingindustry,suchaslendingormakingpayments,havebecomedemocratizedintheRipplesystem.ThisebookpresentsabriefoverviewofbusinessopportunitiesintheRippleecosystemandwhatrolesyoucanplayinthisexcitingnewareaoffinance.IhavebeeninvolvedwithRipplesinceearly2013andIhaveexperiencedallofthedifficultquestionsoftryingtowrapmyheadaroundhowitworks.AfterIbeganspeakingtothepublicaboutitIquicklylearnedhowmostpeopleaskthesamequestionsandonewaytosatisfythosequestionsistowriteabookaheadoftime.SoonthatnoteIwanttocoverthemajorcomponentsofRippleasitexiststodayanddivedeeperintoeachtopicbutwithoutgettingintothegrittydetails.


Sowiththatsaidwithanynewtechnologytherearetradeoffsbetweensophisticationandeaseofuse,newfeaturesandnewrisks,andRippleisnodifferent.ThisbookwasstartedinDecember2013inadozenpages.Overtimeithasexpandedto50pagesandmyintentismakeyouconversantinthemainareasofRippleandinviteyoutocontinueinyourownareaofresearch.Forareminder,thisbookisonlyforeducationalpurposes,andisnotintendedtoprovideinvestmentadvice.Bestwishes,AndrewWhiteAcknowledgments:Iwouldliketothankthefollowingpeoplewiththeirhelpinthisdocument:RippleLabsforpermissiontoreusetheirimages,andtheRipplecommunityformakingvaluablefeedbackandsuggestions.


TableofContentsWhyDigitalCurrency?RippleLabsWalletsRipplesGatewaysConsensusCurrencyIOUsTradersMarketMakersEnterprisesDueDiligenceQuestionsIntheFutureImportantRippleInfrastructureFAQsGlossaryAbouttheAuthor


WhyDigitalCurrency?BeforeIgetstartedintothemaintopicofwhatRippleisandwhyitisimportant,Iwouldliketoprovidesomebackgroundinformationaboutwhatcurrenciesareandwhatishappeningwithcurrenciesingeneral.Therearethreebasicreasonswhymoderndigitalcurrenciesareimportant:1)theysolveproblemsoffraudandcounterfeiting,2)theyreducecounterpartyriskwith3rdparties,and3)efficientlysolvetheByzantineGeneralsProblemwhichishowtoderiveatrueanswerfromquestionablesourcesofinformation.Moreaboutthesetopicswillbediscussedlaterintheguide.FirstofallIwouldliketobeginbydefiningwhatacurrencyis,anditisusuallydefinedtohavethefollowing6TraitsofCurrency:Durability,portability,divisibility,uniformity,limitedsupply,andacceptability.Someoneelse(Ihavenotbeenabletofindthenameoftheoriginalauthor,ifitisyouletmeknowandIwillcredityou)explainedtheseinthefollowingmanner:Acceptability:Intermsofaformofcurrencybeingacceptedwithinsociety,moneymustbeacceptedbyeveryoneintheeconomy.Thisacceptanceisforthepurposeoftheexchangeofmoneyforgoodsanddifferenttypesofservices.Divisibility:Thisrelatestomoneybeingeasilydividedintosmallerdenominationsfortransactionalpurposes.Peoplewillonlyneedasmuchmoneyasisnecessaryfortheirpurchases,thereforeitisnecessaryformoneytobeeasilybrokendownfordifferenttypesoftransactions.


Durability:Thissimplyreferstothephysicalwearanduseofmoneyoveraperiodoftime.Ifsomemoneyiseasilydestroyedordamageditislikelythatitisfraudulentandthereforecannotbetrusted.Yet,moneyismadefromapapersource,sosomewearandtearmustbeexpected.Limitedsupply:Inorderformoneytoretainitsworth,theremustbeatypeoflimitedsupply.Themoremoneythatisincirculationthelessitisvaluedbytheeconomy.Portability:Quitesimplyitisnecessaryformoneytobeeasilytransportedsothatpeoplecancarryitaroundwiththemonadailybasis.Thisalsoallowsfortheeaseoftransactionsothatmoneycanbetransferredfromoneplacetoanother.Uniformity:Dependingonthedifferenttypesofcurrencythatareavailable,moneywithinthatspecificcurrencymustlookthesame.Thisalsoallowsformoneytobecountedandmeasuredaccurately.Analternativewayfordistinguishingthecharacteristicsofmoneyisthatitiseasilyrecognized.Moneyissubjecttothetypeofcurrencythatisincirculationwithinaspecificplace,soifitiseasilyrecognizedanditfollowstheabovecharacteristics,thenitislikelytobegenuine.Inanutshell,thatistheentireusecaseofacurrencyinoureconomy.Themodernsystemofbankingwasdevelopedin197274withthennewdigitalaccountingsystemsbyIBMandothersthatmightofheardbeforesuchastheAmericanClearingHouse(ACH).Soletsdescribewhatkindofproblemsadigitalcurrencyplatformwilltrytosolveandseeifthewaysolvestheproblemscanbeusefulforimprovingpaymentsinfrastructure.


SolvingtheCounterfeitingProblemIrecentlygotbackfromaconferencecalledMoney2020thatbringstogetherbankers,thepaymentsindustry,andcryptocurrencyadvocates,andIhadadiscussionwithafriendthatexplainedtheimportanceofdigitalcurrencyintermsofhumanhistory.Onecurrencythathassomeofthedesirabletraitslistedaboveforthe6TraitsofCurrencyisgold.Becausethephysicalmetalofgoldhasalloftheabovetraitsithasbeenusedascurrencyforthelastfivethousandyears.Oneofthemainreasonsforthisisthatgoldmetalhascharacteristicsthatmakecreatingfakegoldvirtuallyimpossible.Sincegoldismoney,forcenturiesbeforethescienceofmaterialsandchemistrywaswellunderstood,aprofessionnamedalchemyattemptedtotransformmetalslikeleadintogold.Alchemistscouldmakeagoodlivingconvincingsovereignkingstheycouldperformthistrick.Ultimatelynoneweresuccessfulandeventuallywiththemoremodernscienceofchemistryitbecameunderstoodthatthiswasindeedanimpossiblefeat.Howeverthepropertiesthatmakegoldagoodchoiceforamediumofexchangealsomakeitproblematicforeconomicreasons:goldcanhavesubstantialweight,itsdifficultandorexpensivetosecure,sendingittosomeoneelseisdifficulttodoinatimelymanner,andtheresimplyisntenoughofitfortheworldsexpandingpopulationasonlyafiniteamountcaneverbeminedoutoftheearth.Thusitbecamepopularinrecentcenturiestorepresentgoldinpapermoneywhichiseasiertotransportanddocommercewith.However,asthetitleofthissectionmayhavegivenyouaclue,counterfeitingpaperbillshasbeenalongstandingproblem.


Toassurepeopleoftheintrinsicvalueofthepaperbills,thefacevalueofthepaperandUSdollarswasbackedbycertainamountsofgoldorsilverwaspromisedtothenoteholder.ThiswasoimportanttothefoundersoftheUnitedStatesthattheyevenspecifiedhowmuchadollarwassupposedtobebackedby.Howeverasmostpeoplerealize,thepaperbillshaveaproblemwithbeingrelativelyeasytoforgeandthishasbeenalawenforcementproblemforever.Counterfeitingcurrencywassuchaseriousproblemthatintheancientworldthepenaltyforcounterfeitcoinmakingwasoftenthedeathpenalty.Famously(orinfamouslyaccordingtosome)in1972,RichardNixontooktheUnitedStatesoffthegoldstandardandpeggedthevalueoftheUSdollartoanewmeasureofeconomicfitnesscalledtheGrossNationalProduct(wewontgetintoallthereasonsforthisimpor).WiththeGNPmetricthevalueofthedollarbegantobecreatedindigitalsystemsandin1974theAmericanClearingHousewasestablishedtoprocesselectronictransactionsforbanks.Inthepresentdaythishasevolvedsomuchthatsomeeconomistsbelievethatdigitalsystemsmakeup98%ormoreofallmonetarytransactions.Thishashadsometangiblebenefitsforsocietysinceingeneralithasmadethecostofusingmoneylowerforeveryone(andthatsagoodthing).Inthelastcoupleofdecadescreditcardsareoneofthemostfrequentlyusedtoolsfordoingthis.CreditcardswereinventedinthetimebeforetheInternet(WesternUnionstartedacardprogramin1921!).Howeverasmostpeopleknowtheunderlyingproblemsofearliergenerationsofcurrency,fraudulentuseofthetoolisaveryexpensiveproblemthattheincumbentplayershavenotbeenabletofixandabout1%ofallcreditcardtransactionsarefraudulent.In2009,thereleaseoftheBitcoinwhitepaperrevealedonewayonhowtosolvetheissueofhowtomakeadigitalcurrencyandbepracticallyimpossibletocounterfeit.Bitcoinwasasignificantadvanceinthetechnologyofpaymentsbecauseitusessomespecialapplicationsofmathandcryptographytomakecounterfeitingitnearlyimpossible,a


problemthathasexistedeversincehumanshavebeenusingcurrency.Thisiswonderfulformerchantssincethehighcostsofhandlingfraudulenttransactionsiseliminated.UnderstandthatthenearimpossibilityofbeingcounterfeitedisthekeyreasonforthegrowthofBitcoinstylecurrenciesonline.Itisnearlyimpossibletocounterfeitforreasonsthatwillbeexplainedlaterbutthemainreasonisduetotherelianceonaparticularmathfunctionofcryptography,moredetailscanbefoundintheFAQattheendofthisbook.Proponentsofdigitalcurrenciesthatunderstandthisclaimthatthismakesdigitalcurrenciesabetterstoreofvalueandexchangethengold,whichisanaweinspiringleapinhumanprogressifthepremiseholdstobetrueforasufficientlylongperiodoftime.Onlytimewilltelliftheclaimstandsuptoscrutiny.Inmyview,theeliminationoffraudisabigenoughofanimprovementtojustifyapeertopeerdigitalcurrencyonitsownmerits,butthereisalotmorethatwewillbegettingto.CounterpartyRiskNowthatweunderstandhowdigitalcurrenciessolvesthecounterfeitingproblemletsmoveontocounterpartyrisk.Wealreadydiscussedgoldandhowitisintrinsicallyafinancialinstrumentduetoitstraits.Theotherreasonwhythisissoisbecausephysicalgoldhasnoneedforacounterparty,itisinherentlymoney.Counterpartyriskistheriskthateachpartyofacontracthavethattheotherpartymaynotliveuptoitscontractualobligations,suchasdepositingmoneywithathirdparty.NativedigitalcurrencieslikeBitcoinandRipplesXRPdonothavecounterpartyriskbecauseyouownthesecretkeystoyourcurrencyinasimilarfashiontoowninggold,youarenotbeholdentotrustingthirdpartiesforyourbalancesheet,andthatisaninherentlybeneficialaspectofdigitalcurrencies.Priortonowalmostalldigitalcurrencysystemswerecentrallycontrolledandthecontrollingorganizationscandowhatevertheywantwithyourfundswhichlogicallyhasinherentcounterpartyrisksassociatedwithit.


ByzantineGeneralsProblem

Thisbizarresoundingproblemhasalongacademichistorythatisquitefascinatingifyouareinterestedinsuperdryandacademicallyrigorousresearchpaperslikeme.Butwhatitboilsdownissolvinghowdistributeddecisionmakingprocess(likeapaymentssystemorledger)canreconcileinaccurateandfalsemessagesandsafelytocometoanagreementonamatterthatistruthfulandaccurateupuntilacertainthresholdtobetrueinalmostallcircumstances.Foranelementaryexampleofwhatthislookslike,youandyourgroupoffriendswanttogosomewherefunbutyouhavesomefriendswithquestionablemotivesofwhatsomethingfunmightentail.Soyousetupasimpletest,ifsixoutoftenfriendsagreethatadestinationmeetsyourstandards,youagreetogoalongwiththeride,butifonlyfiveorlessagree,yourejecttheinvitation.ThisisaveryinformalwayofdescribingtheByzantineGeneralsProblemanditiscriticaltohowsystemslikeBitcoinchangedworldhistorybyapplyingthissolutiontoadecentralizedpaymentssystem(moreaboutthatlater).RippleLabsFirstletsstartwithadefinitionofterms.Rippleisthenameofanewpaymentstechnology.RippleisdevelopedbyacompanynamedRippleLabsInc.inSanFrancisco.SomepeoplemakethemistakeofequatingRippleandRippleLabstobethesamethingandthatisamistakeyoushouldavoidmakingasIwilltrytoexplainwhythatisthroughoutthisebook.SooriginallythecompanywasformedasOpencoinInc.in2012andlaterreformedin2013byChrisLarsen,JedMcCaleb,DavidSchwartz,andafewothers.RippleLabsownstheintellectualpropertyoftheRippleprotocolandtheRipplenamebutthecodeandprogramsthatmakeupRippleareavailableforfreeforanyonetodownload,use,and


modifyastheyseefit.RippleLabssoftwareisusedbyacommunityofRippleenthusiastsaroundtheworldwhoarepassionateaboutmakingthetechnologymorewidelyused.ThesepeoplealsoprovideessentialfeedbacktoproductteamsandengineersleadingtheoverallimplementationofRipplesdevelopment.TheknowninvestorsinRippleLabsincludeGoogleVentures,AndreessenandHorowitz,LightspeedVentures,BryanBradford,andothers.AsofOctober2014,RippleLabshasastaffof60peopleledbyCEOChrisLarsen.Mr.LarsenistheformerCEOofELoanandlaterProsper.com,bothofwhichwerepioneeringcompaniesinpeertopeerlending.Asanoutsider,IcantsayanythingdefinitiveaboutRippleLabsspecificbusinessstrategies.ButtheiractionsshowthattheyarecommittedtoincreasingthevalueoftheRipplenetwork.TheydothisthroughavarietyofstrategiestoshowthepublicthatRippleprovidesabettersystemforpaymentsthanthealternatives.Oneofthewaysofaccomplishingthisisbymakingusefulsoftwareandgivingitawayforfree.ThesourcecodeofthesoftwarefromRippleLabscanbereadandusedbyprogrammersatnocharge,whichisanopeninvitationforcuriousengineersandprogrammerstomakecontributionstothecodeandexpeditethedevelopmentofthecorefunctionality.Thisalsoprovidesavaluablesafetymechanism.Sincemoreeyescanlookattheunderlyingcode,potentialissuescanbeidentifiedandfixedearly,beforebecomingaseriousissue.RippleLabscangiveawaythesoftwareforfreebecausethecorevaluepropositionofRippleisthatanopenpaymentnetworkthatanyonecanuseandimproveismorevaluablethanaclosedalternative.SofartheplanseemstobeworkingwellandRippleisstartingtomakebigwaves.


IfwelookatthehierarchyoffinancialservicesintheUnitedStates,RippleisdesignedtoreplacetheAmericanClearinghouse(ACH)paymentsettlementsystem.ACHwasinventedinpreInterneteraandisamajordragontheefficiencyofmovingmoneysinceittakes35daystomovemoneyanddoesnotuseanytransactionverificationlikedigitalsignaturestodeterfraud.AnothersystemthatEuropeanswouldbefamiliariscalledSwift.SwiftisanewerprotocolforpaymentmessaginganditworksalotbetterthanACHbutUSbanksdontuseitdomestically.SwiftisfasterthanACH,sameornextdaypaymentsisthenormandothercountrieslikeChinaandMexicouseasimilarsystem.ButwhereasSwiftisspecificallyapaymentmessagingprotocolandnotapaymentsettlementprotocolitstillinvolvesalotmoreworkforfinancialinstitutionstolearnwhohaswhat.Rippleoffersasolutionthatoffersrealtime(aboutfivesecond)paymentsettlementandpaymentmessaging(thatmightbeastatementthatlookslikeThispaymentisforBobsnewshoes).SinceRipplecombinesmessagingandsettlementsomesmartpeoplehavebeencallingitSwift2.0butRippleisreallyalotmorethanthat.Sowith


thatinmindletsdiverightintoexperiencewhatusingusingtheRipplepaymentsystemlookslike.WalletsTouseanonlinepaymentssystem,peoplestartbycreatingadigitalversionofawallet.Awalletconsistsofanameofwhoownsthewalletandsomesortofsecuritymechanism,likeapassword,tolimitaccesstotheaccount.Itshouldbeimportanttokeepinmindthatnotallwalletsarecreatedequally.Manytraditionalonlinewalletsolutionsallowthemselvestheprivilegetocloseyouraccountforanyreason.ThereareavarietyreasonsforthisbutaRipplewalletisdifferent,itisimpossibleforanyone,includingthemakersRippleLabs,tostopsomeonefromaccessingtheirRipplewallet.Iwillexplainabitmoreabouthowthatworkslaterbutfornowletsmoveontowhatthewalletlookslike.Therearetwowaystoidentifywhoownsawallet.ThefirstiscalledaRipplenameanditlookslike~SomeRandomWalletName.Anyonethatknowsthiswalletsnamecansendpaymentstoit.UnderthehoodthenameistiedtothepublicnameoftheRippleaddressthatbeginswiththelowercaserandlookslikethis:r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstotheauthorarewelcome!).


ThisisanexampleofwhataRIpplelookslikeavailableathttps://www.rippletrade.comARippleaddressshouldbethoughtoflikeaphysicaladdresswheremail(orpaymentmessages)canbedelivered.Thepasswordshouldbethoughtofasthekeytoopenthedoortothehouse.InthepriortwosentencesIjusttaughtyouthebasicsofpublickeycryptography,feelfreetoGooglethatformoreinformation.Sothewalletisalwaysavailableonawebpageandhasthefollowingfunctionality:wallettransactionhistory,anaddressbook,asectiontosendandreceivepayments,andasectionofthewalletforyoutomakecurrencytrades.Andthatisaboutit.ItisimportanttonotethatRipplewalletsarenotinsuredbytheFederalDepositInsuranceCorporation(FDIC),whichwascreatedbytheU.S.governmenttoprotectconsumersfrombankfailures.Formostconsumers,thepowerofRipplepaymentshappenswhenpaymentsaresentacrossthenetworkwithinafewseconds.Toanyoneaccustomedtotheslowandcumbersomeprocessoftraditionalpaymentnetworks,thisisanincredibleadvanceinpaymentstechnology.Nolonger


dopeopleneedtowaitfordaysforabankwiretransfertobecompleted,orweeksforacreditcardpaymenttobeprocessedwithRipple,havingtowaitforpaymentprocessingisathingofthepast.Eveninareaswithmodernbankingsystems(likeEuropeandChina)withsamedaybanktransfers,theexistingpaymentsystemisstillarelativelyslowandcostlyprocessthatcreatesanunnecessarydragontheeconomy.JustimaginewhatkindoflowcostnewserviceswillbecomeavailablewithRippletomerchants,consumers,andinvestorsacrosstheentireglobaleconomy.Asfarasmostusersareconcerned,theRipplewalletisalsowheremagichappensinitsroleinredefiningthepaymentexperiencearoundtheworld.Tobehonest,inmyopinion,walletsarenotallthatinterestingvisually,orconceptually,norshouldtheybeparticularlyinteresting.TheyaredesignedtobeassimpleaspossiblehencethereisntmuchtoseeordoinaRipplewallet(withtheexceptionoftrading).IliketodescribeRipplewalletsusingthefollowingexamplebutitisnotapreciseanalogy.IjustmentionedthatRipplewalletsarenotFDICinsuredbecausetheyarenotissuedbyaU.S.charteredbank.Allowmeartisticlicensewiththefollowinganalogy:aRipplewalletiskindoflikeabankaccountbutyouasthewalletowner(accountowner)areempoweredtocontrolhowmuchmoneyyoutrusttobeheldbyyourvariousbanklikeentities(gateways,moreaboutthemlater).RippleWalletsaregreatbecausewhentheycanstoreormakepaymentsinanycurrency.Theauthorcantthinkofanyotherwalletevercreatedthatisabletoacceptanycurrencyevercreated,includinggovernmentissuedcurrenciesandprivatecurrencies!Forthefirsttimeinhistory,digitalwalletuserscanholdanycurrencyeverissued.ThisisaBigIdeathatmaytakeyearstobewidelyunderstood,appreciated,andacceptedbythemarket.Ripples


RipplesareaccesstokensusedbytheRippleprotocolandarereferredtoacurrencycodeofXRP(whichislikeUSDorBTC).TheprotocolconsistsoftherulesofhowRippleworksandtheserulesaretranslatedbyprofessionalprogrammersintosoftwaretoperformallthefunctionsthatRippledelivers.Moregenerally,peoplemakeprotocolstosolveaprobleminaconsistentandentirelyreliablemanner.Welldesignedprotocolsshareanumberoftraits.Forexample,thinkoftheprotocolofshakinghandswhengreetingsomeone.Thisprotocolhasbecomeinstantlyrecognizableworldwide.Itsnotabletraitsarethatitissimple,easilyreproducible,andcooperativeinnature.Thebestcomputerprotocolsandmonetarysystemsaimforsimilarresults.Tobeconsistentwithinternationalnamingconventions,Ripplesareknownbyathreeletteracronym,comparabletohowUSdollarsarerepresentedasUSD.ThethreelettercodeisXRP.TheRippleconcepthasbeenaroundpriortoRippleLabs.Itwasfirstworkedonin2004andlateronin2011thecoreteamaroundRippleLabswasformedwhothenreleasedittothepublicinthebeginningof2013.EverytimeyouuseRipple,areallytinyamountisdeletedtomakesurethenetworkdoesnotgetoverloadedbypaymentmessages.ThelogicisthataverageconsumersmightonlyneedtousearelativelyfewRipplesacrosstheirentirelifetime.Ripplewasreleasedwithahardlimitof100billionunitsofXRPtoeverexist.The100billionnumberwasjudgedtobelargeenoughtobeusefulfortheRipplenetworkforhundredsofyears,andquantifiableenoughtoprovideabusinessmodelforRippleLabs.OnceRippleswerecreatedthenextstepwastofigureoutthebestwayonhowtodistributetheminthemosteffectivemanner.ItiscriticaltotheRippleLabsbusinessstrategythatXRPbedistributedtoawidenumberofmarketparticipantswhointendtouseRippleasasystemforpayments,currencytrading,orassetissuance.AcoolfeatureofXRPisthatasthenativecurrency(Ilikethetermmetacurrencybutitisnotascompletelyobviousastowhatthatmeans),XRPcanbespenttosend(orreceive)


anyothercurrencyofferedforsaleinsidetheRipplenetwork.RippleLabsalsosellsbulkquantitiesforlargeordersandgivesawaysmalleramountsforfree.InlargeparttheirtargetmarketarebankstouseXRPtomakeinterbankpaymentsandfacilitateinternationaltrade.SonowthatwehavecoveredabitofhowmuchXRPthereis,whatitisusedfor,andRippleLabsroleinthedistributionofXRP,letsmoveontoinvestmentopportunitiesinthespace.TherearedifferentinvestmentstrategiesinvolvingRipplesandalargenumberofpeopletradethemagainstothercurrenciesforspeculation.Beforegettingintothevariouschoicesavailable,Iwouldsuggestwouldbeinvestorsaskthemselvesafewquestionssuchas:AmItechnicallyproficientenoughtohandledigitalcurrenciesonmyown?DoIalwaysfollowbestpracticesforcomputersecurity?ShouldIrelyonareputableconsultant,broker,orhedgefundtomanagemyinvestment?AmIwellversedinthenatureofonlinescams,walletsecurityissues,andlegalissuesbeforebuying?ShouldIuseXRPasahedgeagainstmyotherinvestments?Youranswerstothesebasicquestionsshouldhelppointyouinthedirectionthatsrightforyou.Itdoesnthelptobelessthanentirelyhonestwithyourself,sobecandidandassessyourstrengthsandweaknessesbeforemakinganyinvestment.Investorsmustbeawarethatthereareinherentrisksassociatedwithdigitalassets.Theftsandscamsareanunfortunatebutinevitableaspectofonlineofferingsandtheinvestormustalwaysperformduediligencebeforetrustingotherswiththeirmoney.Evenifaninvestmentisnot


fraudulent,thereisnoguaranteethatthevalueoftheinvestmentwillyieldprofits.Youarecompletelyonyourownonthisone.RippleLabscannotandwillnotcommentontheinvestmentfitnessofRipple,XRP,orthevalueandsafetyofclaimsmadebynonRippleLabsstaff.Duediligenceistheprocessofinvestigatingaproposedinvestment,andtheresponsibilityforduediligenceisentirelyuptoyou.Beappropriatelyskepticalandcautiousinallyourdealings.Atfirsttheywereworthnothingatmarketrates,butXRPhassteadilyincreasedinvaluethroughasteadilyincreasingnumberofservicesbuiltforit.AlthoughthepriceofXRPhasbeenrelativelystable,itisnotimmunefromdrasticpriceswingssimilartoapennystock.Althoughcurrentlyvaluedforlessthanapenny,RipplesarereallyonlyusefulformakingtransactionsontheripplenetworkbutspeculatorsontheRipplenetworkliketotradeitagainstotherassets.Becautioushoweverasonrareoccasionsthevaluehaschangedhundredsorthousandsofpercentaday.GatewaysGatewaysareserviceprovidersthatletRippleusersdeposit,transfer,andwithdrawmoneywiththeiraccounts,includingtransfersbetweenaconsumerswalletandtheconsumersgatewayaccount.Toattractandretainusersoftheirservice,gatewayswillinnovateandofferbeneficialservicestotheircustomers.


Asgatewayscompeteformarketshare,Ifullyexpectthatmoregatewayswillbelaunchedthattheywillincreasinglyofferinnovativerewardsprogramslikeairlinemiles,coupons,andpremiumservicediscounts.Thereareanumberofservicesavailabletopeoplewhowanttocreateandoperateagateway.Iftheyhaveastrongtechnicalbackground,theycanusuallysetoneupthemselves.Iftheydonthavethetechnicalskills,theycanuseahostedwallet(moreonthatinamoment)oruseconsultants.Iftheyareseriousaboutgettingintothegatewaybusiness.Inthefuture,cloudbasedoptionswillbeavailablesuchasOMGsOneMillionGatewayshostedservice.BecauseofRipplesdesign,anyonewithaRipplewalletcantechnicallybecomeagateway.


However,thatisneitherlikelyornecessaryinalmostallconsumerorinvestorcases.Whenpeopletalkaboutgatewaystheyareusuallyreferringtoabusinesssetuptooperateassuch.ARippleWalletcanbecomeagatewaywhenpeopleaddtrusttoawalletyoucontrol.TrustinthecontextofRipplemeanshowmuchofmymoneydoItrustthisgatewaytohold?Gatewayswithanestablishedhistorywithagoodreputationforcustomerservicetendtobemoretrustedbyusersthannewgatewaysthatarelessknownandhavealimitedhistoryofoperation.

ThisisanexampleofagatewayloginpagefromSnapSwapInc.

Thisexampleiswhatabasicgatewayexperiencelookslike.


Gatewaysasabusinesshaveafewdifferentbusinessmodelsavailabletoguidethem.Oneexampleisagatewayprimarilyusedformoneytransmission,anotherexampleisremittance.Asagatewayoperator,youmightbeinterestedinenablingpeopletosendpaymentstoanothercountry.Aconsumeropensanaccountonyourgatewayandsendsyoumoneytogointhataccount.ThegatewayoperatorissuesIOUs(moreaboutthoseinthenextsection)totheaccountholderandthoseIOUsappearintheholdersRipplewallet.TheaccountholdercanthantradetheseIOUsforanothercurrency.Intheothercountry,apersoncanwithdrawtheseIOUsfromthegatewayandreceivetherealcurrency.Thegatewaymakesmoneybychargingatransactionfee.Iftheoriginalgatewayswebsiteorservicebecomesunavailable,theIOUsdonotdisappearfromRipplewallets.Intheeventofbankruptcyorotherseriousdisruption,theIOUsmaylosesomeoftheirmarketvaluefortheIOUsofcurrencytheyrepresent,buttheycouldberedeemedwhenthegatewaybusinessreturns.TheuniquecircumstancesofthegatewaysissuewilldecidewhatrecourseisavailabletotheIOUholders.ThechartsonRippleCharts.comcontainthemajorcurrencymarketsonRipple.ThesearetypicallywrittenintheformofBitstampUSD/XRPtoindicatethattheseIOUsareissuedbytheBitstampgatewayintheUSDcurrencyandistradingagainstXRP.AnotherexampleistheChinesegatewayRippleCN.TheirIOUsfortheChineseYuanlooklikethis:RippleCNCNY/XRP.BackoveratBitstamp,youwillseethatBitstampUSDisalsoabletobetradedforBitstampBTC.GatewayscansetrulesonthefeesoftradesorpoliciesastowhatisallowedtobetradedbutingeneralalltheIOUswillbetradableforalltheequivalentIOUsonagivengateway.Aquickwordaboutaddingtrusttoagateway.Sinceanyonecancreateagatewayitiscriticalthatyouonlytrustaproperlyestablishedgateway.Thismeansitisattheveryleastincorporatedandisrunbypublicly


knowncorporateofficers.Ifthegatewayisoperatedinananonymousmanner,thatmeansthereisnoaccountabilityiftheservicedisappears.Thisisimportant:inyourRippleWallet,youshouldonlygivetrusttogatewaycompaniesthatyoutrusttobereliableandresponsiblewithyourtokensofvalue,e.g.money.Sinceagatewayisnotusuallyabank(atleastatthetimeofthiswriting),notethatthereisnoFDICstyleinsurancefordepositsmadetoagatewaybusiness.Agatewaythatmakesanefforttobelegitimatehaspubliclyknownstaff,abusinessaddress,customersupportdetails,and/oraphonenumberwithpeoplewhoanswerthephoneduringestablishedhoursofbusinessoperation.IfaRipplegatewaywebsitedisappears,yourIOUsdonotdisappearfromyourRippleWallet.TheproblemisthatredeemingthoseIOUsfortheircashvalueisimpossibleunlessathirdpartygatewayacceptsthemfortheircashequivalents.Icansumthisupsimply.Whenitcomestoanonymousgateways:donttrustthem.Youwillknowtheyareanonymousbecausetheoperatorsdonotmakeitobviouswhotheownersare,wheretheyareincorporated,whattheirantimoneylaunderingpoliciesare,etc.TohelpmaketrustworthystandardsforgatewaysastandardsgrouphasbeenformedcalledtheInternationalRippleBusinessAssociation(IRBA),whichoperatesindependentlyofRippleLabs.IwilldiscusstheIRBAmorebelowbutfornowyoushouldknowtheIRBAhasasetofrequirementstomakesurethatthegatewayslistedonIRBAswebsiteathttp://ripplebusiness.orgarelegitimateorganizations,operateusingbestpracticesforbusinesses,etc.Thereareroughly170membersoftheIRBAatthepresenttime,includingpeoplewhohaveexpressedtheirinterestinformingagatewayforcertainmarketsorareasintheworld.TheauthorhasbeenelectedtoserveasSecretarytothisorganizationtohelpensureitmeetstheseexactingrequirements.Consensus


ConsensusiswherewestarttogetintothenittygrittytechnicaldetailsofhowRippleworks.Youdontneedtoknowallofthisinfoifitisnotrightforyou.IliketotellpeopleunderstandinghoweverythingworksisnotarequirementtoinvestinaRipplebasedasset.Therearealotofcomplexthingsinlifethatdonotrequiredafullunderstandingofhowitworks.Acoupleoftechexamplesincludeareexactlyhowcomputersworkorexactlyhowawebbrowserworks.Weassumethattheprofessionalsthatmakethesetoolsknowwhattheyaredoingandtheycanspareusthegorydetailsandletusmoveontodowhatwewanttodowiththetool.Sowiththatsaid,IjustwanttomakesurethatyouunderstandRippletothelowlevelcodeandprotocolislikewisenotarequirementtounderstandtheideasofRipplesoifthetechnicaldetailsdonotinterestyoufeelfreetoskipoverthissection.IfyouarefamiliarwithBitcoinlikecurrenciesyoumayhaveheardthatBitcoinworksthroughaschemecalledproofofwork.Proofofworkisaprocessinwhichcomputerscooperateonsolvingahardmathproblemthatinitiallynoneofthemknowtheanswerto.Whentheanswerisfound,thecomputerthatsolvestheproblemisawardedablock,anawardofBitcoin(25atthetimeofthiswriting)andtheblockisdistributedalongtoalltheothercomputerswithacopyofallthetransactionsthattookplaceinthepriorblock.Thisiswhatallowstransactionstotakeplace.Intechnicalterms,thissolvesanimportantproblemofhowtosolvethedoublespendingproblem.Adoublespendissomeonespendingthesameunitsofcurrencytwice.Ifeveryonethoughttheycouldjustusespreadsheetstocreateacryptocurrency,theywouldsoonfindthatsomeonewouldcheatbymanuallychanginghowmanypaymentsweresent.AnotherproblemthissolvesisreferredtoinacademiccirclesastheByzantineGeneralsproblemwhichishowtocommunicatealonguntrustworthypaths.Thisproblemhasexistedforalongtimeandonewayofsolvingitwasreleasedtothepublicin2008bySatoshiNakomoto,theanonymouscreatorofBitcoin.In2011JedMcCalebwasthinkingofwaystosolvesomeoftheproblemswiththeproofofworksystem.Inparticular,JedwantedtosolvetheslowCopyright20142015AndrewWhite

transactiontimeofBitcoin.WaitingforcomputerstosolvetheproofofworkproblemonBitcoincantaketenminutesorhoursintimeandthatwaittimeisnotgoodformerchantsorconsumersusingthesystem.WhathecameupwasanewapproachcalledConsensus.Ifthemajorityofcomputersonadigitalcurrencynetworkcouldagreethatatransactionhappenedtherewouldbenoreasontodoubtthatatransactiontranspired.Theproofofworksystemreliesonseveralcomputersagreeingthatatransactionoccurred,whichiscalledconfirmations.Afterenoughconfirmationsoccuritcanbereasonablybeassumedthatatransactiondidinfacttakeplace.Withaconsensusbasedapproach,transactionscouldtakeplaceinsecondsratherthanminutes.Therecanalsobealotmoretransactionssincethecomputationalcostofthissystemislow.Thisbringsustoanotherproblemthathaslongbeenanacademicpuzzle,theByzantineGenerals'Problem.Thisproblemasks,howdotwogeneralscometoanunanimousagreementwhentheyareseparatedbydistancesthatcreateobstaclestocommunication?

OneanswertothisproblemisdonewiththeRipplesoftware,thenetworkissetuptovalidateatransactionif80%ofvalidatornodesagreeatransactiontookplace.Ledgersthemselvesaredeterminedtobevalidbydeterministicrules,i.e.,theycannotcreatefundsoutofnowhere,makefundsdisappear,andalltransactionsmustbeproperlysigned.

NextImgoingtoextensivelyquoteRippleLabsChiefCryptographerDavidSchwartzwhohasalottosayonthisimportanttopic:Thenumberwasdeterminedbysimulation.Ifyousetthethresholdtoolow,theconsensusprocesscompletesveryquicklybutmorefrequentlydoesn'tactuallyreachconsensus.Ifyousetthethresholdtoohigh,theconsensusprocesstakesmuchlonger,butonlyveryrarelyfailstoactuallyreachconsensus.(Whenyousay,"Ibelievethere'saconsensus",youcan'tactuallybe100%surethereisinfactaconsensusornobodycandeclare


aconsensusfirst.)TheconclusionthatnoconsensushasbeenreachedisavalidconclusionandcanresultduetopoortopologyorByzantinefailure.Certaintyisalwayswithrespecttosomethingthathasoccurredinthepast.Itisnotpossibletoknowwithcertaintythepresentstatewithoutobservingatmorepointsthanwillnormallybepossible.

Soeachserverrunsoutaheadofwhatitknowsforcertain,applyingtransactionsandattemptingtoreachconsensusonthem.Whenandifaconsensusisinfactproduced,theserverlaterdeterminesthiswithcertainty,andthuscanadvancewhatitknowsforcertain.

Essentially,theconsensusprocessproducesastreamofsignedmessagescalled"validations"fromwhichit'spossibletodeterminewithcertaintywhetheraconsensushadactuallybeenreachedatsomepointinthepast.

ItispossibletocreateUNLtopologiesthatfrequentlyfailtoreachconsensus.TheplanistohaveRippleserversbuildtheirUNLsusinganalgorithmthatmakessuchtopologiesexceedinglyunlikely.

Evenwithaperfecttopology,twotypesofByzantinefailuresarepossible.

One,whichisnotthatuncommon(oneoutofevery200roundsorso),isalocalfailure.Inorderforaconsensustoeverarise,someonehastodeclareaconsensus.Andforthattohappen,someonemustdeclareaconsensusfirst.Whenthathappens,whoevermakesthatdeclarationcan'tknowforcertainthatotherswilldeclarethatsameconsensus(ortheywouldhavealreadydoneso,andsohewouldn'tbefirst).Soit'salwayspossiblethathedeclaresthewrongconsensus.


Inthiscase,theserverthatsufferedtheByzantinefailurequicklydiscoversthattheothervalidatorshavebuiltadifferentledgerthanitdidanditbeginsitsresynchronizationprocess.Otherserverswillstill,fromthevalidations,whichledgerwasthemajorityledger.

AmuchlesscommontypeoffailureiscompleteByzantinefailure.Inthiscase,severalserversdeclaredifferentconsensusesandthereisnoclearmajorityledger.Inthisrarecase,thenetworkasawholemustreconvergebeforeatrueconsensuswillemerge.Ripplehasanalgorithmtodoexactlythis.Serverswillseetheconflictingvalidationsandknowwithcertaintythattherewasnoactualconsensus.Andthattheymustadheretothefollowingpriorities:1)Validity.(Transactionsproperlysigned,rulesfollowed)2)Agreement.(Ledgersgetsupermajorities)3)Utility.(Asmanytransactionsincludedaspossible)2isuselesswithout1.3isuselesswithout2.

OntheRippleforumrecently,amathematicallymindedmemberaskedDavidthefollowingquestionHowdoesRipplesolveByzantineGenerals'Problemsuchasnosolutionunlessn3t+1,n=numberofprocessesinthesystemandt=numberoftraitors?

SohowRipplesolvestheByzantineGeneralsproblemissimple.Theconsensusprocessispermittedtofailbecauseitdoessoharmlessly.Iftheconsensusprocessformsaledgeronwhichthereactuallyisnoconsensus,thentherewillbeinsufficientvalidationsandtheconsensusprocesswillrepeat.ToputitinByzantineGeneralstermsifyougettothebattleandtheotherarmiesaren'tthere,youjuststartover,nothingcatastrophichappens.Inotherwords,keeptryinguntilthevastmajority


ofmessagesagreeatransactionisaccurate.Perhapsnotsurprisinglythissimplebutelegantsolutionhaswiderangingramifications.

AndwiththatwecanwrapourreviewofhowConsensusworks.FormoreinformationpleasecheckouttheRipplewikipagesathttps://ripple.com/wikiorhttps://ripple.com/wiki/How_it_works

Validators

SincewearediscussingthetechnicaldetailsofhowRippleworks,forcompletenessIjusttomentionValidatornodesandwhattheydo.

TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocoldependsonacollectionofvalidatorswhoparticipateintheconsensusprocessandproducesignedledgerswhichgetbroadcastintothepeertopeernetwork.Clientsandpeerscollectanddependonthesesignedledgerstodeterminewhatistheconsensusledger,orthe"true"stateoftheledger.CrucialtothesecurityofthenetworkisthateachRippleserverchoosetopayattentiontoasufficientlylargediversesetofvalidatorswhoarenotcolludingtodefraud.When80%ofvalidatornodesagreethataedgerisvaliditgetssignedandconfirmedacrosstheentireRipplenetwork.ThisisanalternativesolutiontotheByzantineGeneralsproblemfirstsolvedbyBitcoinwithmintingnewtokensinadatabasefilecalledablockchain.

CurrencyIOUs

IOUs(Ioweyouspronouncedhowitisspelled,eyeohu)arecreditsandarewhatmostpeoplewilluseonRipple.IOUsstandforIoweyou


(something).WearemostfamiliarwithIOUsfromourbankingorinvestorstatementthatismailedmonthlybyfinancialserviceproviders.AnIOUisapromisethatacertainamountoffundsthattheIOUissuercontrolsarefundsinyouraccount.TherealityisthattheIOUholderhasatotalamountoffundsthatitcontrolsand,fromthistotal,theyuseadatabasetoorganizewhattheyowetheircustomersandthenumberdisplayedtoyouistheIOU.IOUsonRipplenetworkoperateonthesameprinciple,butinsteadofabankingorinvestmententitycreatinganddisplayingtheIOUtoyou,anIOUontheRipplenetworkisanassetcreatedbyaRipplegatewayindicatingIpromisetoredeemyouaspecificamountofthiscurrencyasset.IfyoureceivedapaymentforUSdollars,youwouldseethedepositoftheUSDIOUsinyourRippleWallet.

IOUsarewhatmakeRippletheemailofcurrencies.Theemailprotocoldoesnotcarewhoyouaresendingamessageto,orthecontentofyouremailandRippleworksthesameway.ThesenderandrecipientofanemailislikethesenderandreceiverofRipplewallets,themessageinanemailissimilartowhatcurrencyandhowmuchissentinthetransaction(themessage,inouremailanalogy).ThefinallessonyoushouldtakeawayfromthisisthatanIOUhasnovaluewhenitisnotbackedbyanassetthatcanberedeemed.

PathfindingPathfindingisoneofthetechnicaldetailsthatIincludeforcompletenessandisfairlyselfexplanatory.PathfindingishowRipplefindswaystomakethebestavailablepayment.ThepriceonatransactionfeecanvaryinRipplebasedonthebestpossibleexchangerateontheorderbooksofRipplecurrencies.AsthisdiagramfromRippleLabsillustrates:


Pathfindingisofmostinteresttomarketmakersandtechnicaltypestobeabletoservemarketactivity.ItisimportanttonotethatalthoughRippleisfastitisslowenoughastomakehighfrequencytradingimpossibleandapartofthereasonwhythatisisbecauseofthetimeittakesPathfindingtowork,afewsecondsistooslowforHFTtobeeffective.

Traders

AnyonewithaRipplewalletcantradethedigitalcurrencyassetsonRipple.SendingapaymentofanysortusingtheRipplenetworkisequivalenttomakingatradeontheforeignexchange(alsoknownasforexandFX)currencymarkets.


Eachcurrencyhasathreeletterabbreviation,andeachcurrencytradeisexpressedasapairthatincludesthebasecurrencyandacountercurrency.Eachcurrencypair(USD/XRPorEUR/JPYorCNY/BTC,etc.)issupportedbyagatewaythathasanorderbookofbuyersandsellersofaparticularcurrencypair.ThedailytradingvolumeontheRipplemarketisgrowingrapidly.Atthetimeofthiswriting(March2014),themostpopularcurrenciestradedareChineseYuan(CNY),USD,andBTC.

Automatedtradingisapopularchoiceforinvestorswiththetechnicalknowhowtoworkwithprogrammingscriptstomakeatradingbot.ThesebotsconnecttotheRipplenetworkandlookatthebidsandasksincertaincurrenciesandtradeaccordingtouserdefinedparameters.Mostofthesebotsrequireafairamountoftechnicalknowledgeandskilltosetupanduse.Althoughtherearenoalgorithmictradingservicesavailabletoinvestorsatthemoment,theseareknowntobeindevelopment.Tradeandforgetbotscanbeextremelyvaluableastheyworkforyouaroundtheclockwithouttiringormiscalculating.


Offmarkettradingcanalsobeverylucrative.FindingamarketthatwantsXRPbutdoesnothavetheknowhowhowtogetitisanexcellentwaytobuildabusinessandincreaseRippleadoption.Ifyouwanttoengageinoffmarkettrading,pleasegetinformedoflocallawsbeforebeginning.IntheUnitedStates,tociteoneexample,transactionsgreaterthan$10,000needtobereportedtotheFederalFinancialCrimesNetwork(FinCen).

MarketMakers

Marketmakersarepeoplewhoprovideliquidity(i.e.,money)betweengatewaystoallowpaymentsthroughapathwayofcurrenciestobemade.Muchlikehowaroadprovidesapathforacartoreachitsdestination,apathwayistherouteatransactiontakestocompleteapayment.Althoughthereareafewwaystobecomeamarketmaker,theeasiestiswithasimpleorderintheRipplewalletforthesamecurrencybetweenthetwoormoregatewaysyouwanttomarketmakefor.Itshouldbenotedthatanyonecanbeamarketmakerbutithelpstohavealotofcapitaltomakeitmoreworthwhileforthemarketsyouaretryingtosupport.

EnterprisesTheRippleecosystemislikelytoseepowerfulwaves(ha!sorry...)ofnewservicesdevelopedtotakeadvantageofthenewfoundpossibilitiesthatRippleprovides.Themostobviousareaatthetimeofwritingisgatewayservices.Merchantservices,remittanceoptions,charities,experimentalhobbies,andcommoditiesalsoareallpromisingareasforinnovatorstoplacetheirstake.


AnumberofinterestingcompanieshaveformedbasedentirelyontheRippleprotocol.CompaniessuchasFortuneHarbor,Coinst,RippleWise,SnapSwap,andothersareleadingthewayintermsofinnovationandprovingthattheRipplesystemisaviablebusinessmodel.CompaniesolderthanRipplehavealsosignedontousetheservice,mostnotabletodateisBitcoinexchangeBitstamp.

CreatingorinvestinginanewcompanyintheRippleecosystemisanattractiveoptiontotheinvestorfamiliarwithmanagingequityassets.Rippleissonewandtheopportunitiesitofferssolargelyuntapped,thatthedooriswideopenforenterprisingindividualsandstartupstomakeasubstantialimpactwithlittlestartupcosts.IfthisissomethingthatinterestsyouinpursuingabusinessIstronglyencourageyoutodoso.ComplementaryservicesthataddvaluetotheRipplenetworkissomethingRippleLabsisveryinterestedinsupportingandyoushouldletthemknowaboutitonceyouarereadytolaunch. DueDiligenceQuestions

IfyouplanoninvestingintheRippleecosystemyoushouldbeaskingsomehardquestionsandhavehonestanswersbeforethrowingmoneyaround.Herearesomebasicsforyoutoconsider:

HowwelldoIunderstandRipple?WhatdoInotunderstandaboutRipple?Whataretherisksinvolved?WhatarethelegalandregulatoryissuesimpactingRippleinmycountryofresidence? WhatdoIknowabouttheprincipalsintheenterpriseinwhichImightinvest?DoIunderstandallthecounterpartyrisks?


WhathappensiftheRipplesoftwarebecomesfundamentallybrokenandcantbefixed? Whoarethemajorcustomersandtheapplicationsrelatedtoinvestmentopportunities? Whatarehistoricalandprojectedgrowthrates?Whatistheexpectedmarkettimingofnewproducts,services,orenhancements?

Alongwiththesespecificinvestorquestions,IwantedtosharethislistofbestpracticesfromtheRipplewiki:

Youmustprotectyourself:

RippleLabsInc.doesnotendorse,qualify,orguaranteetheperformanceofanymerchantorgateway.Donottrustservicesoperatedanonymously,youhavenorecourseiftheyfailtodeliverontheirpromises. DonotenteryourRippleusernameandpasswordonanysiteyoudonottrustwithyourfunds. DonotenteryourRippleusernameandpasswordonanysitethatdoesnotusehttps.Youcanusuallytellwhenasiteuseshttpswhenyourwebbrowserhasagreenlocknexttothewebsiteaddressintheaddressbar. Donotuseaclientprovidedbyanentityyoudonotfullytrust.Youmusttrustyourclientprovidertobehonest,secure,competent,uptodate,andperhapsmore. ForlongtermstorageofXRPorIOUsinacoldwalletconsiderusingtheDesktopClient.Youshoulduseapasswordsolongandrandomyoucannotrememberit(onlystoreandcopyitsecurely).


Ialsotellmyclients:Idontwanttoknowyourpasswordorsecretkey,youshouldnothavetotrustmetothatlevel.

Usingdigitalwalletsisarelativelynewphenomenaanditisfairtosaythatthestateofcomputersecurityandconsumersarenotreadyfortheresponsibility.IntheFuture

ThefuturewillcertainlybringmanyexcitingandinterestingareasforRippleinvestorstoconsider.Inparticular,Imexcitedforthetimewhenoptionstradingbecomesmorewidelyavailable(whichwilllikelybeeasierwiththeadventofsmartcontractslaterin2015).Inmyopinion,smartcontractswillbethekillerappformathbasedcurrencies.Forexample,byusingsomeparticularmathfunctionsitispossibletoissuesharesforacompanyorraisefunds.InJuly2014RippleLabsannouncedCodius,anewprojecttoenablesmartcontracts.Codiuswillallowpeopletocreateoffersorcontractsacrossforanydigitalledgersystemsothattheycanallbenefit.Theydothisthroughsomeinnovativedesignchoicesthatallowpeopletomakeusefulapplicationswithanypreexistingprogramminglanguage.IspokewithStefanThomastheCTOofRippleLabswhoexplainedtomethatthedesignwasinformedfromtheexamplethatbusinesslogicanddatastorage(databasesordecentralizedledgerslikeBitcoin)aretwoseparatetopics.Everywebserviceinexistenceusesadatabasetostoreinformationandbusinesslogicontopofthedatabasetodecidewhatgoesintoit.Ishouldprobablymentionacomputersciencetermthatwillbehelpfultounderstandwhythisdesigndecisionwastaken.Computersrunsoftwareinoneoftwoways.Oneisdeterministic,codeexecutesinthesamewayeverytime.Theotherisnondeterministicwhichmeansitcanexecutedifferentlyeverytime.Whatisgoodaboutthisapproachis


thatitmakesCodiuscompletelyplatformneutral.Anyprogramminglanguagecanuseitandanydigitalassetsystemcanuseitsapproach.CodiususesanotherconceptcalledSmartOracles.Asmartoracleisanythingthatcanbeaskedaquestionandanonbiasedanswerisreturning.Oneexamplecouldbeaskingthestockmarketwhatthepriceofagivenstockis.AnotherexampleisaskingtheBitcoinnetworkifacertaintransactionhappened.TheimportantthingtounderstandisthatCodiusisneutralastowhomyouaskyourverifiedquestionsandhowyoudoit.YoumightwanttomakeacontractonstockfuturesandhedgeonthepriceofBitcoinandorthetemperatureofDalyCity,ifalltheanswersadduptothethresholdoftruthaswritteninyourcontractthetermswillbemetandthecodeexecutes.Thisisverydifferentfromeveryothersystemoutthereandsomethingthatcreativepeoplewillmakeamazingapplicationswith.TheCodiusapproachtosmartcontractsfreesdevelopersfrombeinglockedintoanyonesystemwhichistheHolyGrailfornextgenerationfinancialandbusinessapplications.Tolearnmoreonthesubjectofsmartcontracts,IhighlysuggestathoroughreadingofGreatChainsofNumbersbyTimSwanson.NewservicesforRipplewalletsarecomingoutallthetimeincludingShiftPaymentswhoarereleasingacreditcardthattiesintoaRipplewalletinlate2014.SnapSwapandothersarealsoreleasingRipplebackedVisacardsthatisveryexciting.Irecentlyhadausecaseforthis.Mywifewasshoppingforsomethingandcalledmeupthathercardwasdeclinedatthegrocerystore.ThiswouldnormallybeaverydisruptiveexperiencebutIwasabletosendUSDtoherRipplewalletandtheshewasabletomakethepaymentwithoutincident.Trydoingthatwithatraditionalcreditcard!Likeanyactiveprotocol,Rippleisconstantlyevolving.Ripple(andCodius)issuchadisruptivenewtechnologythatitsfullimpacton


businessandsocietywillnotbeknownformanyyears.ThedaywillcomewhenpeoplewillbesoaccustomedtoamulticurrencywalletthattheywillaskwhydidntIthinkofthat?Peoplewholivedthroughthebeginningofdigitalstockmarketsandoptionscontractshavesaidtomehowtheythinkwearewitnessingthedawnofadisruptivetechnologyasbigasanadvancementasdigitalstockmarketsorpapercurrencies.ImportantRippleInfrastructureBeyondRippleLabsthereareanumberofimportantresourcesandservicesthatisavailabletotheRipplecommunity.ForemostaboutthosearecommunityforumswhereissuesrelatedtoRipplearediscussed.ThemostactiveoftheseareXRPTalkranbyacommunitymemberinFranceandtheRippleLabsForum.Acoupleofnewserviceshavecomeintobeingrecentlythatareusefulaswell,LibreTaxfortaxesintheU.S.andCoinistforpublicreviewsofgatewayservices.ThemostwellknownRipplegatewayrightnowisBitstamp,theworldslargestBitcoinexchange.Thereareavarietyofotherprojectsunderdevelopmentrightnow.ThereareatleastfourventurecapitalbackedcompaniescreatedspecificallyfortheRippleecosystemthatIknowof.ThereisalsoalotofdiscussionaboutwaystoimprovetheRippleworldwithnewfeaturesandmoreservices.Itisgoingtobeanexcitingfewyearsforimportantinnovationstobebroughttomarket.Fortechnicalinfrastructure,Iexpecttoseemoreservicestoenterthemarkettoserveasenginestodrivethegrowthofdigitalassetsandusefulthingsthatcanbedonewiththem.MyowncompanyOneMillion


GatewaysInc.wasrecentlyfundedtohelpcompaniesreachtheirfullpotential.

FAQ

HowisRippledifferentfromBitcoin?

Thetwoarecompletelydifferent.ThemostbasicansweristhatRippleisnotdesignedtobeusedasjustacurrency.Insteaditisapaymentsprotocol.ThedifferenceisbetweenBitcoinbeingap2pvirtualcurrencyandRippleasap2pexchange.BitcoinusestheproofofworkmechanismcommonlyknownasminingtogenerateBitcoinandorverifythevalidityoftransactions.Instead,Rippleusesasystemcalledconsensus.ThisfundamentaldifferencewithBitcoinmeansthattheyworkdifferentlyandthattheyaredesignedfordifferentpurposes.BitcoinorothercurrenciesarenotcompetitionforRipple.MyunderstandingisthatRippleLabswantstoseeotherpaymentsystemssettledortradedonRippleandnotcompetewiththem.

Iheardthatminingdigitalcurrenciesrequiresanincredibleamountofelectricity,isRipplesimilar?

Thankfullyno.Ripplerequiresnomoreelectricitytorunsecurelythananormalhighendcomputerserver.ThemegatonsofCO2andmegawattsofelectricityandpowerbillsusedbyotheralternativesisnotanissuewithRipple.

IheardthatRippleisapreminedcurrency,isthattrue?

Theanswerisbothyesandno.RipplewasnotcreatedorreleasedasacurrencyplatformthatusedasystemofminingtogeneratethecurrencyCopyright20142015AndrewWhite

andverifytransactions.Peoplethatmineorbelieveintheideathatminingismorefairduetothesupposedequalprobabilityofbeingrewardedfordoingtheproofofwork.Thereisnothingwrongwiththatopinion.HoweverRipplesuccessfullysolvedsomeoftheinherentandfundamentalproblemsthatminingbringstoadigitalcurrency:theslownessoftransactions,the51%attackproblem,blockchainsplits,etc.Indefiningtheutilityofcrosscurrencypayments,afundamentaldesignprincipleisthatlongdelaysforpaymentsisnotacceptable.Letsfaceit,nobodywantstheuncertaintyofwaitingforapaymenttoconfirmandRipplecanmaketradingthosekindsofassetsfasterandmoresecure.DoanybanksuseRipple?AtthetimeofthiswritingthereareafewbankswhohaveclaimedtheywillbeusingtheRippleprotocol.AsofthiswritingtherehavebeenannouncementsforbanksinChina,Germany,andAustralia.

Whatarevalidators?TheRipplenetworkreliesondedicatedcomputerscalledvalidatorstoconfirmthattransactionsarevalid,whyisthis?

Validatorsarethelightweightwaytoverifythattransactionsarevalidcomparedtotheheavyweightneedforcomputingpowerincryptocurrencyminingalgorithms.Theyarelightweightbecauseyouonlyneedafewcomputersdoingthis(insteadofthousandsintraditionaldigitalcurrencies).Bydesign,RippleLabscreatedtheRipplenetworktorelyonvalidatorsthattheyrunandtheyknowcanbetrustedtomakesurethattransactionsarevalid.Themajorityofthevalidatorsthatagatewaytrustsmustbetrustworthy.Ifthemajorityofthembecomemaliciousorconspireagainstthegateway,theycanmakefraudulentpaymentsagainstthegateway.ThewaytomitigatethisthreatisbyusingcommunityacceptedtrustednodessuchasthoserunbyRippleLabs.


HowmanypeopleuseRipple?Thereare157,000walletsasofMay2015.Thelargestgatewayshavebetween15,000to10,000walletsthattrustthem.

IheardsomeoneforgottheirpasswordorhadtheirRipplecoinsstolen,arethosecoinsorwalletsinaccessibleforever?

Yes,unfortunatelytheyareinaccessibleforever.NeitherRippleLabsnoranyoneelsecanrestoreyourpasswordorrecoverstolencoins.PaymentsinRippleareirreversibleduetohowsomeofthelowlevelmathfunctionswork(formoreinformationontheunderlyingtechnologies,youcanresearchpublickeycryptographyandmessagesigning).YoumostsafelystoreyourprivatekeytoaccessyourwalletintheeventofRippleTradedowntime.

Iwanttoknowmoreabouthowtosetupagateway,wheredoIstart?

https://ripple.com/wiki/index.php?title=Ripple+for+Gatewaysisagoodresource.Iwouldalsolovetotalktoyouaboutyourideaandhelpyoubecomesuccessful.

WhatisaSecretKey?

YourwalletsSecretKeyisyoursecretentranceintoyourwalletifyoueverforgetyourpassword.YourSecretKeycanalsobeusedaspartofaprogramtodothingsforyousuchasrunningatradingbot.SecretKeys


arenamedsecretbecausetheymustbeabsolutelyunavailabletoanyonebutthosetrustedtoaccesstheaccount.IfsomeonegetsyourSecretKey,theycandowhatevertheywantwithyourassets.IfyouarehavereasontobelievesomeonehasgainedunauthorizedknowledgeofyourSecretKey,youshouldcreateanewwalletandsendyourassetsovertothenewwalletassoonaspossible.Youshouldnevershareyoursecretkeywithanyone(exceptperhapsyourattorney).

WhatisthebesttechnicalresourceforRipple?

ThebestRippledocumentationresourceislocatedathttps://ripple.com/wiki/Developerscanalsocheckouthttp://dev.ripple.com/Forfurtherinformation,IsuggestconnectingwiththedevelopersontheIRCchannelontheFreenodenetwork#ripple.IwanttolearnmoreaboutConsensus,wheredoIfindmoreinfo?TheConsensusWhitepaperreleasedinAugust2014:http://dev.ripple.com/consensuswhitepaper.html

IdontlikehowRippleLabsdoesXYorZ,whatdoyouhavetosayaboutthat?

RippleLabsisaveryyoungstartup.Expectationsforthisservicearehigh,perhapstoohigh.Ittakestimetobuildworldclassteams,andstaffingresourcesarealwayslimited.GiveyourissuesometimeandIamcertainthatyouwilleventuallyseeimprovementstotheissueyouareconcernedwith.


Whataresoftwareforks?Softwareforkshappenwhenonegroupofsoftwaredevelopersdecidestotakethesourcecodefromaprojectandmaketheirownpossiblyincompatiblechangesfromthepriorversionofthesoftware.Thiscanhappenforvariousreasonsbutthemostlikelyreasonisthatonegroupofdevelopersdisagreedwiththedirectionaprojectwasgoing.Thiscanbeeitheragoodorabadthing.Itisbadwhenitdividesthenumberofpeopleworkingonaproject.Itcanbegoodwhentheforkedsoftwaremakesimprovementstheotherdeveloperswerenotwillingtomake.AlternativeversionsofRippleareexpectedtobereleasedinthefutureandthisisgoodfortheRippleprotocolsincenewideascanbetestedindifferentnetworks.

Whataregoodcommunityresourcesforgettinganswerstomyadditionalquestions?

Myfavoriteresourceistheforumathttps://ripple.com/forum/butthemostpopularcommunityforumishttps://xrptalk.org/HowdoesRippleLabssellRipples?Dotheysellontheopenmarket?AccordingtoDirectorofCommunicationsMonicaLongtheydonot:RippleLabsisn'tandhasneversoldXRPintheopenmarket.WeselltheportionofXRPreservedforbusinessoperationsthroughdirectwholesalepurchasesonameasuredbasis.Whatwe'veseenrecentlyisawholesalebuyersellingasignificantvolumeinmarket.We'vechangedthetermsofwholesalepurchasingtolimitmarketimpactinthefuture.


IhavesomethingIwanttodiscusswithRippleLabs,whatisthebestwayformetodoso?

Talktothebusinessdevelopmentteamatpartners@ripple.comorthedeveloperrelationsteamatdevelopers@ripple.com.Iwanttostartacurrencyissuinggateway,butIhavenoexperienceandnocapital,howdoIgetstarted?FirstofallIapplaudyourenthusiasmforRippleandaddingvaluetothenetwork.HoweverIwouldadviseagainststartingagatewayonyourown.Gatewaysarepowerfultoolsandwithnobackgroundincompliance,regulations,orthetechnicalriskswithusingRippleyouwouldbedoingyourcustomersadisservicestartingoutwithnoexperience.Iwouldsuggestyoufindsomeequallyexcitedpartnerswithexperienceinthepaymentsindustryordigitalcurrenciesbeforemovingforward.AtOMGweuseaveryrobustsystemofmultipleserverstodeploythegatewayforredundancy,security,andqualityofservice.Rippleisnotthekindofsoftwarethatyoucaninstallonceandyourealldone.Rippleissomeofthemostcomplexanddemandingsoftwarearound.Settingupagatewayonyourownislikelearninghowtoflyahelicopterforthefirsttimeandtryingnottocrash.Usingenterprisegradebankingsoftwareisnottobetakenlightly.


Iwanttolearnmoreaboutcryptography,wheredoIstart?Imgladtohearyourinterestinthisitisahobbyofmineaswell!Wikipediaisoneofmyfavoriteresources.Anothergreatexampletolearnthebasicprincipalsisillustratedatthislinkhttp://www.moserware.com/2009/09/stickfigureguidetoadvanced.htmlWherecanIlearnmoreaboutthesocalledByzantineGeneralsproblem?Theoriginalpaperdescribingasolution(backin1982!)canbereadathttp://research.microsoft.com/enus/um/people/lamport/pubs/byz.pdf

GlossaryAnonymousUntraceableactivity.Contrarytosensationalmediareporting,neitherBitcoin(orRipple)areanonymous.BitcoinAproofofworkdigitalcurrencycreatedin2009.ThebenefitsofBitcoinisthatitisnearlyimpossibletocounterfeit(i.e.,makefakeBitcoin)whichmakesitusefulforonlinepayments.Bitcoinsolvedtwolongstandingacademicproblems,thedoublespendproblemandtheByzantineGeneralsproblemthatallowsittoworkinasecure,decentralizedmanner.

CodiusThisisatechnologyneutralframeworkforcreatingsmartcontracts.Moreinfocanbefoundathttp://codius.org/ DueDiligenceistheprocessofthoroughresearchbeforemakinginvestments.


EnterprisesincludebusinessstartupsintheRippleecosystem,suchasnewgatewayservices,merchantservices,remittanceoptions,charities,experimentalhobbies,andcommoditiesallarepromisingareasforbusinessinnovatorsandearlystageinvestors.GatewayaserviceproviderthatenableuserstodepositmoneyintoandwithdrawmoneyoutoftheirgatewayaccountsontheRipplenetwork.Intechnicaltermsagatewayisanassetissuer.Althoughmostuserswillnotbecomeagateway,thecapabilityforthemtobecomesoispresentineveryRipplewallet.HashAdigitalfingerprintofsomething.Ahashmeasuresthebytesofanobjectsuchasafileandcomputesanumberthatisspecifictoonlythespecificarrangementofbytesinthatfile.Therearemanywaysofproducinghashesanddifferentstandardsareusedfordifferentpurposes.MSBaregulatedactivityintheUnitedStatesrelatedtoaMoneyServicesBusiness,i.e.,moneytransmission.PublickeyAmathematicaladdressthatyoucangenerateforthepurposeofsharingwithanyone.Apublickeyistiedtoaprivatekeyyoushouldnotsharewithanyone.RadrARippleforkstartedbyRadrLabsInc.http://radarlab.org/


RipplestheRipplenetworksnativecurrency,representedbythelettersXRP.InordertousetheRipplenetworkXRPmustbeused.EachtransactiondeletesatinyamountontheRippleledgerforever.RippleClientThisisthesoftwarethatisusefulforuserexperiencesonwebservicessuchasadigitalwallet.

RippleLabs,Inc.ownstheintellectualpropertyoftheRippleprotocol,andpromotesRippleswideruseandgreaterusefulness.RippleserverAlsoknowsasrippled,thisisthesoftwarethatconnectsallrippleserverstogetherintoadecentralizednetworkaroundtheworld.GatewayoperatorsneedtouseoneinordertohavetheirserviceusetheRippleprotocol.

IOUisapromisethatacertainamountoffundsthattheIOUissuercontrolsarefundsinyouraccount.AnIOUontheRipplenetworkisanassetcreatedbyaRipplegatewayindicatingIpromisetoredeemyouaspecificamountofthiscurrencyasset.

TraderpeoplewhousetheirRippleWalletstoexchangecurrencies(govt.issuedcurrencieslikeUSD,CNY,etc.anddigitalcurrencieslikeXRP,BTC,etc.),functionallysimilartotradesmadeontheForeignExchange(FX)currencymarkets.

MarketMakersprovideliquidity(i.e.,money)thatallowspaymentstofollowapathwaybetweengateways.SecurityTheattributeorprocessusedtosecuredatabymeansofauthentication,confidentiality,andintegritychecks.ThereisnosuchthingCopyright20142015AndrewWhite

asaperfectsecuritysystemonlyincreasedcostsordifficultyforanattackertoovercomeit.StellarARippleclonefundedbyStripe.com.ThemaindifferencewithRippleisthatStellartokensareaninflationaryassetinsteadofadeflationaryone.ValidatorsdedicatedcomputernodesthatconfirmatransactionisvalidthroughtheConsensusprocess.Validatorsarethekeytotransactionverificationthresholdbeingreachedandonlyneedtobeusedbyexpertsorpeoplerunningprofessionalgateways.Walletthedigitalaccountwhereindividualshold,access,andusetheirdigitalcurrenciesinRipple.WalletVaultAwalletvault,alsocalledawalletblobistheencryptedstorageofRipplewalletsecrets.Thewalletvaultiscreatedinsuchawaythattheservicehostingthewalletblobcannotreadthecontentsofthedataorcompromiseintegrity.AbouttheAuthor

AndrewWhiteservesasthefounderofOneMillionGatewaysInc.adigitalcurrencyconsultingcompany.HealsoservesasSecretaryattheInternationalRippleBusinessAssociation,whichisthepremierorganizationofmerchantsandbusinessesthatusetheRippleprotocol.AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSanFranciscoandtheBayArea,andbeganusingXRPsoonafteritsintroduction.


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