Ripple: payments, exchanges, and XRP

1. Ripple: payments, exchanges, and XRP Lawrence Kerr March 6, 2014

2. With digital currencies, the cat is out of the bag, and it is unlikely that the world will ever return to a 20th-century era of paper money and plastic credit cards. The future is digital money on smartphones. Gary Kremen, CrossCoin Ventures

3. Overview • What is Ripple • Currencies • How it works • Pros • Cons • Ripple in action • Questions

4. What is Ripple? • Payment network • Distributed • Consensus • Protocol • Allows cross-currency transactions • Based on global ledger • Digital currency • In network currency • Bridge

5. Payment network • Distributed • Peer-to-peer • Each node has one or more roles • World wide • Based on trust between nodes • Allows for transactions involving any type of currency • Fiat • Crypto currencies • Commodities • Bridge payments to external entitites

6. Protocol • Ripple Transaction Protocol (RTXP) • Identify paths between entities • Maintain ledger • Maintain connectivity • rippled

7. Digital Currency • Ripple (XRP) • Divisible up to 6 decimal places - drop • 1 XRP = 0.0163 USD • “Pre-mined” • Distributed by Ripple Labs • Build trust and goodwill • Charity • Used as intermediary when exchanges between other currencies not possible

8. Currencies • Claims to allow trading of any currency • USD, CAD, GBP, CNY, etc. • BTC, XRP and other crypto currencies • Commodities • Gold, silver, etc. • Other • Frequent flyer miles • Phone airtime minutes

9. How It works

10. The Ledger • Network snapshot • Balances • Trust limits • Transactions since last ledger • Synchronized across all nodes in network • Represented as a hash tree • Continuous ledger close

11. Consensus • Network must periodically agree on new ledger • Consensus based on trust others are not collduing • Response to double-spending problem • Not reliant on single third party • Validation • Non-colluding • Unique Node List (UNL) • Recommend 1000 nodes/5 continents • Varied interests • Bad behaviors • Easily detected • Future distrust

12. Consensus • Iterative • Start with view of all transactions • Broadcast set of likely transactions • Receive other sets from trusted nodes • Unknown transactions – those not from trusted source are voted down • Include any transaction approved by at least 50% of UNL • Repeat with broadcast, increasing threshold each time until clear consensus (80% or greater) is reached • Valid transactions voted out remain in queue for next consensus • Invalid transactions become apparent over time • Node may become untrusted

13. Addresses • Each user has unique address • Balances • Currency specific • Gateway specific

14. Trust Lines • Balance owed between parties • One way • Trust limits • Trust balances • Dynamic • Any two addresses • Established or removed at any time

15. Exchange Offers • Offer to trade • One balance type for another • Offering user sets exchange rate

16. Roles • Any Ripple user can assume any role • Roles distinguished by connection to others • Customers • Merchants • Gateways • Market Makers

17. Customers and Merchants • Connect to local gateway • Customer/merchant must trust gateway • Typically • Single gateway • Local currency • Merchant offers goods and services

18. Gateways • Common party • Holds balances of connected customers • Not required to trust anyone • Typically associated with local currency

19. Market Makers • Connect gateway communities • Trust multiple gateways • Provide paths between gateways

20. Example Transaction

21. Pros • Limiting criminal activity • Know-Your-Customer (KYC) • Anti-Money laundering (AML) • Fast transactions • Consensus reached quickly • No mining • less electricity consumed • Funding opportunities • CrossCoin accelerator

22. Pros • XRP Security System • Small security fee for each transaction • Destroyed, not banked • Prevent spamming of network • XRP reserves • Account reserve • Action reserve

23. Pros

24. Cons • “Pre-mined” XRP • 100 billion produced • 55 billion to be donated • Ripple Labs retaining 25 billion • Lack of anonymity • Requires purchase of XRP • Free account • Required reserve of 20 XRP • Open source? • Who are the validators? • https://ripple.com/ripple.txt

25. Cons • Decentralized vs distributed

26. Ripple in Action • http://www.ripplecharts.com/#/ • https://dev.ripple.com/ • http://rippleprice.com/ • https://www.computingforgood.org/ • http://www.xrpga.org/gateways.html • https://shop.rippleunion.com/

27. Questions

28. References • http://www.fastcompany.com/3027271/fast-feed/move-over-bitcoin-crosscoins-new-accelerator-bets-on-the-ripple-ecosystem • https://www.ripplelabs.com/ • http://www.ripplecharts.com/#/ • https://dev.ripple.com/ • http://rippleprice.com/ • https://www.computingforgood.org/ • http://www.xrpga.org/gateways.html • https://shop.rippleunion.com/ • http://en.wikipedia.org/wiki/Double-spending • http://en.wikipedia.org/wiki/Ripple_(payment_protocol) • https://www.ripplelabs.com/xrp-distribution/ • http://crypt.la/2014/01/22/unexposing-the-ripple-scam-rebutting-ripplescam-org/ • https://bitcointalk.org/index.php?topic=393882.0 • http://ripplescam.org/ • http://www.coindesk.com/10-things-you-need-to-know-about-ripple/ • http://www.wired.com/wiredenterprise/2013/11/inputs/