Ripple (Geldsystem)

The Ripple logo.

Ripple is an open source protocol for a payment network based on an idea by Ryan Fugger, but further developed by Ripple Labs. In its developed form, the Ripple network is intended to be a distributed, peer-to-peer payment system and foreign exchange market. The Ripple network supports any currency (dollars, yen, bitcoin, etc.).

At its core, Ripple is based around a shared, public database. This database contains a ledger with account balances. Anyone can view the ledger and see a record of all activity on the Ripple network. In addition to information about balances, the ledger can also hold information about offers to buy or sell a currency or asset, creating the first distributed exchange. Participants in the network agree to changes in the ledger via a process called consensus. Consensus is reached by the network approximately every 2–5 seconds, allowing for trading of assets and settlement of transactions without any centralized clearing house.

In addition to the payment network and distributed exchange, Ripple also includes its own internal Ripple currency, XRP (sometimes called ripples). Users of the Ripple network are not required to use XRP as a store of value or a medium of exchange. The network is currency agnostic. XRP exists to fulfill two primary network functions—to stop network spam and to act as a bridge currency. To stop network spam, a small amount of XRP must be used in each transaction, and this XRP is destroyed after use. The XRP currency is the only currency in the Ripple system that does not entail counter-party risk: an XRP balance is not dependent on any organisation backing it. Unlike IOU balances, it does involve exchange rate risk however. The creators of ripple created the network with 100 billion XRP, and gifted a for-profit company, Ripple Labs (originally called Opencoin), with 80 billion XRP. Ripple Labs intends to distribute 55 billion XRP to users of the network, and will keep the rest, in the hope that this XRP will grow in value over time.

The current version of the original Ripple client is version 0.2.34.

Explanation

Most modern monetary systems work on trust. For example, cash and bonds are government obligations. This is particularly true of digital balances of fiat currency. A $100 balance on a bank network requires trust that the bank will redeem or repay on demand. Ripple attempts to apply this idea of trust to an online currency by keeping a world-wide ledger of debts between individuals and institutions. The ledger is stored on the world-wide P2P network of computers running the Ripple server software. In order to keep the various copies of the ledger consistent, Ripple uses a consensus algorithm.

Since the ledger contains a record of debts, it records how much of which currency a person owes to another and vice versa. A non-zero IOU balance in an account therefore is always made up of one or more private debts between individuals. An important special case is that of a Ripple gateway, an institution that accepts real world payments in exchange for IOUs, and redeems them on demand. The gateway acts somewhat like a bank, although all its obligations are recorded in the distributed Ripple ledger rather than in the gateway's own books. Redeeming IOUs involves making payments outside the Ripple network, through cash or EFT for example.

Although the term gateway is generally used only for businesses that issue and redeem IOUs, anyone with a Ripple account can act as an informal gateway.

When payments are made in the Ripple system, debts between individuals are adjusted accordingly. Since the Ripple system can only record obligations but cannot enforce them, Ripple users have to specify which other users they trust to repay IOUs in a given currency on demand, and to what maximum amount. If there is no direct trust relationship between sender and recipient, the network tries to find a path of individuals in between where each trusts the next for a sufficient amount to make the payment go through. In this way payments "ripple" through the social graph of trust relationships. The ledger nets all these payments and individuals can periodically settle their mutual debts outside the Ripple system.

In addition to the mechanism of rippling payments through the social graph, the Ripple system also features a distributed virtual foreign exchange where IOUs can be exchanged for IOUs in another currency and / or issued by another issuer. Where necessary the rippling system automatically uses this exchange functionality to change currencies in order to make payments to recipients that are not otherwise connected to the sender.

To try to avoid the problems associated with having a central bank (which acts as a single point of failure and a single point from which someone could control the entire currency), Ripple plans to use a decentralized system.

Ripple Labs

Ripple Labs (originally called Opencoin), the creator of the Ripple protocol, is backed by several investors, including Andreessen Horowitz, Google Ventures, FF Angel IV, IDG Capital Partners, Lightspeed Venture Partners, Vast Ventures, and Bitcoin Opportunity Fund.

Advantages

• The Ripple protocol is an open standard that can federate existing payment networks, similar to how Simple Mail Transfer Protocol federated messaging systems in the 1980s.
• Ripple lets people be in debt via IOUs.
• Ripple can provide fast transactions (transactions can typically be settled in only a few seconds).
• Ripple cannot be counterfeited.
• Ripple can act as a universal translator for money, in its developed form.

Criticism

• When issuing trust to multiple parties for the same currency, user balances can automatically switch between one trust source and another, this is not made clear to users and exposes them to great risks.
• Ripple Labs will hold half of all the XRP in existence, in the hope that they will gain value.
• Some claim that the fact that Ripple allows people to have debt is a weakness, as the debt may not be paid, may not be worth as much money as it represents, or requires a level of trust in the person issuing IOUs. However, this criticism also applies to virtually all existing monetary systems (except those from crypto-currencies), as deposit cash in a bank results in an "IOU" from the bank and requires trust in the institution.
• Ripple Labs has stated that it would give away 55 billion Ripples (XRP), but it has only given away a small percentage of that thus far.

See also

• Alternative currency
• Bitcoin
• Cryptocurrency
• Friend-to-friend
• Hawala
• Local exchange trading system
• Peer-to-peer lending

External links

• Ripple project home page
• Ripple source code on GitHub
• RippleLabs / OpenCoin