RippleExplainedGuide

Version1.982

byAndrewWhite
andrew@onemilliongateways.com
twitter@OMGateway

Copyright2014AndrewWhite

HelloandwelcometotheRippleExplainedGuide.Mymissioninlifeisto
helpmakeotherpeoplesuccessfulintheareastheycareaboutandI
hopetheinformationcontainedhereinisabletotranslateintoyourown
successwithdigitalcurrencies.

MymaingoalforthisbookislargelynontechnicalandItrytoexplainthe
mostimportantconceptssothatyougetthemostvaluableinsights
possiblefromthistechnology.Iapologizeinadvanceifthereisanything
inthisbookthatistootechnicalortoocomplicatedandIhavedonemy
besttoreducejargontoaminimum.Ifthereisapassageinthisguidethat
doesnotseemtomakesenseoristoocomplicatedIaskthatyoudont
giveup,keepreadingandcomebacktoitlater.Takeyourtimewitheach
sectionandsupplementyourlearningwithGooglesearchestohelpget
theanswersontermsorareasofinterest.ThroughoutthetextIinclude
linksforyoutofollowuponforfurtherresearch.Whenyouaredone
learningalltheinformationbelowdontbesurprisedifafterreadingthis
guideyoubecomethegotoexpertaboutRippleinyoursocialnetwork!

InmyopiniontheRipplepaymentsystemisoneofthemostexciting
technologiestobedevelopedinrecentyears.Forthefirsttime,payments
canbesenttoanyoneintheworldinanycurrencywithinafewseconds.I
describeRipplelikeemailformoney.Butevenbetterthanthatisthat
activitiesthatwereoncethesolepurviewofthebankingindustry,suchas
lendingormakingpayments,havebecomedemocratizedintheRipple
system.Themyriadopportunitiesandchallengesthesenewoptionsbring
tothemassesopenawholenewsetofpossibilitiesforthediscerning
entrepreneurorinvestortoconsider.Thisebookpresentsabriefoverview
ofbusinessopportunitiesintheRippleecosystemandwhatrolesyoucan
playinthisexcitingnewareaoffinance.IhavebeeninvolvedwithRipple
sinceearly2013andIhaveexperiencedallofthedifficultquestionsof
tryingtowrapmyheadaroundit.AfterIbegantalkingtopublicaboutitI
quicklylearnedthateveryoneasksthesamequestionsandonewayto
Copyright2014AndrewWhite

satisfythosequestionsistowriteabookaheadoftime.SoonthatnoteI
wanttocoverthemajorcomponentsofRippleasitexiststodayanddive
deeperintoeachtopicbutwithoutgettingintothegrittydetails.Sowith
thatsaidwithanynewtechnologytherearetradeoffsbetween
sophisticationandeaseofuse,newfeaturesandcomplications,new
capabilitiesandnewrisks,andRippleisnodifferent.Thisbookwas
startedinDecember2013inadozenpages.Overtimeithasexpanded
over39pagesandmyintentismakeyouconversantinthemainareasof
Rippleandinviteyoutocontinueinyourownareaofresearch.Fora
reminder,thisbookisonlyforeducationalpurposes,andisnotintended
toprovideinvestmentadvice.

Bestwishes,
AndrewWhite

Acknowledgments:Iwouldliketothankthefollowingpeoplewiththeir
helpinthisdocument:FredLaughterforediting,RippleLabsfor
permissiontoreusetheirimages,andtheRipplecommunityformaking
valuablefeedbackandsuggestions.

Copyright2014AndrewWhite

TableofContents

WhyDigitalCurrency?
CounterfeitingProblem
CounterpartyRisk
ByzantineGeneralsProblem
RippleLabs
DigitalWallets
WhatareRipples?
WhatareGateways?
WhatisConsensus
WhatdoValidatorsdo?
WhatareCreditsandCurrencyIOUs
Pathfinding
Traders
WhoareMarketMakers
Enterprises
DueDiligenceQuestions
IntheFuture
ImportantRippleInfrastructure
FAQs
Glossary

Copyright2014AndrewWhite

WhyDigitalCurrency?

BeforewegetintowhatRippleisIwouldliketoprovidesomebackground
informationaboutwhatcurrencyisandwhatishappeningwithcurrencies
ingeneral.

Therearethreebasicreasonswhydigitalcurrenciesaresoimportant:
theysolveproblemsoffraudandcounterfeiting,counterpartyrisk,and
byzantinegeneralsproblem.

IrecentlygotbackfromaconferencecalledMoney2020thatbrings
togetherbankers,thepaymentsindustry,andcryptocurrencyadvocates,
andIhadadiscussionwithafriendthatexplainedtheimportanceof
digitalcurrencyintermsofhumanhistoryandIwouldliketorelatethat
storyhere.

Iwouldliketobeginbydefiningwhatacurrencyis,anditisusually
definedtohavethefollowingsixtraits:Durability,portability,divisibility,
uniformity,limitedsupply,andacceptability.Someoneelse(Ihavenot
beenabletofindthenameoftheoriginalauthor,ifitisyouletmeknow
andIwillcredityou)explainedtheseinthefollowingmanner:

Acceptability:Intermsofaformofcurrencybeingacceptedwithin
society,moneymustbeacceptedbyeveryoneintheeconomy.This
acceptanceisforthepurposeoftheexchangeofmoneyforgoodsand
differenttypesofservices.

Divisibility:Thisrelatestomoneybeingeasilydividedintosmaller
denominationsfortransactionalpurposes.Peoplewillonlyneedasmuch
Copyright2014AndrewWhite

moneyasisnecessaryfortheirpurchases,thereforeitisnecessaryfor
moneytobeeasilybrokendownfordifferenttypesoftransactions.

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.

So,inpursuitofthisnewparadigmshiftoffinancesbasedon
cryptographywehaveseenasurgeofrecentdevelopments.Thechart
belowdescribesmanyofthem:

Copyright2014AndrewWhite

Asyoucansee,thereallsortsofchoicesavailablewithdigitalcurrencies.
Allofthesesystemsarecreatedbydifferentgroupsofpeopletosolvethe
kindsofproblemsthattheythinkwillgetpopular.Inthisebookweare
goingtofocusonhowRipplesolvestheseproblemsbecauseIthinkitis
thebestchoiceoutthereforthemarketrightnow,butIencourageyouto
researchhowandwhytheotherswereinvented!

Sonowthatyouknowwhydigitalcurrenciesexistandwhatthedifferent
optionsare,letsseewhytheyaresoimportant.

CounterfeitingProblem

Copyright2014AndrewWhite

Historicallyspeaking,ofthesixtraitsofmoneywedescribedabove,only
thephysicalmetalgoldhasallofthesetraits.Ithasbeenusedas
currencyforthelastfivethousandyearsandoneofthemainreasonsfor
thisisthatgoldmetalhascharacteristicsthatmakecounterfeitingit
impossible.Forcenturiesbeforethescienceofmaterialsandchemistry
wasunderstood,aprofessioncalledalchemyattemptedtotransformbase
metalslikeleadintogoldandmakeagoodlivingconvincingsovereigns
theycouldperformthisfeat.Welltheywerenonetoosuccessfuland
eventuallywiththemoremodernscienceofchemistryitquicklybecame
understoodthatthiswasindeedanimpossiblefeat.Howeverthe
propertiesthatmakegoldagoodchoiceforamediumofexchangealso
makeitproblematicforeconomicreasons:goldcanhavesubstantial
weight,itsdifficultandorexpensivetosecure,sendingittosomeoneelse
isdifficulttodosecurelyorinatimelymanner,andtheresimplyisnt
enoughofitfortheworldsexpandingpopulationasonlyafiniteamount
caneverbeminedoutoftheearth.Thusitbecamepopularinrecent
centuriestorepresentgoldinpapermoneywhichiseasiertotransport
anddocommercewith.However,asthetitleofthissectionmayhave
givenyouaclue,counterfeitingpaperbillshasbeenalongstanding
problem.

Toassurepeopleoftheintrinsicvalueofthepaperbills,thefacevalueof
thedollarswasbackedbycertainamountsofgoldorsilverwaspromised
tothenoteholder.Howeverasmostpeopleknow,thiscreatesan
additionalproblemascounterfeitingpapermoneyiseasy.Famously(or
infamouslyaccordingtosome)in1972,RichardNixontooktheUnited
StatesoffthegoldstandardandpeggedthevalueoftheUSdollartoa
newmeasureofeconomicfitnesscalledtheGrossNationalProduct(but
wewontgetintoallthereasonsforthat).WiththeGNPthevalueofthe
dollarbegantobecreatedindigitalsystems.Inthepresentdaythishas
evolvedsomuchthatsomeeconomistsbelievethatelectronicsystems
makeup95%ormoreofallmonetarytransactions.Thishasbeengood
Copyright2014AndrewWhite

forsocietybecauseitmakesthecostofusingmoneylowerforeveryone
(andthatsagoodthing).Inthelastcoupleofdecadescreditcardsare
oneofthemostfrequentlyusedtoolsfordoingthis.Creditcardswere
inventedinthetimebeforetheInternet(WesternUnionstartedacard
programin1921!).Howeverasmostpeopleknowtheunderlying
problemsofearliergenerationsofcurrency,fraudulentuseofthetoolisa
veryexpensiveproblemthattheincumbentplayershavenotbeenableto
fixandabout1%ofallcreditcardtransactionsarefraudulent.In2009,
Bitcoinsreleasesolvedtheissueofhowtomakeadigitalcurrencyand
bepracticallyimpossibletocounterfeit.Bitcoinwasasignificantadvance
inthetechnologyofpaymentsbecauseitusessomespecialapplications
ofmathandcryptographytomakecounterfeitingitnearlyimpossible.This
iswonderfulformerchantssincethehighcostsofhandlingfraudulent
transactionsiseliminated.Understandthatthenearimpossibilityofbeing
counterfeitedisthekeyreasonforthegrowthofBitcoinstylecurrencies
online.Itisnearlyimpossibletocounterfeitforreasonsthatwillbe
explainedlaterbutthemainreasonisduetotherelianceonaparticular
mathfunctionofcryptography,moredetailscanbefoundintheFAQat
theendofthisbook.Proponentsofdigitalcurrenciesthatunderstandthis
claimthatthismakesdigitalcurrenciesabetterstoreofvalueand
exchangethangold,whichisanaweinspiringleapinhumanprogressif
thepremiseholdstobetrueforasufficientlylongperiodoftime.Only
timewilltelliftheclaimstandsuptoscrutiny.Nowthatweunderstandthe
basicreasonstojustifyapeertopeerdigitalcurrency,thesame
propertiesthatmakedigitalcurrenciesafraudproofmeansofmaking
transactionshasbeenexpandedbytheRippleprotocoltobuildapeerto
peerexchange.

CounterpartyRisk

Copyright2014AndrewWhite

Nowthatweunderstandhowdigitalcurrenciessolvesthecounterfeiting
problemletsmoveontocounterpartyrisk.Wealreadydiscussedgold
andhowitisintrinsicallyafinancialinstrumentduetoitstraits.Theother
reasonwhythisissoisbecausephysicalgoldhasnoneedfora
counterparty,itisinherentlymoney.Counterpartyriskistheriskthateach
partyofacontracthavethattheotherpartymaynotliveuptoitscontractual
obligations,suchasdepositingmoneywithathirdparty.Nativedigitalcurrencies
likeBitcoinandRipplesXRPdonothavecounterpartyriskbecauseyouownthe
secretkeystoyourcurrencyinasimilarfashiontoowninggold,youarenot
beholdentotrustingthirdpartiesforyourbalancesheet,andthatisaninherently
beneficialaspectofdigitalcurrencies.Priortonowalmostalldigitalcurrency
systemswerecentrallycontrolledandthecontrollingorganizationscando
whatevertheywantwithyourfundswhichlogicallyhasinherentcounterpartyrisks
associatedwithit.

ByzantineGeneralsProblem

Thisbizarresoundingproblemhasalongacademichistorythatisquite
fascinatingifyouareinterestedinacademicresearchproblems.Whatit
boilsdownissolvinghowdistributednetworkslikeapaymentssystem
reconcileinaccurateandfalsemessagestocometoanagreementona
matterthatistruthfulandaccurateupuntilacertainthreshold.Foran
elementaryexampleofwhatthislookslike,youandyourgroupoffriends
wanttogosomewherefunbutyouhavesomefriendswithquestionable
motivesofwhatsomethingfunmightentail.Soyousetupasimpletest,if
sixoutoftenfriendsagreethatadestinationmeetsyourstandards,you
agreetogoalongwiththeride,butifonlyfiveorlessagree,yourejectthe
invitation.ThisisaveryinformalwayofdescribingtheByzantine
GeneralsProblemanditiscriticaltohowsystemslikeBitcoinchanged
worldhistorybyapplyingthissolutiontoadecentralizedpaymentssystem
(moreaboutthatlater).
Copyright2014AndrewWhite

RippleLabs

Firstletsstartwithadefinitionofterms.Rippleisthenameofanew
paymentstechnology.RippleisdevelopedbyacompanynamedRipple
LabsInc.inSanFrancisco.Somepeoplemakethemistakeofequating
RippleandRippleLabstobethesamethingandthatisamistakeyou
shouldavoidmakingasIwilltrytoexplainwhythatisthroughoutthis
ebook.SooriginallythecompanywasformedasOpencoinInc.in2012
andlaterreformedin2013byChrisLarsen,JedMcCaleb,David
Schwartz,andafewothers.RippleLabsownstheintellectualpropertyof
theRippleprotocolandtheRipplenamebutthecodeandprogramsthat
makeupRippleareavailableforfreeforanyonetodownload,use,and
modifyastheyseefit.RippleLabssoftwareisusedbyacommunityof
Rippleenthusiastsaroundtheworldwhoarepassionateaboutmakingthe
technologymorewidelyused.Thesepeoplealsoprovideessential
feedbacktoproductteamsandengineersleadingtheoverall
implementationofRipplesdevelopment.TheknowninvestorsinRipple
LabsincludeGoogleVentures,AndreessonandHorowitz,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
Copyright2014AndrewWhite

programmerstomakecontributionstothecodeandexpeditethe
developmentofthecorefunctionality.Thisalsoprovidesavaluablesafety
mechanism.Sincemoreeyescanlookattheunderlyingcode,potential
issuescanbeidentifiedandfixedearly,beforebecomingaseriousissue.
RippleLabscangiveawaythesoftwareforfreebecausethecorevalue
propositionofRippleisthatanopenpaymentnetworkthatanyonecan
useandimproveismorevaluablethanaclosedalternative.Sofarthe
planseemstobeworkingwellandRippleisstartingtomakebigwaves.

IfwelookatthehierarchyoffinancialservicesintheUnitedStates,Ripple
isdesignedtoreplacetheAmericanClearinghouse(ACH)payment
settlementsystem.ACHwasinventedinpreInterneteraandisamajor
dragontheefficiencyofmovingmoneysinceittakes35daystomove
moneyanddoesnotuseanytransactionverificationlikedigitalsignatures
todeterfraud.AnothersystemthatEuropeanswouldbefamiliariscalled
Swift.Swiftisanewerprotocolforpaymentmessaginganditworksalot
betterthanACHbutUSbanksdontuseitdomestically.Swiftisfaster
Copyright2014AndrewWhite

thanACH,sameornextdaypaymentsisthenormandothercountries
likeChinaandMexicouseasimilarsystem.ButwhereasSwiftis
specificallyapaymentmessagingprotocolandnotapaymentsettlement
protocolitstillinvolvesalotmoreworkforfinancialinstitutionstolearn
whohaswhat.Rippleoffersasolutionthatoffersrealtime(aboutfive
second)paymentsettlementandpaymentmessaging(thatmightbea
statementthatlookslikeThispaymentisforBobsnewshoes).Since
Ripplecombinesmessagingandsettlementsomesmartpeoplehave
beencallingitSwift2.0butRippleisreallyalotmorethanthat.Sowith
thatinmindletsdiverightintoexperiencewhatusingusingtheRipple
paymentsystemlookslike.

Wallets

Touseanonlinepaymentssystem,peoplestartbycreatingadigital
versionofawallet.Awalletconsistsofanameofwhoownsthewallet
andsomesortofsecuritymechanism,likeapassword,tolimitaccessto
theaccount.Itshouldbeimportanttokeepinmindthatnotallwalletsare
createdequally.Manytraditionalonlinewalletsolutionsallowthemselves
theprivilegetocloseyouraccountforanyreason.Theirareavariety
reasonsforthisbutaRipplewalletisdifferent,itisimpossibleforanyone,
includingthemakersRippleLabs,tostopsomeonefromaccessingtheir
Ripplewallet.Iwillexplainabitmoreabouthowthatworkslaterbutfor
nowletsmoveontowhatthewalletlookslike.

Therearetwowaystoidentifywhoownsawallet.Thefirstiscalleda
Ripplenameanditlookslike~SomeRandomWalletName.Anyonethat
knowsthiswalletsnamecansendpaymentstoit.Underthehoodthe
nameistiedtothepublicnameoftheRippleaddressthatbeginswiththe
lowercaserandlookslikethis:
Copyright2014AndrewWhite

r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstothe
authorarewelcome!).

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.

Copyright2014AndrewWhite

Formostconsumers,thepowerofRipplepaymentshappenswhen
paymentsaresentacrossthenetworkwithinafewseconds.Toanyone
accustomedtotheslowandcumbersomeprocessoftraditionalpayment
networks,thisisanincredibleadvanceinpaymentstechnology.Nolonger
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.
Copyright2014AndrewWhite

WhatareRipples?

RipplesareaccesstokensusedbytheRippleprotocolandare
referredtoacurrencycodeofXRP(whichislikeUSDorBTC).The
protocolconsistsoftherulesofhowRippleworksandtheserulesare
translatedbyprofessionalprogrammersintosoftwaretoperformallthe
functionsthatRippledelivers.Moregenerally,peoplemakeprotocolsto
solveaprobleminaconsistentandentirelyreliablemanner.Well
designedprotocolsshareanumberoftraits.Forexample,thinkofthe
protocolofshakinghandswhengreetingsomeone.Thisprotocolhas
becomeinstantlyrecognizableworldwide.Itsnotabletraitsarethatitis
simple,easilyreproducible,andcooperativeinnature.Thebestcomputer
protocolsandmonetarysystemsaimforsimilarresults.
Ripplesconsistentwithinternationalcurrencynamingconventions
(believeitornotthisisinfactanISOstandard!)andareknownbyathree
letteracronym,comparabletohowUSdollarsarerepresentedasUSD.
ThethreelettercodeisXRP.TheRippleconcepthasbeenaroundprior
toRippleLabs.Itwasfirstworkedonin2004andlateronin2011the
coreteamaroundRippleLabswasformedwhothenreleasedittothe
publicinthebeginningof2013.EverytimeyouuseRipple,areallytiny
amountisdeletedtomakesurethenetworkdoesnotgetoverloadedby
paymentmessages.Thelogicisthataverageconsumersmightonlyneed
tousearelativelyfewRipplesacrosstheirentirelifetime.Ripplewas
releasedwithahardlimitof100billionunitsofXRPtoeverexist.The100
billionnumberwasjudgedtobelargeenoughtobeusefulfortheRipple
networkforhundredsofyears,andquantifiableenoughtoprovidea
businessmodelforRippleLabs.
OnceRippleswerecreatedthenextstepwastofigureoutthebestway
onhowtodistributetheminthemosteffectivemanner.Itiscriticaltothe
RippleLabsbusinessstrategythatXRPbedistributedtoawidenumber
Copyright2014AndrewWhite

ofmarketparticipantswhointendtouseRippleasasystemforpayments,
currencytrading,orassetissuance.AcoolfeatureofXRPisthatasthe
nativecurrency(Ilikethetermmetacurrencybutitisnotascompletely
obviousastowhatthatmeans),XRPcanbespenttosend(orreceive)
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.
Copyright2014AndrewWhite

Investorsmustbeawarethatthereareinherentrisksassociatedwith
digitalassets.Theftsandscamsareanunfortunatebutinevitableaspect
ofonlineofferingsandtheinvestormustalwaysperformduediligence
beforetrustingotherswiththeirmoney.Evenifaninvestmentisnot
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
withdrawmoneybymeansoftheirgatewayaccounts,includingtransfers
betweenaconsumerswalletandtheconsumersgatewayaccount.To
attractandretainusersoftheirservice,gatewayswillinnovateandoffer
beneficialservicestotheircustomers.

Copyright2014AndrewWhite

Asgatewayscompeteformarketshare,Ifullyexpectthatmoregateways
willbelaunchedthattheywillincreasinglyofferinnovativerewards
programslikeairlinemiles,coupons,andpremiumservicediscounts.

Thereareanumberofservicesavailabletopeoplewhowanttocreate
andoperateagateway.Iftheyhaveastrongtechnicalbackground,they
canusuallysetoneupthemselves.Iftheydonthavethetechnicalskills,
theycanuseahostedwallet(moreonthatinamoment)oruse
consultants.Iftheyareseriousaboutgettingintothegatewaybusiness.In
thefuture,cloudbasedoptionswillbeavailablesuchasOMGsOne
MillionGatewayshostedservice.

BecauseofRipplesdesign,anyonewithaRipplewalletcantechnically
becomeagateway.

Copyright2014AndrewWhite

However,thatisneitherlikelyornecessaryinalmostallconsumeror
investorcases.Whenpeopletalkaboutgatewaystheyareusually
referringtoabusinesssetuptooperateassuch.ARippleWalletcan
becomeagatewaywhenpeopleaddtrusttoawalletyoucontrol.Trust
inthecontextofRipplemeanshowmuchofmymoneydoItrustthis
gatewaytohold?Gatewayswithanestablishedhistorywithagood
reputationforcustomerservicetendtobemoretrustedbyusersthannew
gatewaysthatarelessknownandhavealimitedhistoryofoperation.

ThisisanexampleofagatewayloginpagefromSnapSwapInc.

Thisexampleiswhatabasicgatewayexperiencelookslike.
Copyright2014AndrewWhite

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.
ThechartsonRippleCharts.comcontainthemajorcurrencymarketson
Ripple.ThesearetypicallywrittenintheformofBitstampUSD/XRPto
indicatethattheseIOUsareissuedbytheBitstampgatewayintheUSD
currencyandistradingagainstXRP.AnotherexampleistheChinese
gatewayRippleCN.TheirIOUsfortheChineseYuanlooklikethis:
RippleCNCNY/XRP.BackoveratBitstamp,youwillseethatBitstamp
USDisalsoabletobetradedforBitstampBTC.Gatewayscansetrules
onthefeesoftradesorpoliciesastowhatisallowedtobetradedbutin
generalalltheIOUswillbetradableforalltheequivalentIOUsona
givengateway.

Aquickwordaboutaddingtrusttoagateway.Sinceanyonecancreatea
gatewayitiscriticalthatyouonlytrustaproperlyestablishedgateway.
Thismeansitisattheveryleastincorporatedandisrunbypublicly
Copyright2014AndrewWhite

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://xrpga.orgarelegitimateorganizations,operateusingbestpractices
forbusinesses,etc.Thereareroughly170membersoftheIRBAatthe
presenttime,includingpeoplewhohaveexpressedtheirinterestin
formingagatewayforcertainmarketsorareasintheworld.Theauthor
hasbeenelectedtoserveasSecretarytothisorganizationtohelpensure
itmeetstheseexactingrequirements.

Copyright2014AndrewWhite

Consensus

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
Copyright2014AndrewWhite

SatoshiNakomoto,theanonymouscreatorofBitcoin.In2011Jed
McCalebwasthinkingofwaystosolvesomeoftheproblemswiththe
proofofworksystem.Inparticular,Jedwantedtosolvetheslow
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
Copyright2014AndrewWhite

processtakesmuchlonger,butonlyveryrarelyfailstoactuallyreach
consensus.(Whenyousay,"Ibelievethere'saconsensus",youcan't
actuallybe100%surethereisinfactaconsensusornobodycandeclare
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

Copyright2014AndrewWhite

theywouldhavealreadydoneso,andsohewouldn'tbefirst).Soit's
alwayspossiblethathedeclaresthewrongconsensus.
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
Copyright2014AndrewWhite

catastrophichappens.Inotherwords,keeptryinguntilthevastmajority
ofmessagesagreeatransactionisaccurate.Perhapsnotsurprisinglythis
simplebutelegantsolutionhaswiderangingramifications.

AndwiththatwecanwrapourreviewofhowConsensusworks.Formore
informationpleasecheckouttheRipplewikipagesat
https://ripple.com/wikiorhttps://ripple.com/wiki/How_it_works

Validators

SincewearediscussingthetechnicaldetailsofhowRippleworks,for
completenessIjusttomentionValidatornodesandwhattheydo.

TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocol
dependsonacollectionofvalidatorswhoparticipateintheconsensus
processandproducesignedledgerswhichgetbroadcastintothepeerto
peernetwork.Clientsandpeerscollectanddependonthesesigned
ledgerstodeterminewhatistheconsensusledger,orthe"true"stateof
theledger.CrucialtothesecurityofthenetworkisthateachRippleserver
choosetopayattentiontoasufficientlylargediversesetofvalidatorswho
arenotcolludingtodefraud.When80%ofvalidatornodesagreethata
edgerisvaliditgetssignedandconfirmedacrosstheentireRipple
network.ThisisanalternativesolutiontotheByzantineGenerals
problemfirstsolvedbyBitcoinwithmining.Basicallywhenyouuse
Ripplethiscomesdowntotrustingthatthevalidatornodesyouareusing
aretrustworthyenoughtobesecure.EvenpeoplesuchasBillGates
havesaidisasuitablesystemforhandlingtransactionssuchthat,
TheresalotthatBitcoinorRippleandvariantscandotomakemoving

Copyright2014AndrewWhite

moneybetweencountrieseasierandgettingfeesdownpretty
dramatically.

CreditsandCurrencyIOUs

IOUs(Ioweyouspronouncedhowitisspelled,eyeohu)arecredits
andarewhatmostpeoplewilluseonRipple.IOUsstandforIoweyou
(something).Thetermcreditiswhatmostpeopleusuallyuseforthiskind
oftoken.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.
Copyright2014AndrewWhite

Pathfinding

PathfindingisoneofthetechnicaldetailsthatIincludeforcompleteness
andisfairlyselfexplanatory.PathfindingishowRipplefindswaysto
makethebestavailablepayment.Thepriceonatransactionfeecanvary
inRipplebasedonthebestpossibleexchangerateontheorderbooksof
Ripplecurrencies.AsthisdiagramfromRippleLabsillustrates:

Pathfindingisofmostinteresttomarketmakersandtechnicaltypestobe
abletoservemarketactivity.ItisimportanttonotethatalthoughRippleis
Copyright2014AndrewWhite

fastitisslowenoughastomakehighfrequencytradingimpossibleanda
partofthereasonwhythatisisbecauseofthetimeittakesPathfindingto
work,afewsecondsistooslowforHFTtobeeffective.

Traders

AnyonewithaRipplewalletcantradethedigitalcurrencyassetson
Ripple.SendingapaymentofanysortusingtheRipplenetworkis
equivalenttomakingatradeontheforeignexchange(alsoknownas
forexandFX)currencymarkets.

Eachcurrencyhasathreeletterabbreviation,andeachcurrencytradeis
expressedasapairthatincludesthebasecurrencyandacounter
currency.Eachcurrencypair(USD/XRPorEUR/JPYorCNY/BTC,etc.)is
supportedbyagatewaythathasanorderbookofbuyersandsellersofa
particularcurrencypair.ThedailytradingvolumeontheRipplemarketis
growingrapidly.Atthetimeofthiswriting(March2014),themostpopular
Copyright2014AndrewWhite

currenciestradedareChineseYuan(CNY),USD,andBTC.

Automatedtradingisapopularchoiceforinvestorswiththetechnical
knowhowtoworkwithprogrammingscriptstomakeatradingbot.
ThesebotsconnecttotheRipplenetworkandlookatthebidsandasksin
certaincurrenciesandtradeaccordingtouserdefinedparameters.Most
ofthesebotsrequireafairamountoftechnicalknowledgeandskillto
setupanduse.Althoughtherearenoalgorithmictradingservices
availabletoinvestorsatthemoment,theseareknowntobein
development.Tradeandforgetbotscanbeextremelyvaluableasthey
workforyouaroundtheclockwithouttiringormiscalculating.

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
Copyright2014AndrewWhite

capitaltomakeitmoreworthwhileforthemarketsyouaretryingto
support.

Enterprises

TheRippleecosystemislikelytoseepowerfulwaves(ha!)ofnew
servicesdevelopedtotakeadvantageofthenewfoundpossibilitiesthat
Rippleprovides.Themostobviousareaatthetimeofwritingisgateway
services.Merchantservices,remittanceoptions,charities,experimental
hobbies,andcommoditiesalsoareallpromisingareasforinnovatorsto
placetheirstake.

Anumberofinterestingcompanieshaveformedbasedentirelyonthe
Rippleprotocol.CompaniessuchasFortuneHarbor,Coinst,RippleWise,
SnapSwap,andothersareleadingthewayintermsofinnovationand
provingthattheRipplesystemisaviablebusinessmodel.Companies
olderthanRipplehavealsosignedontousetheservice,mostnotableto
dateisBitcoinexchangeBitstamp.

CreatingorinvestinginanewcompanyintheRippleecosystemisan
attractiveoptiontotheinvestorfamiliarwithmanagingequityassets.
Rippleissonewandtheopportunitiesitofferssolargelyuntapped,that
thedooriswideopenforenterprisingindividualsandstartupstomakea
substantialimpactwithlittlestartupcosts.Ifthisissomethingthat
interestsyouinpursuingabusinessIstronglyencourageyoutodoso.
ComplementaryservicesthataddvaluetotheRipplenetworkis
somethingRippleLabsisveryinterestedinsupportingandyoushouldlet
themknowaboutitonceyouarereadytolaunch.

Copyright2014AndrewWhite

DueDiligenceQuestions

IfyouplanoninvestingintheRippleecosystemyoushouldbeasking
somehardquestionsandhavehonestanswersbeforethrowingmoney
around.Herearesomebasicsforyoutoconsider:

HowwelldoIunderstandRipple?
WhatdoInotunderstandaboutRipple?
Whataretherisksinvolved?
WhatarethelegalandregulatoryissuesimpactingRippleinmycountry
ofresidence?

WhatdoIknowabouttheprincipalsintheenterpriseinwhichImight
invest?
DoIunderstandallthecounterpartyrisks?
WhathappensiftheRipplesoftwarebecomesfundamentallybroken
andcantbefixed?

Whoarethemajorcustomersandtheapplicationsrelatedtoinvestment
opportunities?

Whatarehistoricalandprojectedgrowthrates?
Whatistheexpectedmarkettimingofnewproducts,services,or
enhancements?

Alongwiththesespecificinvestorquestions,Iwantedtosharethislistof
bestpracticesfromtheRipplewiki:

Youmustprotectyourself:

Copyright2014AndrewWhite

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).

Ialsotellmyclients:Idontwanttoknowyourpasswordorsecretkey,
youshouldnothavetotrustmetothatlevel.

Usingdigitalwalletsisarelativelynewphenomenaanditisfairtosaythat
thestateofcomputersecurityandconsumersarenotreadyforthe
responsibility.

IntheFuture

Thefuturewillcertainlybringmanyexcitingandinterestingareasfor
Rippleinvestorstoconsider.Inparticular,Imexcitedforthetimewhen
optionstradingbecomesmorewidelyavailable(whichwilllikelybeeasier
withtheadventofsmartcontractslaterin2015).Inmyopinion,smart
contractswillbethekillerappformathbasedcurrencies.Forexample,
Copyright2014AndrewWhite

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
thatitmakesCodiuscompletelyplatformneutral.Anyprogramming
languagecanuseitandanydigitalassetsystemcanuseitsapproach.
CodiususesanotherconceptcalledSmartOracles.Asmartoracleis
anythingthatcanbeaskedaquestionandanonbiasedansweris
returning.Oneexamplecouldbeaskingthestockmarketwhattheprice
ofagivenstockis.AnotherexampleisaskingtheBitcoinnetworkifa
certaintransactionhappened.Theimportantthingtounderstandisthat
Codiusisneutralastowhomyouaskyourverifiedquestionsandhowyou
doit.Youmightwanttomakeacontractonstockfuturesandhedgeon
thepriceofBitcoinandorthetemperatureofDalyCity,ifalltheanswers
adduptothethresholdoftruthaswritteninyourcontractthetermswill
bemetandthecodeexecutes.Thisisverydifferentfromeveryother
systemoutthereandsomethingthatcreativepeoplewillmakeamazing
applicationswith.

Copyright2014AndrewWhite

TheCodiusapproachtosmartcontractsfreesdevelopersfrombeing
lockedintoanyonesystemwhichistheHolyGrailfornextgeneration
financialandbusinessapplications.Tolearnmoreonthesubjectofsmart
contracts,IhighlysuggestathoroughreadingofGreatChainsof
NumbersbyTimSwanson.

NewservicesforRipplewalletsarecomingoutallthetimeincludingShift
PaymentswhoarereleasingacreditcardthattiesintoaRipplewalletin
late2014.SnapSwapandothersarealsoreleasingRipplebackedVisa
cardsthatisveryexciting.Irecentlyhadausecaseforthis.Mywifewas
shoppingforsomethingandcalledmeupthathercardwasdeclinedat
thegrocerystore.Thiswouldnormallybeaverydisruptiveexperiencebut
IwasabletosendUSDtoherRipplewalletandtheshewasabletomake
thepaymentwithoutincident.Trydoingthatwithatraditionalcreditcard!

OthercoolthingsthatarehappeningiswithATMs.Insteadofbeingthe
dumbandpriceycashwithdrawmachinesweareusedto,Ripplebased
ATMsarecomingthatwillallowconsumerstheabilitytowithdrawand
sendmoneyinanycurrencytoanypersonontheplanet.Thisis
awesomenotjustformovingmoneybutpayingbills,buyingservices,and
andsomuchmorethatinthefutureIthinkthesemachineswillbethought
ofassmartcontractmachines.

Likeanyactiveprotocol,Rippleisconstantlyevolving.Ripple(and
Codius)issuchadisruptivenewtechnologythatitsfullimpacton
businessandsocietywillnotbeknownformanyyears.Thedaywillcome
whenpeoplewillbesoaccustomedtoamulticurrencywalletthatthey
willaskwhydidntIthinkofthat?Inmyopinionwearewitnessingthe
dawnofadisruptivetechnologyasbigasanadvancementasdigitalstock
marketsorpapercurrencies.

Copyright2014AndrewWhite

ImportantRippleInfrastructure

BeyondRippleLabsthereareanumberofimportantresourcesand
servicesthatisavailabletotheRipplecommunity.Foremostaboutthose
arecommunityforumswhereissuesrelatedtoRipplearediscussed.The
mostactiveoftheseareXRPTalkranbyacommunitymemberinFrance
andtheRippleLabsForum.Acoupleofnewserviceshavecomeinto
beingrecentlythatareusefulaswell,LibreTaxfortaxesintheU.S.and
Coinistforpublicreviewsofgatewayservices.

ThemostwellknownRipplegatewayrightnowisBitstamp,theworlds
largestBitcoinexchange.Thereareavarietyofotherprojectsunder
developmentrightnow.Thereareatleastfourventurecapitalbacked
companiescreatedspecificallyfortheRippleecosystemthatIknowof.
ThereisalsoalotofdiscussionaboutwaystoimprovetheRippleworld
withnewfeaturesandmoreservices.Itisgoingtobeanexcitingfew
yearsforimportantinnovationstobebroughttomarket.

Fortechnicalinfrastructure,Iexpecttoseemoreservicestoenterthe
markettoserveasenginestodrivethegrowthofdigitalassetsanduseful
thingsthatcanbedonewiththem.MyowncompanyOneMillion
GatewaysInc.wasrecentlyfundedtohelpcompaniesreachtheirfull
potential.

FAQs

HowisRippledifferentfromBitcoin?

Thetwoarecompletelydifferent.ThemostbasicansweristhatRippleis
notdesignedtobeusedasjustacurrency.Insteaditisapayments
Copyright2014AndrewWhite

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
acurrencyplatformthatusedminingtogeneratethecurrencyandverify
transactions.Peoplethatmineorbelieveintheideathatminingisfairdue
totheequalprobabilityofbeingrewardedfordoingtheproofofwork.
Thereisnothingwrongwiththatopinion.HoweverRipplesuccessfully
solvedsomeoftheinherentandfundamentalproblemsthatminingbrings
toadigitalcurrency:theslownessoftransactions,the51%attack
problem,blockchainsplits,etc.Indefiningtheutilityofcrosscurrency
payments,afundamentaldesignprincipleisthatlongdelaysforpayments
isnotacceptable.Letsfaceit,nobodywantstheuncertaintyofwaitingfor

Copyright2014AndrewWhite

apaymenttoconfirmandRipplecanmaketradingthosekindsofassets
fasterandmoresecure.

DoanybanksuseRipple?

Atthetimeofthiswritingthereareafewbankswhohaveclaimedthey
willbeusingtheRippleprotocol.

Whatarevalidators?TheRipplenetworkreliesondedicatedcomputers
calledvalidatorstoconfirmthattransactionsarevalid,whyisthis?

Validatorsarethelightweightwaytoverifythattransactionsarevalid
comparedtotheheavyweightneedforcomputingpowerin
cryptocurrencyminingalgorithms.Theyarelightweightbecauseyouonly
needafewcomputersdoingthis(insteadofthousandsintraditionaldigital
currencies).Bydesign,RippleLabscreatedtheRipplenetworktorelyon
validatorsthattheyrunandtheyknowcanbetrustedtomakesurethat
transactionsarevalid.Themajorityofthevalidatorsthatagatewaytrusts
mustbetrustworthy.Ifthemajorityofthembecomemaliciousorconspire
againstthegateway,theycanmakefraudulentpaymentsagainstthe
gateway.Thewaytomitigatethisthreatisbyusingcommunityaccepted
trustednodessuchasthoserunbyRippleLabs.

HowmanypeopleuseRipple?

Thereare120,000walletsasofNovember2014.Thelargestgateways
havebetween15,000to10,000walletsthattrustthem.

Copyright2014AndrewWhite

IheardsomeoneforgottheirpasswordorhadtheirRipplecoinsstolen,
arethosecoinsorwalletsinaccessibleforever?

Yes,unfortunatelytheyareinaccessibleforever.NeitherRippleLabsnor
anyoneelsecanrestoreyourpasswordorrecoverstolencoins.Payments
inRippleareirreversibleduetohowsomeofthelowlevelmathfunctions
work(formoreinformationontheunderlyingtechnologies,youcan
researchpublickeycryptographyandmessagesigning).

Iwanttoknowmoreabouthowtosetupagateway,wheredoIstart?

https://ripple.com/wiki/index.php?title=Ripple+for+Gatewaysisagood
resource.Iwouldalsolovetotalktoyouaboutyourideaandhelpyou
becomesuccessful.

WhatisaSecretKey?

YourwalletsSecretKeyisyoursecretentranceintoyourwalletifyou
everforgetyourpassword.YourSecretKeycanalsobeusedaspartofa
programtodothingsforyousuchasrunningatradingbot.SecretKeys
arenamedsecretbecausetheymustbeabsolutelyunavailableto
anyonebutthosetrustedtoaccesstheaccount.Ifsomeonegetsyour
SecretKey,theycandowhatevertheywantwithyourassets.Ifyouare
havereasontobelievesomeonehasgainedunauthorizedknowledgeof
yourSecretKey,youshouldcreateanewwalletandsendyourassets
overtothenewwalletassoonaspossible.Youshouldnevershareyour
secretkeywithanyone(exceptperhapsyourattorney).

WhatkindofventurecapitalorincubatorsareavailabletoRipple
developers?
Copyright2014AndrewWhite

TherecentlylaunchedCrosscoinVenturesisagoodstartingpointfor
Rippledevelopersseekingfunding.Headedbyentrepreneurialstartup
andVCveterans,Crosscoinhastheenviablepositionofbeinglocatedin
thesameofficebuildinginSanFranciscoasRippleLabs.Lookfora
numberofhighqualityandinnovativeservicestoemergefromthe
Crosscoinaccelerator.

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.

Copyright2014AndrewWhite

Whataresoftwareforks?

Softwareforkshappenwhenonegroupofsoftwaredevelopersdecidesto
takethesourcecodefromaprojectandmaketheirownpossibly
incompatiblechangesfromthepriorversionofthesoftware.Thiscan
happenforvariousreasonsbutthemostlikelyreasonisthatonegroupof
developersdisagreedwiththedirectionaprojectwasgoing.Thiscanbe
eitheragoodorabadthing.Itisbadwhenitdividesthenumberof
peopleworkingonaproject.Itcanbegoodwhentheforkedsoftware
makesimprovementstheotherdeveloperswerenotwillingtomake.
AlternativeversionsofRippleareexpectedtobereleasedinthefuture
andthisisgoodfortheRippleprotocolsincenewideascanbetestedin
differentnetworks.

Whataregoodcommunityresourcesforgettinganswerstomyadditional
questions?

Myfavoriteresourceistheforumathttps://ripple.com/forum/butthemost
popularcommunityforumishttps://xrptalk.org/

HowdoesRippleLabssellRipples?Dotheysellontheopenmarket?

AccordingtoDirectorofCommunicationsMonicaLongtheydonot:
RippleLabsisn'tandhasneversoldXRPintheopenmarket.Wesellthe
portionofXRPreservedforbusinessoperationsthroughdirectwholesale
purchasesonameasuredbasis.Whatwe'veseenrecentlyisawholesale
buyersellingasignificantvolumeinmarket.We'vechangedthetermsof
wholesalepurchasingtolimitmarketimpactinthefuture.

Copyright2014AndrewWhite

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.

Idontunderstandallofthisandthisbookhasmadememoreconfused
thenwhenIbegun!

Copyright2014AndrewWhite

ImsorrytohearthatbutasIsaidearlieritisalsototallyfine.Youdont
needtoknowexactlyhowatransmissionworkstodriveacarandyou
dontneedtoknowallabouttheunderlyingcomponentsforhowthis
works,Idontknoweverythingeither!

Iwanttolearnmoreaboutcryptography,wheredoIstart?

Imgladtohearyourinterestinthisitisahobbyofmineaswell!
Wikipediaisoneofmyfavoriteresources.Anothergreatexampletolearn
thebasicprincipalsisillustratedatthislink
http://www.moserware.com/2009/09/stickfigureguidetoadvanced.html

WherecanIlearnmoreaboutthesocalledByzantineGenerals
problem?

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.
Copyright2014AndrewWhite

CodiusThisisatechnologyneutralframeworkforcreatingsmart
contracts.Moreinfocanbefoundathttp://codius.org/

DueDiligenceistheprocessofthoroughresearchbeforemaking
investments.

EnterprisesincludebusinessstartupsintheRippleecosystem,suchas
newgatewayservices,merchantservices,remittanceoptions,charities,
experimentalhobbies,andcommoditiesallarepromisingareasfor
businessinnovatorsandearlystageinvestors.

Gatewayaserviceproviderthatenableuserstodepositmoneyintoand
withdrawmoneyoutoftheirgatewayaccountsontheRipplenetwork.In
technicaltermsagatewayisanassetissuer.Althoughmostuserswillnot
becomeagateway,thecapabilityforthemtobecomesoispresentin
everyRipplewallet.

GatewaydGatewaydisanopensourceserverthatmakesbuilding
applicationsontopofrippleeasier.Formoreinformationpleasesee
https://gatewayd.org/

HashIncomputerscienceterms,ahashisadigitalfingerprintof
something.Ahashmeasuresthebytesofanobjectsuchasafileand
computesanumberthatisspecifictoonlythespecificarrangementof
bytesinthatfile.Therearemanywaysofproducinghashesanddifferent
standardsareusedfordifferentpurposes.

MSBaregulatedactivityintheUnitedStatesrelatedtoaMoney
ServicesBusiness,i.e.,moneytransmission.

Copyright2014AndrewWhite

PublickeyThisisamathematicaladdressthatyoucangenerateforthe
purposeofsharingwithanyone.Apublickeyislinkedtoaprivatekeyyou
shouldnotsharewithanyone.

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.

Copyright2014AndrewWhite

MarketMakersprovideliquidity(i.e.,money)thatallowspaymentsto
followapathwaybetweengateways.

SecurityTheattributeorprocessusedtosecuredatabymeansof
authentication,confidentiality,andintegritychecks.Thereisnosuchthing
asaperfectsecuritysystemonlyincreasedcostsordifficultyforan
attackertoovercomeit.

StellarARippleclonefundedbyStripe.com.Themaindifferencewith
RippleisthatStellartokensareaninflationaryassetinsteadofa
deflationaryone.

ValidatorsTherearededicatedcomputernodesthatconfirma
transactionisvalidthroughtheConsensusprocess.Validatorsarethe
keytotransactionverificationthresholdbeingreachedandonlyneedto
beusedbyexpertsorpeoplerunningprofessionalgateways.

Walletthedigitalaccountwhereindividualshold,access,andusetheir
digitalcurrenciesinRipple.

WalletVaultAwalletvault,alsocalledawalletblobistheencrypted
storageofRipplewalletsecrets.Thewalletvaultiscreatedinsuchaway
thattheservicehostingthewalletblobcannotreadthecontentsofthe
dataorcompromiseintegrity.

Copyright2014AndrewWhite

AbouttheAuthor

AndrewWhiteservesasthefounderofOneMillionGatewaysInc.a
digitalcurrencyconsultingcompany.HealsoservesasSecretaryatthe
InternationalRippleBusinessAssociation,whichisthepremier
organizationofmerchantsandbusinessesthatusetheRippleprotocol.
AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSan
FranciscoandtheBayArea,andbeganusingXRPsoonafterits
introduction.

Copyright2014AndrewWhite