The Ripple network works a lot like the Bitcoin network: units of value can be stored at a wallet address, and whoever owns the wallet's private key can send funds to other wallets. The big difference is that while Ripple does have its own, internal currency (XRP, which right now is used mainly to pay transaction fees to the network), you can also send ”IOUs“ — units of value issued by some third party.
So, some party might take USD (could be your bank, or a third party like PayPal or Stripe), Bitcoin (could be your favorite Bitcoin exchange), Euros, etc., hold them, and issue IOU to your Ripple wallet. So you give $100 USD to PayPal, they send an IOU worth $100 PayPal USD to your Ripple wallet (signed by them and stored in the Ripple blockchain).
You can send all/part of that PayPal-issued $100 to anyone else via Ripple, just like you'd send XRP. Whoever wants to can redeem them for USD at PayPal — you just deposit it into a special Ripple address that PayPal gives you and, boom, the money shows up in your PayPal account (because PayPal was holding it all along).
Here's where it gets even cooler. The Ripple protocol includes an “order book” where you can trade currencies. So, if I'm buying something online and use Euros and the company I'm paying uses USD, my Ripple client could automatically get an IOU for x Deutsche Bank EUR (from my bank), trade it on the Ripple network at the current exchange rate for y Bank of America USD (the seller's bank), and then pay them via Ripple in USD that they can deposit straight into their bank account!
Eventually most transactions might be done in straight XRP so we save on transaction fees (from trading).
That's the plan anyway, as I understand it. Ripple ain't there yet. But, there are companies out there right now that issue IOUs in a few currencies and are trusted enough that people might accept them for payment. So I’m pretty excited.
It doesn't work like the Bitcoin network at all. Except that its computer software for handling transactions.
Bitcoin is based on a primarily zero trust model, where every node validates all the data completely and cannot be tricked— except for transaction ordering which (due to relativity) can't be evaluated like that, and so Bitcoin uses a computational lottery to establish ordering.
Ripple has a small number of server nodes which can freely set all balances, no validation at all. Its an entirely different model. The servers believe according to a majority of configured trusted peers.
It doesn't even appear if the ripple model can be stable even absent attackers if the peering are not centrally controlled.
See this thread for more discussion: https://bitcointalk.org/index.php?topic=144471.0 (esp the later posts with the network topology diagrams)
Ripple does have only a small number of server nodes today, but that should be growing over time. A node cannot freely set balances. Each node signs each ledger and any change to a ledger entry (such as a balance) must be accompanied by a signed transaction justifying that change or other nodes will reject it.
Nodes are in fact called "validators" and they validate each ledger to ensure that any changes are justified by transactions. They sign these ledgers every few seconds.
As for the peering needing to be centrally controlled, I assume you're referring to each node's set of validators. While that does need to be sanely managed, it doesn't need to be centrally controlled. A number of organizations can publish lists of validators they believe to be reliable. The algorithm is very tolerant of things like minimal overlap or bad apples. Every honest node wants to agree with every other honest node, and dishonesty is impossible to hide, so the problem is not that difficult.
(I'm one of the architects of the Ripple network.)
But wait – you can become your own validator! [...]
The consensus system ensures there is only one ledger – the most accepted one.
If you run your own validator, you must connect with OpenCoin Inc servers, or you
will be building a different ledger. In practice, it is not possible to
“dethrone” OpenCoin Inc as you have to co-operate with OpenCoin Inc.
Last, if you're reading this, I'd suggest that you read up a bit about Ripple on Bitcoin Forum before you make conclusions about the currency - there are a lot of interesting discussions about its viability (like this one: https://bitcointalk.org/index.php?topic=146964.0).
I don't see why minimizing the number of validators is attractive. We want as many as possible precisely because that ensures that administrative control can't be seized. It's just like mining in Bitcoin -- you want it distributed into the hands of as many people as possible as evenly as possible. We are working on making this happen now. Obviously, open sourcing the server was a necessary stop to broadening the validators.
So the net result is that, since everyone - including the exchanges - trusts the OpenCoin-run nodes, the only safe thing to do is wait for OpenCoin's servers to come to a consensus amongst themselves and then accept their ledger updates in their entirety. There is no way for anyone outside of OpenCoin Inc to influence what gets included in the ledger except if you allow it.
It is true that today we control the majority of validators that other important servers trust. We're working now on increasing the number of validators because that will improve the reliability and robustness of the network. We absolutely do not want people to have to trust us, or even think they have to trust us, so this is a real priority for us. Open sourcing the server was, obviously, a step in this direction.
Please see the thread linked to above. There were several trust topologies given than are obviously non-convergent in your model and you appeared to have no answer for them.
Effectively you have ripple servers which must have central selection/control (or the system is not guaranteed to converge), and they can set balances to whatever they want. ... and then clients that simply believe the majority of the servers they are pointed at.
IOW, attacker-controlled Ripple nodes can outnumber legitimate Ripple nodes, therefore legit Ripple nodes are forced to accept transactions broadcasted by attacker-controlled nodes.
Furthermore, there was a very strong consensus among all parties, most especially by Patrick Murck (President, Bitcoin Foundation) that Bitcoin is not an anonymous or "private" currency, and that many people who believe it can be made anonymous are most likely in store for a rude awakening when government scrutiny and regulation catches up with the pace of the technology.
The reputational issue is solved by widespread real-world use, which is not something Ripple can boast either. These 'large businesses' have no reason to use Ripple even if it's clean due to backdooring, if no one else is using it.
> Furthermore, there was a very strong consensus among all parties, most especially by Patrick Murck (President, Bitcoin Foundation) that Bitcoin is not an anonymous or "private" currency
I would be fascinated to hear if this means that Murck and the Foundation plan to sabotage the adoption of any Zerocoin-like extension...?
(1) Ripple includes a single 'asset', the Ripple, or XRP (X-ISO4217-A3: XXRP) with which to tax shared resource use and avoid network abuse. Unlike Bitcoin's mining model, Ripple has a non-profit foundation to distribute the vast majority of these tokens.
(2) Ripple settlements are effectively much faster than Bitcoin, since rollbacks are designed to be impossible.
(3) Ripple encourages anyone to issue any asset. So you can have contingencies' "IOU for 5 euros", or Sidnicious' "IOU for 5 euros" and then you can choose whether or not to consider them to be of equivalent value. This is hugely powerful, since monetary theorists agree that the most desirable and missing feature of an economic system is the capacity to create a record of value (ie. debt, or money) where value is actually being created.
(4) The Ripple reference implementation is far cleaner and better written.
In summary, Ripple is hugely different to Bitcoin, far more aligned with academic thought on economic systems reform, and a toolkit for creating various forms of exchange rather than a currency itself. The XRP thing is just there to prevent resource abuse.
 Can't validate that myself.. though it makes sense you'd know "something's wrong" really damn quickly, since everything would stop working entirely: IIRC a Ripple ledger consensus occurs rapidly and takes majority agreement.
First, OpenCoin pre-mined the XRP's so they could hack the cryptocurrency trend and make tons of money if their currency took off.
Second, Ripple is NOT a decentralized currency, but in fact a "distributed" currency, which is actually a much bigger deal than you might think. This means it has a single point of failure, can be easily abused by the creators, and is extremely vulnerable to intervention by governments and other big players.
(You can read all about it here: http://ripplescam.org/)
Bottom line: the strength of a currency depends almost entirely on the trust in that currency, and I have no reason whatsoever to place trust in ripples. It's a wiser move to put your money in a non-scam currency, like Bitcoin or Litecoin.
Ripple has been pre-mined and is not decentralized, but in fact controlled by one entity (regardless of what the creators may claim).
There is a huge difference here. Not even a comparison.
Issues of coin distribution and mining versus no mining is a separate concern. From my vantage point, the great majority of LTC belong to Litecoin founders/investors/miners while the great majority of XRP belong to Ripple founders/investors/gateway-partners. There are trade-offs with either distribution scheme, but "coins to miners" is just one scheme (not the defining criteria for decentralization).
Funny, you were arguing that XRP wasn't a currency not so long ago.
It looks like from the code that all the orderbooks are XRP<>other. Seems like you can't opt out of trading XRP for your other stuff... so the fact that you and the other opencoin people own zillions of XRP is pretty material.
This is important because the price of XRP is not very stable now. If you wanted to keep offers up for USD to EUR, it would be very irritating if you had to pull down and replace a USD->XRP and XRP->EUR offer every time the price of XRP changed (to prevent one order from being too good and the other too bad). Also, if you couldn't place a USD->EUR offer, what would you do if you really wanted to trade USD for EUR? You can't place an XRP->EUR offer because you don't have the XRP yet. And if you place a USD->XRP offer, you wind up with XRP that you didn't want.
In the future, if the price of XRP becomes more stable, order books to and from XRP may become more popular. But still people who just don't want XRP will place offers on order books directly between assets other than XRP.
Whether or not XRP is a currency is really an arbitrary thing. I just want people to understand what XRP is and what its role in Ripple is. If they think that makes it a currency, then fine. If they think it doesn't, also fine.
"Ripple is an open-source protocol for a payment network. In its developed form, the Ripple network is intended to be a peer-to-peer distributed social network service with a monetary honour system based on trust that already exists between people in real-world social networks"
Bitcoin Magazine writes about the announcement here:
I feel like someday everybody will have a ripple account but they won't know it. Ripple is interesting because it is transparent and fast enough to enable developpers to create the future of everything around money.
1. Ripple Labs will hold half of all the XRP in existence, in the hope that they will gain value
2. Ripple Labs have repeatedly made claims that they would give away 50 billion Ripples (XRP), but have not done so.
So rather than reward early adopters of the currently (with future deflation), like Bitcoin did, Ripple Labs will hold onto 80 billion XRP in hope that its value will increase.
Say Ripple Labs currently holds a chunk of XRP worth $X. Say by January, it goes up to $Y. Then Ripple Labs will turn $X into $Y between now and January. Except an early adopter who bought $X worth of XRP today would also turn $5X into $Y over that same time frame.
The cost to buy Bitcoins is usually pretty close to the cost to mine them, so Bitcoin early adopters didn't get their Bitcoins for free either. Using mining to reward early adopters has proven to be economically infeasible. The cost and reward of mining will adjust, as mining becomes profitable or unprofitable, such that mining will not generally be more rewarding than anything else people might do.
Bitcoin took a lot of criticism for rewarding early adopters. So this is really a "damned if you do, damned if you don't" kind of thing.
Because Ripple has no need for mining, implementing mining to distribute the currency would basically just be paying people to waste electricity. It would make no sense, and an actual valuable asset (electricity) would be destroyed in the process.
Bitcoin has demonstrated that mining at a significant profit quickly becomes impossible. So long as mining is particularly profitable, more people will do it. More and more resources compete for ever smaller shares of the pie.
Where it secures the currency and the transactions, as it does in Bitcoin, it's an essential service that is worth paying for. Where it is not needed for that purpose, it's a colossal waste of a significant fraction of the value that Bitcoin creates.
Never heard of this Ripple and don't care anything about it myself.
Nope, it's about a program which satisfies a legitimate technological need. Sorry you were disappointed.