RippleInvestmentGuideVersion1.

byAndrewWhite
andrew@onemilliongateways.com
twitter@OMGateway

Copyright2014AndrewWhite
HelloandwelcometotheRippleInvestmentGuide.Thisebookis
designedasanoverviewofthewaysinvestorscanparticipateinthe
Rippleecosystem.Thisbookisonlyforeducationalpurposes,andis
notintendedtoprovideinvestmentadvice.Beforeinvesting,I
encouragemyreaderstodiscusswiththeirfinancialadvisorany
potentialrisksandrewardsofaninvestment.

Mygoalforthisbookistobelargelynontechnicaland,astheauthor,I
feelacertainresponsibilitytomakesureeveryonewhoreadsthisbook
learnssomethingofvalue.Ifthereisapassageinthisguidethatdoes
notseemtomakesenseoristoocomplicated,myapologiesanda
request:pleasedonotgiveuplearningmoreaboutRippleandthe
opportunitiesitpresentstoinvestors.Takeyourtimewitheachsection
andsupplementyourlearningwithGoogletohelpwithyourown
researchontermsorideasofinteresttoyou.Dontbesurprisedif
afterreadingthisguideyoubecomethegotoexpertaboutRipplein
yoursocialnetwork.

TheRipplepaymentsystemisoneofthemostexcitingtechnologiesto
bedevelopedinrecentyears.Forthefirsttime,paymentscanbesent
toanyoneintheworldinanycurrencywithinafewseconds.Idescribe
Rippleaslikeemailformoney.Activitiesthatwereoncethesole
purviewofthebankingindustry,suchaslendingormakingpayments,
havebecomedemocratizedintheRipplesystem.Themyriad
opportunitiesandchallengesthesenewoptionsbringtothemasses
openawholenewsetofpossibilitiesandquestionsforthediscerning
investortoconsider.Thisebookpresentsabriefoverviewofbusiness
opportunitiesintheRIppleecosystemandwhatrolesyoucanplayin
thisexcitingnewareaoffinance.IhavebeeninvolvedwithRipplesince
early2013andIhaveexperiencedallthedifficultquestionsoftryingto
Copyright2014AndrewWhite
understandit.SoonthatnoteIwanttocoverallthemajorcomponents
ofRippleasitexiststodayanddivedeeperintoeachtopicasspace
allows.Withanynewtechnologytherearetradeoffsbetween
sophisticationandeaseofuse,newfeaturesandcomplications,new
capabilitiesandnewrisks,andRippleisnodifferent.Inthisebooks
twentyorsopages,myintentismakeyouconversantinthemain
areasofRippleandinviteyoutospecializeinyourownareaof
research.

Bestwishes,
AndrewWhite

Copyright2014AndrewWhite
TableofContents
RippleLabs
Wallets
Ripples
Gateways
Consensus
CurrencyIOUs
Traders
MarketMakers
Enterprises
DueDiligenceQuestions
IntheFuture
FAQs
Glossary
AbouttheAuthor

Copyright2014AndrewWhite
RippleLabs
RippleisspearheadedbythecompanynamedRippleLabs,Inc.inSan
Francisco.OriginallyformedasOpencoinIncin2012,itwasreformed
in2013byJedMcCaleb,ChrisLarsen,andafewothers,RippleLabs
ownstheintellectualpropertyoftheRippleprotocol.Thecodeand
programsthatmakeupRippleareavailableforfreeforanyoneto
download,useandmodify.RippleLabsissupportedbyacommunity
ofRippleenthusiastsaroundtheworldwhoarepassionateabout
makingthetechnologymoreuseful.Thesepeopleprovideessential
feedbacktoproductteams,engineers,techies,andClevelexecutives
leadingtheoverallimplementationofRipplesdevelopment.Theknown
investorsinRippleLabsincludeGoogleVentures,Andressonand
Horowitz,LightspeedVentures,BryanBradford,andothers.Asof
March2014,RippleLabshasastaffof40peopleledbyCEOChris
Larsen.Mr.LarsenistheformerCEOofELoanandlater
Prosper.com,bothofwhichwerepioneeringcompaniesinpeertopeer
lending.
Asanoutsider,IcantsayanythingdefinitiveaboutRippleLabs
businessstrategies.Buttheirplanappearscommittedtoincreasingthe
valueoftheRipplenetwork.Theydothisthroughavarietyof
strategiestoshowthepublicandworldofbusinessthatRipple
providesabettersystemforpayments,betterthanthealternatives.
Oneofthewaysofaccomplishingthisisbymakingusefulsoftware
andgivingitawayforfree.Thesourcecodeofthesoftwarefrom
RippleLabscanbereadandusedbyprogrammersatnocharge,
whichisanopeninvitationforcuriousengineersandprogrammersto
makecontributionstothecodeandexpeditethedevelopmentofthe
corefunctionality.Thisalsoprovidesavaluablesafetymechanism.
Sincemoreeyescanlookattheunderlyingcode,potentialissuescan
beidentifiedandfixedearly,beforebecomingaseriousissue.Ripple
Copyright2014AndrewWhite
Labscangiveawaythesoftwareforfreebecausethecorevalue
propositionofRippleisthatanopenpaymentnetworkthatanyonecan
useandimproveismorevaluablethanaclosedalternative.Sofarthe
planseemstobeworkingwellandRippleisstartingtomakebig
waves!

Wallets
Touseadigitalcurrencysystem,peoplestartbycreatingadigital
versionofawallet.ARipplewalletisidentifiedbyitsRippleaddress
thatbeginswiththelowercaserandlookslikethis:
r3CxMDQFX1Atq1vQN5sqVsjm3rawGSwd32(note:donationstothe
authorarewelcome!).
Thewalletisalwaysavailableonawebpagewiththemain
functionalitydisplayed:wallettransactionhistory,anaddressbook,a
sectiontosendandreceivepayments,andasectionofthewalletfor
youtomakecurrencytrades.ItisimportanttonotethatRipplewallets
arenotinsuredbytheFederalDepositInsuranceCorporation(FDIC),
whichwascreatedbytheU.S.governmenttoprotectconsumersfrom
bankfailures.
Formostconsumers,themagicofRipplepaymentshappenswhen
paymentsaresentacrossthenetworkwithinafewseconds.To
anyoneaccustomedtotheslowandcumbersomeprocessoftraditional
paymentnetworks,thisisanincredibleadvanceinpayments
technology.Nolongerdopeopleneedtowaitfordaysforabankwire
transfertobecompleted,orweeksforacreditcardpaymenttobe
processedwithRipple,havingtowaitforpaymentprocessingisa
thingofthepast.Eveninareaswithmodernbankingsystems(like
EuropeandChina)withsamedaybanktransfers,theexistingpayment
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systemisstillarelativelyslowandcostlyprocessthatcreatesan
unnecessarydragontheeconomy.Justimaginewhatkindoflowcost
newserviceswillbecomeavailablewithRippletomerchants,
consumers,andinvestorsacrosstheentireglobaleconomy.
Asfarasmostinvestorsareconcerned,theRipplewalletisalsowhere
magichappensinitsroleinredefiningthepaymentexperiencearound
theworld.Tobehonest,inmyopinion,walletsarenotallthat
interestingvisually,orconceptually,norshouldtheybeparticularly
interesting.Theyaredesignedtobeassimpleaspossiblehencethere
isntmuchtoseeordoinaRipplewallet(withtheexceptionof
trading).
Advancedconceptwarning!IliketodescribeRipplewalletsusingthe
followingexamplebutitisnotapreciseanalogy.Ijustmentionedthat
RipplewalletsarenotFDICinsuredbecausetheyarenotissuedbya
U.S.charteredbank.Allowmeartisticlicensewiththefollowing
analogy:aRipplewalletiskindoflikeabankaccountbutyouasthe
walletowner(accountowner)areempoweredtocontrolhowmuch
moneyyoutrusttobeheldbyyourvariousbanklikeentities
(gateways,moreaboutthemlater).
RippleWalletsaregreatbecausewhentheycanstoreormake
paymentsinanycurrency.Theauthorcantthinkofanyotherwallet
evercreatedthatisabletoacceptanycurrencyevercreated,including
governmentissuedcurrenciesandprivatecurrencies!Forthefirsttime
inhistory,digitalwalletuserscanholdanycurrencyeverissued.Thisis
aBigIdeathatmaytakeyearstobewidelyunderstood,appreciated,
andacceptedbythemarket.
Ripples
RipplesarethenativecurrencyoftheRippleprotocolandare
referredtotheircurrencycodeofXRP(whichislikeUSDorBTC).The
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protocolconsistsoftherulesofhowRippleworksandtheserulesare
translatedbyprofessionalprogrammersintosoftwaretoperformall
thefunctionsthatRippledelivers.Moregenerally,peoplemake
protocolstosolveaprobleminaconsistentandentirelyreliable
manner.Welldesignedprotocolstendtohavemanypeopleusingthem
andthebestprotocolshavealongservicelife.Forexample,thinkof
theprotocolofshakinghandswhengreetingsomeone.Thisprotocol
hasbecomeinstantlyrecognizableworldwide.Itsnotabletraitsare
thatitissimple,easilyreproducible,andcooperativeinnature.The
bestcomputerprotocolsandmonetarysystemsaimforsimilarresults.
Tobecompliantwithinternationalnamingconventions,Ripplesare
knownbyathreeletteracronym,comparabletohowUSdollarsare
representedasUSD.ThethreelettercodeisXRP.Ripplewas
releasedwithonly100billionunitsofXRPtoeverexist.Thelogicis
thataverageconsumersmightonlyneedtousearelativelyfewRipples
acrosstheirentirelifetime.The100billionnumberwasjudgedtobe
largeenoughtobeusefulfortheRipplenetworkforhundredsofyears,
andquantifiableenoughtoprovideabusinessmodelforRippleLabs.
Ripplesaredistributedinavarietyofways.RippleLabssellsbulk
quantitiesforlargeordersandgivesawaysmalleramountsforfree.It
iscriticaltotheRippleLabsbusinessstrategythatXRPbedistributed
toawidenumberofmarketparticipantswhointendtouseRippleasa
systemforpayments,currencytrading,orassetissuance.Acool
featureofXRPisthatasthenativecurrency(Ialsolikethetermmeta
currencybutitisnotasobviouswhatthatmeans),XRPcanbespent
tosend(orreceive)anyothercurrencyofferedforsaleinsidethe
Ripplenetwork.
TherearedifferentinvestmentstrategiesinvolvingRipples.Before
gettingintothevariouschoicesavailable,Iwouldsuggestwouldbe
investorsaskthemselvesafewquestionssuchas:amItechnically
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proficientenoughtohandledigitalcurrencies?DoIalwaysfollowbest
practicesforcomputersecurity?ShouldIrelyonareputable
consultant,broker,orhedgefundtomanagemyinvestment?AmI
wellversedinthenatureofonlinescams,walletsecurityissues,and
legalissuesbeforebuying?ShouldIuseXRPasahedgeagainstmy
otherinvestments?Youranswerstothesebasicquestionsshouldhelp
pointyouinthedirectionthatsrightforyou.Itdoesnthelptobeless
thanentirelyhonestwithyourself,sobecandidandassessyour
strengthsandweaknessesbeforemakinganyinvestment.
Investorsmustbeawarethatthereareinherentrisksassociatedwith
digitalassets.Theftsandscamsareanunfortunatebutinevitable
aspectofonlineofferingsandtheinvestormustalwaysperformdue
diligencebeforetrustingotherswiththeirmoney.Evenifaninvestment
isnotfraudulent,thereisnoguaranteethatthevalueoftheinvestment
willyieldprofits.Youarecompletelyonyourownonthisone.Please
donotaskRippleLabsforsupportoranswerstotheseissues.Ripple
LabscannotandwillnotcommentontheinvestmentfitnessofRipple,
XRP,orthevalueandsafetyofclaimsmadebynonRippleLabsstaff.
Duediligenceistheprocessofinvestigatingaproposedinvestment,
andtheresponsibilityforduediligenceisentirelyuptoyou.Be
appropriatelyskepticalandcautiousinallyourdealings.
Ripplewasreleasedtothepublicaroundthebeginningof2013.Atfirst
theywereworthnothingatmarketrates,butXRPhassteadily
increasedinvaluethroughasteadilyincreasingnumberofservicesbuilt
forit.

Gateways
GatewaysareserviceprovidersthatletRippleusersdeposit,transfer,
andwithdrawmoneybymeansoftheirgatewayaccounts,including
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transfersbetweenaconsumerswalletandtheconsumersgateway
account.Toattractandretainusersoftheirservice,gatewayswill
innovateandofferbeneficialservicestotheircustomers.

Asgatewayscompeteformarketshare,Ifullyexpectthatmore
gatewayswillbelaunchedthattheywillincreasinglyofferinnovative
rewardsprogramslikeairlinemiles,coupons,andpremiumservice
discounts.

Thereareanumberofservicesavailabletopeoplewhowanttocreate
andoperateagateway.Iftheyhaveastrongtechnicalbackground,
theycanusuallysetoneupthemselves.Iftheydonthavethetechnical
skills,theycanuseahostedwallet(moreonthatinamoment).Ifthey
areseriousaboutgettingintothegatewaybusiness,theycanpaya
qualifiedconsultanttomakeacustomserviceforthemforexample,
RippleLabsoffersagatewaycustomizationservicetoenterprises.In
thefuture,cloudbasedoptionswillbeavailablesuchasOMGsOne
MillionGatewayshostedservice.

BecauseofRipplesdesign,anyonewithaRipplewalletcantechnically
becomeagateway.
Copyright2014AndrewWhite

However,thatisneitherlikelyornecessaryinalmostallconsumeror
investorcases.ARippleWalletcanbecomeagatewaywhenpeople
addtrusttoawalletyoucontrol.TrustinthecontextofRipple
meanshowmuchofmymoneydoItrustthisgatewaytohold?
Gatewayswithanestablishedhistorywithagoodreputationfor
customerservicetendtobemoretrustedbyusersthannewgateways
thatarelessknownandhavealimitedhistoryofoperation.

Gatewaysasabusinesshaveafewdifferentbusinessmodels
availabletoguidethem.Oneexampleisagatewayprimarilyusedfor
moneytransmission,anotherexampleisremittance.Asagateway
operator,youmightbeinterestedinenablingpeopletosendpayments
toanothercountry.Aconsumeropensanaccountonyourgateway
andsendsyoumoneytogointhataccount.Thegatewayoperator
issuesIOUs(moreaboutthoseinthenextsection)totheaccount
holderandthoseIOUsappearintheholdersRipplewallet.The
accountholdercanthantradetheseIOUsforanothercurrency.Inthe
othercountry,apersoncanwithdrawtheseIOUsfromthegateway
andreceivetherealcurrency.Thegatewaymakesmoneybycharging
atransactionfee.Iftheoriginalgatewayswebsiteorservicebecomes
unavailable,theIOUsdonotdisappearfromRipplewallets.Inthe
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eventofbankruptcyorotherseriousdisruption,theIOUsmaylose
someoftheirmarketvaluefortheIOUsofcurrencytheyrepresent,but
theycouldberedeemedwhenthegatewaybusinessreturns.The
uniquecircumstancesofthegatewaysissuewilldecidewhatrecourse
isavailabletotheIOUholders.
ThechartsonRippleCharts.comcontainthemajorcurrencymarketson
RIpple.ThesearetypicallywrittenintheformofBitstampUSD/XRP
toindicatethattheseIOUsareissuedbytheBitstampgatewayinthe
USDcurrencyandistradingagainstXRP.Anotherexampleisthe
ChinesegatewayRippleCN.TheirIOUsfortheChineseYuanlooklike
this:RippleCNCNY/XRP.BackoveratBitstamp,youwillseethat
BitstampUSDisalsoabletobetradedforBitstampBTC.Gateways
cansetrulesonthefeesoftradesorpoliciesastowhatisallowedto
betradedbutingeneralalltheIOUswillbetradableforallthe
equivalentIOUsonagivengateway.
Aquickwordaboutaddingtrusttoagateway.Sinceanyonecan
createagatewayitiscriticalthatyouonlytrustaproperlyestablished
gateway.Thismeansitisattheveryleastincorporatedandisrunby
publiclyknowncorporateofficers.Ifthegatewayisoperatedinan
anonymousmanner,thatmeansthereisnoaccountabilityiftheservice
disappears.Thisisimportant:inyourRippleWallet,youshouldonly
givetrusttogatewaycompaniesthatyoutrusttobereliableand
responsiblewithyourtokensofvalue,e.g.money.Sinceagatewayis
notusuallyabank(atleastatthetimeofthiswriting),thereisnoFDIC
styleinsurancefordepositsmadetoagatewayentity.Agatewaythat
makesanefforttobelegitimatehaspubliclyknownstaff,abusiness
address,customersupportdetails,and/oraphonenumberwithpeople
whoanswerthephoneduringestablishedhoursofbusinessoperation.
IfaRipplegatewaywebsitedisappears,yourIOUsdonotdisappear
fromyourRippleWallet.TheproblemisthatredeemingthoseIOUsfor
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theircashvalueisimpossibleunlessathirdpartygatewayaccepts
themfortheircashequivalents.Icansumthisupinaveryeasyto
understandmanner,whenitcomestoanonymousgateways:donttrust
them.
Astandardsgroupforgatewayshasbeenformedcalledthe
InternationalRippleBusinessAssociation(IRBA),whichoperates
independentlyofRippleLabs.IRBAhasasetofrequirementstomake
surethatthegatewayslistedonIRBAswebsiteathttp://xrpga.orgare
legitimateorganizations,operateusingbestpracticesforbusinesses,
etc.Thereareroughly170membersoftheIRBAatthepresenttime,
includingpeoplewhohaveexpressedtheirinterestinforminga
gatewayforcertainmarketsorareasintheworld.
Consensus

Consensusiswherewestarttogetintothereallynittygrittytechnical
detailsofhowRippleworks.Youdontneedtoknowallofthisinfoifit
isnotrightforyou.Understandinghoweverythingworksisnota
requirementtoinvestinaRipplebasedasset.Therearealotof
complexthingsinlifethatdonotrequiredadeepunderstandingofhow
itworks.Acoupleoftechexamplesincludeareexactlyhowcomputers
workorexactlyhowawebbrowserworks.Weassumethatthe
professionalsthatmakethesetoolsknowwhattheyaredoingandthey
canspareusthegorydetailsandletusmoveontodowhatwewant
todowiththetool.UnderstandingRippletothelowlevelcodeand
protocolislikewisenotarequirementtounderstandtheideasof
Ripple.Ifthetechnicaldetailsdonotinterestyoufeelfreetoskipover
thissection.IfyouarefamiliarwithBitcoinlikecurrenciesyoumay
haveheardthatBitcoinworksthroughaschemecalledproofofwork.
Proofofworkisaprocessinwhichcomputerscooperateonsolvinga
Copyright2014AndrewWhite
hardmathproblemthatinitiallynoneofthemknowtheanswerto.
Whentheanswerisfound,thecomputerthatsolvestheproblemis
awardedablock,anawardofBitcoin(25atthetimeofthiswriting)
andtheblockisdistributedalongtoalltheothercomputerswithacopy
ofallthetransactionsthattookplaceinthepriorblock.Thisiswhat
allowstransactionstotakeplace.Intechnicalterms,thissolvesan
importantproblemofhowtosolvethedoublespendingproblem.A
doublespendissomeonespendingthesameunitsofcurrencytwice.If
everyonethoughttheycouldjustusespreadsheetstocreatea
cryptocurrency,theywouldsoonfindthatsomeonewouldcheatby
manuallychanginghowmanypaymentsweresent.Thisproblemhas
existedforalongtimeandonewayofsolvingitwasreleasedtothe
publicin2008bySatoshiNakomoto,theanonymouscreatorofBitcoin.
In2011JedMcCalebwasthinkingofwaystosolvesomeofthe
problemswiththeproofofworksystem.Inparticular,Jedwantedto
solvetheslowtransactiontimeofBitcoin.Waitingforcomputersto
solvetheproofofworkproblemonBitcoincantaketenminutesor
hoursintimeandthatwaittimeisnotgoodformerchantsor
consumersusingthesystem.Whathecameupwasanewapproach
calledConsensus.Ifthemajorityofcomputersonadigitalcurrency
networkcouldagreethatatransactionhappenedtherewouldbeno
reasontodoubtthatatransactiontranspired.Theproofofwork
systemreliesonseveralcomputersagreeingthatatransaction
occurred,whichiscalledconfirmations.Afterenoughconfirmations
occuritcanbereasonablybeassumedthatatransactiondidinfact
takeplace.Withaconsensusbasedapproach,transactionscouldtake
placeinsecondsratherthanminutes.Therecanalsobealotmore
transactionssincethecomputationalcostofthissystemislow.This
bringsustoanotherproblemthathaslongbeenanacademicpuzzle,
theByzantineGenerals'Problem.Thisproblemasks,howdotwogenerals
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cometoanunanimousagreementwhentheyareseparatedby
distancesthatcreateobstaclestocommunication?

OneanswertothisproblemisdonewiththeRipplesoftware,the
networkissetuptovalidateatransactionif80%ofvalidatornodes
agreeatransactiontookplace.

RippleLabsEngineerDavidSchwartzhasthistosay:Thenumber
wasdeterminedbysimulation.Ifyousetthethresholdtoolow,the
consensusprocesscompletesveryquicklybutmorefrequentlydoesn't
actuallyreachconsensus.Ifyousetthethresholdtoohigh,the
consensusprocesstakesmuchlonger,butonlyveryrarelyfailsto
actuallyreachconsensus.(Whenyousay,"Ibelievethere'sa
consensus",youcan'tactuallybe100%surethereisinfacta
consensusornobodycandeclareaconsensusfirst.)

OntheRippleforumrecently,amathematicallymindedmemberasked
DavidthefollowingquestionHowdoesRipplesolveByzantine
Generals'Problemsuchasnosolutionunlessn3t+1,n=numberof
processesinthesystemandt=numberoftraitors?

HowRipplesolvestheByzantineGeneralsproblemissimple.The
consensusprocessispermittedtofailbecauseitdoessoharmlessly.
Iftheconsensusprocessformsaledgeronwhichthereactuallyisno
consensus,thentherewillbeinsufficientvalidationsandtheconsensus
processwillrepeat.ToputitinByzantineGeneralstermsifyougetto
thebattleandtheotherarmiesaren'tthere,youjuststartover,nothing
catastrophichappens.
Copyright2014AndrewWhite

AndwiththatwecanwrapourreviewofhowConsensusworks.For
moreinformationpleasecheckouttheRipplewikipagesathttps://
ripple.com/wikiorhttps://ripple.com/wiki/How_it_works

Validators

ForcompletenessIjusttomentionValidatornodesandwhattheydo.

TheRipplewikihasthistosayaboutvalidatorsTheRippleprotocol
dependsonacollectionofvalidatorswhoparticipateintheconsensus
processandproducesignedledgerswhichgetbroadcastintothepeer
topeernetwork.Clientsandpeerscollectanddependonthesesigned
ledgerstodeterminewhatistheconsensusledger,orthe"true"state
oftheledger.CrucialtothesecurityofthenetworkisthateachRipple
serverchoosetopayattentiontoasufficientlylargediversesetof
validatorswhoarenotcolludingtodefraud.When80%ofvalidator
nodesagreethataedgerisvaliditgetssignedandconfirmedacross
theentireRipplenetwork.Thisisanalternativesolutiontothe
ByzantineGeneralsproblemfirstsolvedbyBitcoinwithmining.

CurrencyIOUs

IOUs(Ioweyouspronouncedhowitisspelled,eyeohu)arethe
heartofhowmostpeoplewilluseandtradeonRipple.IOUsstandfor
Ioweyou(something).WearemostfamiliarwithIOUsfromour
bankingorinvestorstatementthatismailedmonthlybyfinancialservice
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providers.AnIOUisapromisethatacertainamountoffundsthatthe
IOUissuercontrolsarefundsinyouraccount.Therealityisthatthe
IOUholderhasatotalamountoffundsthatitcontrolsand,fromthis
total,theyuseadatabasetoorganizewhattheyowetheircustomers
andthenumberdisplayedtoyouistheIOU.IOUsonRipplenetwork
operateonthesameprinciple,butinsteadofabankingorinvestment
entitycreatinganddisplayingtheIOUtoyou,anIOUontheRipple
networkisanassetcreatedbyaRipplegatewayindicatingIpromise
toredeemyouaspecificamountofthiscurrencyasset.Ifyou
receivedapaymentforUSdollars,youwouldseethedepositofthe
USDIOUsinyourRippleWallet.

IOUsarewhatmakeRippletheemailofcurrencies.Theemail
protocoldoesnotcarewhoyouaresendingamessageto,orthe
contentofyouremail,andRippleworksthesameway.Thesender
andrecipientofanemailislikethesenderandreceiverofRipple
wallets,themessageinanemailissimilartowhatcurrencyandhow
muchissentinthetransaction(themessage,inouremailanalogy).
ThefinallessonyoushouldtakeawayfromthisisthatanIOUhas
novaluewhenitisnotbackedbyanasset.

Pathfinding
Pathfindingisprettyselfexplanatory.ThisishowRipplefindswaysto
makethebestavailablepayment.Pathfindingisofmostinterestto
marketmarkersandtechnicaltypestobeabletoservemarketactivity.
ItisimportanttonotethatalthoughRippleisfastitisslowenoughas
tomakehighfrequencytradingimpossibleandapartofthereason
whythatisisbecauseofhowPathfindingworks.
Copyright2014AndrewWhite

Traders

AnyonewithaRipplewalletcantradethedigitalcurrencyassetson
Ripple.SendingapaymentofanysortusingtheRipplenetworkis
equivalenttomakingatradeontheforeignexchange(alsoknownas
forexandFX)currencymarkets.Eachcurrencyhasathreeletter
abbreviation,andeachcurrencytradeisexpressedasapairthat
includesthebasecurrencyandacountercurrency.Eachcurrencypair
(USD/XRPorEUR/JPYorCNY/BTC,etc.)issupportedbyagateway
thathasanorderbookofbuyersandsellersofaparticularcurrency
pair.ThedailytradingvolumeontheRipplemarketisgrowingrapidly.
Atthetimeofthiswriting(March2014),themostpopularcurrencies
tradedareChineseYuan(CNY),USD,andBTC.
Automatedtradingisapopularchoiceforinvestorswiththetechnical
knowhowtoworkwithprogrammingscriptstomakeatradingbot.
ThesebotsconnecttotheRipplenetworkandlookatthebidsand
asksincertaincurrenciesandtradeaccordingtouserdefined
parameters.Mostofthesebotsrequireafairamountoftechnical
knowledgeandskilltosetupanduse.Althoughtherearenoalgorithmic
tradingservicesavailabletoinvestorsatthemoment,theseareknown
tobeindevelopment.Tradeandforgetbotscanbeextremely
valuableastheyworkforyouaroundtheclockwithouttiringor
miscalculating.

Offmarkettradingcanalsobeverylucrative.Findingamarketthat
wantsXRPbutdoesnothavetheknowhowhowtogetitisan
excellentwaytobuildabusinessandincreaseRippleadoption.Ifyou
wanttoengageinoffmarkettrading,pleasegetinformedoflocallaws
Copyright2014AndrewWhite
beforebeginning.IntheUnitedStates,tociteoneexample,
transactionsgreaterthan$10,000needtobereportedtotheFederal
FinancialCrimesNetwork(Fincen).

MarketMakers

Marketmakersarepeoplewhoprovideliquidity(i.e.,money)between
gatewaystoallowpaymentsthroughapathwayofcurrenciestobe
made.Muchlikehowaroadprovidesapathforacartoreachits
destination,apathwayistherouteatransactiontakestocompletea
payment.Althoughthereareafewwaystobecomeamarketmaker,
theeasiestiswithasimpleorderintheRipplewalletforthesame
currencybetweenthetwoormoregatewaysyouwanttomarketmake
for.

Enterprises

TheRippleecosystemislikelytoseepowerfulwaves(ha!)ofnew
servicesdevelopedtotakeadvantageofthenewfoundpossibilities
thatRippleprovides.Themostobviousareaatthetimeofwritingis
gatewayservices.Merchantservices,remittanceoptions,charities,
experimentalhobbies,andcommoditiesalsoareallpromisingareasfor
innovatorstoplacetheirstake.

Anumberofinterestingcompanieshaveformedbasedentirelyonthe
Rippleprotocol.CompaniessuchasFortuneHarbor,Coinst,
RippleWise,SnapSwap,andothersareleadingthewayintermsof
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innovationandprovingthattheRipplesystemisaviablebusiness
model.CompaniesolderthanRipplehavealsosignedontousethe
service,mostnotabletodateisBitcoinexchangeBitstamp.

CreatingorinvestinginanewcompanyintheRippleecosystemisan
attractiveoptiontotheinvestorfamiliarwithmanagingequityassets.
Rippleissonewandtheopportunitiesitofferssolargelyuntapped,
thatthedooriswideopenforenterprisingindividualsandstartupsto
makeasubstantialimpactwithlittlestartupcosts.

DueDiligenceQuestions

Investorsshouldbeaskingthemselvessomehardquestionsandhave
honestanswersbeforebeginningtoinvestinRipple.Herearesome
basicsforyoutoconsider:

HowwelldoIunderstandRipple?
WhatdoInotunderstandaboutRipple?
Whataretherisksinvolved?
WhatarethelegalandregulatoryissuesimpactingRippleinmy
countryofresidence?

WhatdoIknowabouttheprincipalsintheenterpriseinwhichImight
invest?
DoIunderstandallthecounterpartyrisks?
WhathappensiftheRipplesoftwarebecomesfundamentallybroken
andcantbefixed?
Copyright2014AndrewWhite

Whoarethemajorcustomersandtheapplicationsrelatedto
investmentopportunities?

Whatarehistoricalandprojectedgrowthrates?
Whatistheexpectedmarkettimingofnewproducts,services,or
enhancements?

Alongwiththesespecificinvestorquestions,Iwantedtosharethislist
ofbestpracticesfromtheRipplewiki:

Youmustprotectyourself:

RippleLabsInc.doesnotendorse,qualify,orguaranteethe
performanceofanymerchantorgateway.

Donottrustservicesoperatedanonymously,youhavenorecourse.

DonotenteryourRippleusernameandpasswordonanysiteyoudo
nottrustwithyourfunds.

DonotenteryourRippleusernameandpasswordonanysitethat
doesnotusehttps.Youcanusuallytellwhenasiteuseshttpswhen
yourwebbrowserhasagreenlocknexttothewebsiteaddressinthe
addressbar.

Copyright2014AndrewWhite
Donotuseaclientprovidedbyanentityyoudonotfullytrust.You
musttrustyourclientprovidertobehonest,secure,competent,upto
date,andperhapsmore.

ForlongtermstorageofXRPorIOUsinacoldwalletconsider
usingtheDesktopClient.

IntheFuture

Thefuturewillcertainlybringmanyexcitingandinterestingareasfor
Rippleinvestorstoconsider.Inparticular,Imexcitedforthetimewhen
optionstradingbecomesmorewidelyavailable(whichwilllikelybe
easierwiththeadventofsmartcontractslaterin2014).Smart
Contractscouldbecomethekillerappformathbasedcurrencies.For
example,byusingmathitispossibletoissuesharesforacompanyor
raisefunds.InJuly2014RippleLabsannouncedCodius,anewproject
toenablesmartcontracts.Codiuswillallowpeopletocreateoffersor
contractsacrossanydigitalcurrencysystemsothattheycanall
benefit.Theydothisthroughsomeinnovativedesignchoicesthatallow
peopletomakeusefulapplicationswithanypreexistingprogramming
language.Tolearnmoreonthesubjectofsmartcontracts,Ihgihly
suggestathoroughreadingofGreatChainsofNumbersbyTim
Swanson.Ripple,likeanyactiveprotocol,facesintensescrutinyto
identifyandcorrectanyinefficienciesaswellasforwaystheprotocol
canbeimproved.Rippleissuchanewtechnologythatitsfullimpacton
businessandsocietywillnotbeknownformanyyears.Thedaywill
comewhenpeoplewillbesoaccustomedtoamulticurrencywalletthat
Copyright2014AndrewWhite
theywillaskwhydidntIthinkofthat?Werewitnessingthedawnof
atransformationaltechnologywithoutprecedent.

FAQs

HowisRippledifferentfromBitcoin?

Thetwoarecompletelydifferent.ThemostbasicansweristhatRipple
isnotdesignedtobeusedasacurrency.Insteaditisapayments
protocol.Bitcoinusestheproofofworkmechanismcommonlyknown
asminingtoverifythevalidityoftransactions.Instead,Rippleusesa
systemcalledconsensus.ThisfundamentaldifferencewithBitcoin
meansthattheyworkdifferentlyandthattheyaredesignedfor
differentpurposes.

Iheardthatminingdigitalcurrenciesrequiresanincredibleamountof
electricity,isRipplesimilar?

Thankfully,no.Ripplerequiresnomoreelectricitytorunsecurelythan
anormalhighendcomputerserver.ThemegatonsofCO2and
megawattsofelectricityusedbyotheralternativeswontbeanissue
withRipple.

IheardthatRippleisapreminedcurrency,isthattrue?

Theanswerisbothyesandno.Ripplewasnotcreatedorreleased
asacurrencyplatformthatusedminingtoverifytransactions.The
teamthatcreatedRipplesuccessfullysolvedsomeoftheinherentand
Copyright2014AndrewWhite
fundamentalproblemsthatminingbringstoadigitalcurrency:the
slownessoftransactions,the51%attackproblem,blockchainsplits,
etc.Indefiningtheutilityofcrosscurrencypayments,afundamental
designprincipleisthatlongdelaysforpaymentsisnotacceptable.
Letsfaceit,nobodywantstheuncertaintyofwaitingforapaymentto
confirm.

Whatarevalidators?TheRipplenetworkreliesondedicated
computerscalledvalidatorstoconfirmthattransactionsarevalid,why
isthis?

Validatorsarethelightweightwaytoverifythattransactionsarevalid
comparedtotheheavyweightuseofcryptocurrencymining
algorithms.Bydesign,RippleLabscreatedtheRipplenetworktorely
onvalidatorsthattheyrunandtheyknowcanbetrustedtomakesure
thattransactionsarevalid.Themajorityofthevalidatorsthata
gatewaytrustsmustbetrustworthy.Ifthemajorityofthembecome
maliciousorconspireagainstthegateway,theycanmakefraudulent
paymentsagainstthegateway.Thewaytomitigatethisthreatisby
usingcommunityacceptedtrustednodessuchasthoserunbyRipple
Labs.

IheardsomeoneforgottheirpasswordorhadtheirRipplecoins
stolen,arethosecoinsorwalletsinaccessibleforever?

Yes,unfortunatelytheyare.NeitherRippleLabsnoranyoneelsecan
restoreyourpasswordorrecoverstolencoins.PaymentsinRippleare
irreversibleduetohowsomeofthelowlevelmathfunctionswork(for
Copyright2014AndrewWhite
moreinformationontheunderlyingtechnologies,youcanresearch
publickeycryptographyandmessagesigning).

Iwanttoknowmoreabouthowtosetupagateway,wheredoIstart?

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

WhatisaSecretKey?

YourwalletsSecretKeyisyoursecretentranceintoyourwalletifyou
everforgetyourpassword.Onatechnicallevel,yourSecretKeycan
alsobeusedaspartofaprogramtodothingsforyousuchasrunning
atradingbot.SecretKeysarenamedsecretbecausetheymustbe
absolutelyunavailabletoanyonebutthosetrustedtoaccessthe
account.IfsomeonegetsyourSecretKey,theycandowhateverthey
wantwithyourassets.Ifyouarehavereasontobelievesomeonehas
gainedunauthorizedknowledgeofyourSecretKey,youshouldcreate
anewwalletandsendyourassetsovertothenewwalletassoonas
possible.

WhatkindofventurecapitalorincubatorsareavailabletoRipple
developers?

TherecentlylaunchedCrosscoinVenturesisagoodstartingpointfor
Rippledevelopersseekingfunding.Headedbyentrepreneurialstartup
andVCveterans,Crosscoinhastheenviablepositionofbeinglocated
inthesameofficebuildinginSanFranciscoasRippleLabs.Lookfora
Copyright2014AndrewWhite
numberofhighqualityandinnovativeservicestoemergefromthe
Crosscoinaccelerator.

WhatisthebesttechnicalresourceforRipple?

TheRippledocumentationresourceislocatedathttps://ripple.com/
wiki/Forfurtherinformation,Isuggestconnectingwiththedevelopers
ontheIRCchannelontheFreenodenetwork#ripple.

IdontlikehowRippleLabsdoesXYorZ,whatdoyouhavetosay
aboutthat?

RippleLabsisaveryyoungstartup.Expectationsforthisserviceare
high,perhapstoohigh.Ittakestimetobuildworldclassteams,and
staffingresourcesarealwayslimited.GiveyourissuesometimeandI
amcertainthatyouwilleventuallyseeimprovementstotheissueyou
areconcernedwith.

Whataresoftwareforks?

Softwareforkshappenwhenonegroupofsoftwaredevelopers
decidestotakethesourcecodefromaprojectandmaketheirown
possiblyincompatiblechangesfromthepriorversionofthesoftware.
Thiscanhappenforvariousreasonsbutthemostlikelyreasonisthat
onegroupofdevelopersdisagreedwiththedirectionaprojectwas
going.Thiscanbeeitheragoodorabadthing.Itisbadwhenit
dividesthenumberofpeopleworkingonaproject.Itcanbegood
Copyright2014AndrewWhite
whentheforkedsoftwaremakesimprovementstheotherdevelopers
werenotwillingtomake.

Whataregoodcommunityresourcesforgettinganswerstomy
additionalquestions?

Myfavoriteresourceistheforumathttps://ripple.com/forum/but
alternativesexistincludinghttps://xrptalk.org/

IhavesomethingIwanttodiscusswithRippleLabs,whatisthebest
wayformetodoso?

Talktothebusinessdevelopmentteamatpartners@ripple.comorthe
developerrelationsteamatdevelopers@ripple.com.

Glossary

CodiusThisisatechnologyneutralframeworkforcreatingsmart
contracts.

Gatewaysareserviceprovidersthatenableuserstodepositmoney
intoandwithdrawmoneyoutoftheirgatewayaccountsontheRipple
network.

RippleLabs,Inc.ownstheintellectualpropertyoftheRippleprotocol,
andpromotesRippleswideruseandgreaterusefulness.
Copyright2014AndrewWhite

Walletisthedigitaldevicewhereindividualshold,access,andusetheir
digitalcurrenciesinRipple.

RipplesaretheRipplenetworksnativecurrency,representedbythe
lettersXRP.

IOUisapromisethatacertainamountoffundsthattheIOUissuer
controlsarefundsinyouraccount.AnIOUontheRipplenetworkisan
assetcreatedbyaRipplegatewayindicatingIpromisetoredeemyou
aspecificamountofthiscurrencyasset.

TradersarepeoplewhousetheirRippleWalletstoexchange
currencies(govt.issuedcurrencieslikeUSD,CNY,etc.anddigital
currencieslikeXRP,BTC,etc.),functionallysimilartotradesmadeon
theForeignExchange(FX)currencymarkets.

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

EnterprisesincludebusinessstartupsintheRippleecosystem,suchas
newgatewayservices,merchantservices,remittanceoptions,
charities,experimentalhobbies,andcommoditiesallarepromising
areasforbusinessinnovatorsandearlystageinvestors.

DueDiligenceistheprocessofthoroughresearchbeforemaking
investments.
Copyright2014AndrewWhite

Validatorsarededicatedcomputernodesthatconfirmatransactionis
validthroughtheConsensusprocess.

AbouttheAuthor

AndrewWhiteservesasthefounderofOneMillionGatewaysaRipple
consultingcompanyandvolunteersattheInternationalRippleBusiness
Association,whichisthepremierorganizationofmerchantsand
businessesthatacceptrippleXRPaspaymentforgoodsandservices.
AndrewhasbeenactiveforyearsintheBitcoincommunitiesinSan
FranciscoandtheBayArea,andbeganbuyingandsellingrippleXRP
soonafteritsintroduction.
Copyright2014AndrewWhite