Wednesday, May 8, 2013

I was offered $550 to say that "Ripple is a Scam."

I received an interesting message in my bitcointalk.org inbox today. It said that a user going by the name of 'TradeFortress' was paying forum members 5 BTC to edit their posts in this thread to say that, "Ripple is a scam."

This is the exact text he wanted each user to post:
"Ripple is a scam! Ripple is a get rich quick scheme for it's creators, a private for-profit company. It is NOT open source. It is CENTRALIZED, akin to PayPal rather than Bitcoin. For more info, visit RippleScam.org."

Ironically, in the earlier days of Bitcoin (2010, 2011, and well into 2012), the same accusations were spread about Bitcoin. Bitcoin was a "Ponzi-scheme," "pyramid scheme," "scam," etc. The same Bitcoin supporters that fought these accusations tooth and nail are now saying the same thing about Ripple.


Ripple is led by Jed McCaleb (founder of MtGox, eDonkey) and Chris Larsen (e-loan, Prosper.com), both successful businessmen who do not have an interest in sullying their good names.

Arthur Britto, Stefan Thomas, and David Schwartz are major contributors to Ripple's development, and all played an active role in Bitcoin's early successes.

OpenCoin, the company overseeing Ripple, has already raised venture capital from firms led by the co-founders of PayPal and Netscape. These firms do not invest in scams, but in companies with unique ideas that will turn a significant profit if successful.

Ripple will only be successful if it's able to provide its users with the ability to send quick, cheap transactions to anyone, anywhere in the world, using any currency. Its intended goal is to let users do just that, in their currency of choice, as easy as it is to send an email.

Some Bitcoin users, like TradeFortress, are afraid of the idea of a central organization driving the development of such a capability. They think that if anyone is in charge, and if that anyone might turn a profit, then it's not in the best interest of anyone to use their service. Some Bitcoin users, like TradeFortress, are adamant about this, to the point that they're willing to pay out thousands of dollars worth of Bitcoin to get their message across. Ironically, a very large percentage of Bitcoin users are hoarding Bitcoins to do just that, turn a profit. Profit is fine for them, as long as it's just for them.

If Ripple is a scam, and its users are unable to take advantage of Ripple's services as advertised, then Ripple will quickly disappear as another failed business. If the fact that a centrally organized team is driving the development of a product equates to "scam," (this is the main argument) then pretty much every product and service you've ever used is also a scam.

You've probably heard that large websites like Reddit and OKCupid are now accepting Bitcoin. The fact of the matter is, they're not accepting Bitcoin at all. They're actually accepting US dollars. Reddit and OKCupid are using the services of a company called Coinbase that instantly converts Bitcoin payments into US dollars for a small fee. Reddit and OKCupid don't want Bitcoins because they can't pay their employees or their bills with Bitcoins, but they can do that with US dollars. In other words, large corporations aren't interested in Bitcoins themselves, but in the savings that can be had by using Bitcoin as a value-transfer mechanism, or protocol.

Similarly, Ripple is a protocol for sending money, but with Ripple you don't have to buy a digital currency like Bitcoin to get your money from A to B. You can send USD, EUR, CAD, AUD, whatever you wish, and as more Gateways come online, more currencies will become accessible. As long as you have a very small quantity of Ripples (XRP) in your account (just one or two dollars worth), you'll be able to complete thousands of transactions. This is Ripple's main advantage over Bitcoin, and why a lot of Bitcoin users are afraid of it.

Even Roger Ver, a.k.a. "Bitcoin Jesus" has to pay his supply chain to keep the Bitcoin Store running, so he can't use Bitcoins either. Roger Ver doesn't accept Bitcoin, he accepts US dollars from BitPay. If even Bitcoin Jesus isn't interested in Bitcoins themselves, then why not let customers use their local currencies from the get-go and take out the Bitcoin middleman? If the same, or even greater savings can be had with a better protocol, then why not use Ripple?

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As always, do your due diligence, and come to your own conclusions. I can assure you that Ripple is not a scam, but I can't guarantee that it isn't a threat to Bitcoin.

22 comments:

  1. Good points but, to be clear, Ripple doesn't send USD, EUR, CAD or other currencies. It actually sends IOU"s for these currencies which must be redeemed by specific issuers who are acting as "gateways" into and out of the legacy banking system.

    I personally like what I see in Ripple and think it holds a lot of promise - let's just be clear in what we are saying to people.

    Bitcoin is a commodity in and of itself - not an IOU. Bitcoin has strengths and weaknesses and Ripple has strengths and weaknesses. I believe they both will compliment each other very well and they are both better off because of the other.

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    1. Right, Ripple sends IOUs just like traditional banking systems, except it does it faster, cheaper, and globally. IOUs are nothing to be afraid of, they're what you're already using if you have a bank account.

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    2. The only problem with IOU's is that they come with counterparty risk. Not really a problem when dealing with "insured" institutions (assuming that an issued Ripple IOU asset is even covered by deposit insurance schemes) but that doesn't protect you from a bank holiday or a currency devaluation. You're still dependent on the banking system unless you're dealing with private issuers who may or may not have the ability to withstand targeted attacks.

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    3. That's a good point. I hope to see OpenCoin bring on reputable, established, and licensed financial institutions as Gateways.

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    4. Also dude - in your previous post you wrote that most merchants are just accepting USD paid by a Bitcoin processor. This is true for physical goods, but don't forget that a large part of the BTC economy is virtual goods, gambling and gray-black market goods -- in a nutshell, things that people don't want to be on record buying, trading, storing or selling -- for which people just accept BTC straight ahead. Even StrikeSapphire, although we denominate user accounts in USD, deal with Bitcoin directly and trade it on a daily basis.

      I'm still highly suspicious of Ripple *precisely* because it's an IOU mechanism and involves counterparties. I run enough risk in my business as it is, between slot machine volatility and the volatility of the BTC we accept. I need to take Ripple risk like a hole in the head.

      My first read on Ripple was that it was a sort of derivative, basically planting the seeds for a massive credit network on the back of Bitcoin and then creating a new market for that debt, which is totally contrary to the relatively pure idea on which Bitcoin was founded. If Bitcoin is the first digital gold standard, Ripple is the first digital fiat currency backed (ultimately, theoretically, and in a wobbly and poorly defined way) by that standard. Deflationary or not, it's still a paid-forward system of credit, NOT a store of value, and that means it is only ever going to be as strong as its creditors; and given the opacity and centralization of the distribution system, I would not flat-out reject the idea that it's a scam of Bruce Wagnerish proportions.

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  2. sounds like he's trying to drive the price down so he can invest heavily. scam indeed. i hope you reported him to the mods. it is too bad that good ideas always seem to attract a few ruthless con men in their wake. good for you for reporting on this.

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  3. A correction on one point. BitcoinStore does indeed keep most of the BTCs they take in as revenue (versus having BitPay convert to fiat).

    So essentially, Roger Ver is buying bitcoins by paying out dollars to BitcoinStore's suppliers.

    But certainly he will reach a point that he has all the bitcoins that he needs and thus proceeds converted to fiat to pay suppliers is a certain eventuality.

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  4. Obviously, someone is very afraid of Ripple succeeding - even though it will act complementary to Bitcoin (and any other (non-)crypto currencies that we may see in the future).

    This whole bribery attitude is actually a nice compliment to the Ripple system as a whole.

    BTW: yes - I expect Ripple to succeed and I'm already holder of a pretty nice amount of Ripples myself.

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  5. My only problem with Ripple is that it seems to be invite only - I sent them a request to join Ripple, but never got a response.

    What you mentioned about large corporations accepting bitcoin through Coinbase as a transaction cost reduction technique makes sense. It's sort of chicken and the egg problem that Bitcoin has - because there are still not a ton of places that accept it, if you accept it, you're going to have to eventually convert it into dollars to spend it. That's probably a reluctance of a lot of people to use bitcoin - there aren't a lot of places that accept them, and thus people say, well, why bother when I can just use dollars?

    I'm planning on accepting bitcoin as a merchant eventually - I'm working on novels that I'd sell online using bitcoins. I hope to "close the loop" by asking whichever Web host that I choose to host my website with to accept bitcoins. I'd only need to sell four books a month at the price range I'm thinking of to pay for the web hosting. If I just used it for that, I'd never need to convert the payments into dollars.

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    1. (I am an employee of OpenCoin but am speaking only for myself.)

      The client protocol is public. The client is open source. We *can't* stop people from joining. We're a de facto central authority because we currently run (directly or indirectly) all the servers, but we would never even attempt to use this power to control who can access the network. We have not created any mechanisms to do this.

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    2. Evan,
      Re- Web Hosting,
      I may be setting up to receive bitcoin via ripple in the next few days for webhosting, If you are interested in a month by month trial I will set you up for 100 XRP for the 1st month, to test the client, then X btc or £Y or $Z per Month/yr therafter price & plan to be established.




      paym8


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    3. @JoelKatz Doesn't matter what good intentions you have, OpenCoin is a sitting-duck for the authorities as it is the centralized currency issuer, code maintainer and runs most of the servers.

      Ripple is trying to redirect the Bitcoin hype onto itself, with a semblance of open source and openness. Naming a company OpenCoin does not make open. Newbies might fall for it, but Bitcoin veterans has a duty to inform them of the inherent risks and differences. I recommend ripplescam.org for details.

      The vagueness and contradiction surrounding Ripple only makes it highly suspicious. The fact that VCs are poring money into this project most likely means they believe Ripple will be A-ok with the authorities - which means it's just legacy banking as usual with a tech twist.

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  6. @Evan

    I was able to create a wallet without any trouble. No need for any invite. Please go here to create your account: https://ripple.com/client/#/register

    Then, you'll need to put in at least 75 Ripples (XRP) in order to make use of the account. You can do so by going to Bitstamp - for US$ 1.50 you will be able to buy those 75 XRP.

    Currently, the platform is still in beta, and mind you - things (how to get money in or out) can a bit confusing, so be sure to check out the "newbie" section with abundant explanations at https://ripple.com/forum/index.php

    Hope this helps you up and running!

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    1. Thanks. That's the page I couldn't find. I guess I didn't look hard enough. I'll dig around a bit more, it definitely looks fascinating.

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    2. Man, stop it. Why do I have to pay? And I think it's already 100XRP, not 7.

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  7. Ripple once agian is centralised system...i am no way affiliated ...with the organisation you mentioned...its rather ...Centralised banking system..if you want proof now...Go for Opencoin..they have even hijacked the name open for the purpose...like leader use words...like freedom, democracy,, peace to manipulate people

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  8. I dont like the idea that they "pre-mined" all the ripples (around 100billion?) and have spread around 50 billions to people and organizations and kept 5 billion for themselves... so if the ripples pick up they are instantly billionaires.

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  9. Opencoin is not open in any sense that I can see. This name appears chosen to mislead.

    One of the comments above admitted opencoin controls ALL the servers.

    Also, the implication is it is open source software which is not the case. Majority of XRPs are created and held with Opencoin.

    Unless my understanding is wrong, opencoin can produce any quantity of XRP any time they choose. If Ripple takes off we'll be in a worse state than the current fiat / central banking paradigm.

    Most dangerous of all is that people think they have bitcoins when they use Ripple, but they don't. You have to trust the gateways to be truthfull about what they hold. As we all know from precious metals funds, this trust is inevitably broken. The upshot will be that there will be a lot more than 21million 'bitcoins' appearing to be in circulation, which will dilute their value.

    Scam? I say thats as good a word as any and noone paid me anything for this opinion.

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  10. What a bullshit. Actually there is massive ripple give out. Even if it's true, how can you compare poor 5BTC with millions of ripples given?

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  11. Too many anonymous comments on here that make me think hired Ripple hands are hard at work talking up the currency.

    What's the big deal about a centralised authority anyhow? if your currency has laudable intentions then what do you have to worry about?

    It's time that someone designed and built a currency that was earned into existence for doing something really positive to help humanity or the biosphere.

    Everything else is fiddling while Rome burns.

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  12. I agree with afbitcoins. Ripple seems to hide(I can add, not very well) Google and Paypal interest into virtual currency world. I am studying Bitcoin with my colleagues for a future BTC integration in our personal crowdfouning website. We quickly deduced that Ripple is not clear in two points that make us very suspicious:

    The system is not distributed as claimed in Ripple distributed algorithm and Ripple how it works . At this point, since the system is centralised, where the server side source code is?
    The Gateway seems to be a router for virtual currency (like the Openflow protocol for the network) and in my opinion this make Ripple a positive innovation. But, how and who convert virtual currencies(i.e. BTC) and at which conversion rate? Can't explain that from the wiki.

    In conclusion, we argued that Ripple can be POTENTIALLY a way to kill Bitcoin as paypal announced some times ago
    its interest about Bitcoin. But worst, can easily become a instrument of control(think about Google VCs).
    If someone, like JoelKatz, can explain the intrinsic Ripple contraddictions will be really appreciated,

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