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I have been reading over this document that Ripple Labs put out. The document says that:

XRP is there to provide two key functions: to prevent abuse of the system and to act as a bridge currency for market makers providing liquidity within the network. Thus, users can hold balances in one currency and transact in another currency without converting to XRPs in the process.

And later

In theory, users of the Ripple Network could exchange anything of value.

Bitcoin already has spam prevention, and a much larger trading volume than Ripple, though. It's not clear to me why everything that Ripple Labs is doing couldn't have just been done with BTC.

I really like what most of what Ripple is doing (trying to integrate with the existing financial system, for example), it's just hard to trust it knowing that the developers own so much XRP, combined with believing that it could have just been done with BTC. So, essentially, I'm looking to be convinced that the creation of their own token was, in fact, necessary.

Is it just to fund Ripple Labs? I don't mean that in a negative way, I actually think that funding the development of decentralized applications is a difficult problem. Decentralization inherently allows users to participate in the system without consent from an authority, and without needing to pay any single entity. But then what incentive does that developing entity have to create the system? I think this is why so many decentralized projects are opensourced projects, rather than proprietary solutions. And the ones that are proprietary solutions (like Ripple), usually create their own token.

  • I don't think Ripple is proprietary - the development and operation of the verification servers is definitely highly centralized, but the roles they take could be done by someone else if everyone at Ripple HQ was hit by a bus. – Nick ODell May 7 '15 at 0:15
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    Maybe proprietary isn't the right word, but I think making a profit is at least one of the goals of the projects, in addition to it just creating a great technology that will streamline banking technology. – morsecoder May 7 '15 at 5:38
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It's not clear how you're imagining doing what Ripple does with Bitcoins, so it's hard to say whether you're correct or not.

If you mean with the Bitcoins still being transferred on the blockchain and being used directly to pay transaction fees for Ripple transactions, that wouldn't work. Bitcoin transactions take time to confirm, and slowing Ripple down to Bitcoin's speed wouldn't make sense.

If you mean with the Bitcoins being virtualized somehow onto Ripple's ledger, it's hard to see how you can do that reliably without a central authority. Also, what do you do with the Bitcoins that pay transaction fees? Destroy them?

You haven't really set out your proposed alternative in much detail. It's possible that you do have some good way to do it. But I don't know of one.

One of the main points of Ripple is to solve the double spend problem without relying on proof of work and without being vulnerable to 51% attacks that have no clear solution. Building on top of Bitcoin would make a system that was at best no stronger.

There are significant benefits to having a native currency on the same ledger.

  • I guess I'm a little unclear about how the ripple blockchain works differently than bitcoin, and how XRP are used to conduct transactions within the system. Are the transactions for other currencies encoded into the same ripple blockchain? If so, I could definitely see why having a native asset on a blockchain that works very differently (allowing the record keeping of multiple units of value), would be very useful. Am I way off base here? – morsecoder May 7 '15 at 4:57
  • I wasn't really trying to make a proposal so much as I was just trying to understand what properties tokens on the ripple blockchain have that tokens on the bitcoin block don't. I definitely don't understand all the ins-and-outs of how Ripple works, so this may seem like an illogical question, but I suspect it's one that others have had. – morsecoder May 7 '15 at 5:01
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    Ripple uses a ledger rather than a blockchain. But the basic function is the same. XRP is used to pay transaction fees, and you pretty much have to have a native asset to do that. (You could use proof of work, but that has severe disadvantages.) The basic difference is that Ripple was designed from the ground up to support arbitrary assets and atomic, cross-asset payments. – David Schwartz May 7 '15 at 7:30
  • Does the Ripple ledger allow for atomic trustless trades of currency by both parties consuming inputs and receiving outputs within the same transaction? And thanks for your explanations. The take-away I am seeing is that it's because Ripple needed a blockchain/ledger with native support for trading in any currency, and transaction fees are paid in XRP. If you modify your answer to note that the fact that the native tokens and the records of other currency being on the same ledger is important, I'll mark it. – morsecoder May 8 '15 at 13:53
  • The Ripple ledger allows for atomic transactions with complex payment paths, so a payment can draw from multiple order books (either in parallel, in series, or in combinations). Each payment transaction has a single sender and receiver though. – David Schwartz May 9 '15 at 20:06

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