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I am wondering that why do we need consensus algorithm like ripple if all the nodes in a system is honest. There won't exist an use case of double spending. I am asking this question because recently i am reading the news that banks are using ripple algorithm to transfer money between their international branches.

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Double spending doesn't just include cases where a participant tries to spend his own funds twice, but it also includes cases where two honest participants each want the same liquidity.

For example, say I have 100,000 Euros that I'm willing to exchange for 113,000 USD and there are two people who each want to take me up on that offer. Somehow, we have to agree on which of those gets the offer, and that's precisely the same issue as a double spend.

You either need a consensus algorithm or you need a central authority.

  • This use case is valid when there are multiple receivers contending for same resources or sender. Is this a big use case for which banks are deploying ripple technology. My thinking is that in general it is a sender who will decide the receiver in a money transaction. For example in credit card transaction i decide whom should be paid. Am i missing anything. – rishabh mittal Sep 15 '15 at 17:20
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    @rishabhmittal Yes, the sender picks the receiver. But the sender wants the intermediary that can make the payment at the lowest price, and that may mean competing for liquidity. When X makes a payment to Y, X needs to find someone who has money where Y wants it and is willing to trade for that money, and he's competing with everyone else who needs money in that same place. A credit card transaction is just a payment. Banks need settlement systems. This requires payments to compete for fixed pools of actual liquidity, not just adjust balances that get settled later. – David Schwartz Sep 15 '15 at 17:26

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