Answer: Wen Moon?

[BobWay]

I don't know.

As I've mentioned in my introductory thread, I am bullish on XRP in the long term. I own XRP and I also own Ripple stock.

Ripple stock is not publicly traded and is generally much more illiquid that XRP. However, based on other people's reports of selling Ripple stock on the secondary markets, it appears that the price of Ripple stock is closely correlated to the price of XRP. Based on my back of the envelope calculations, the market value of my investments is split about evenly between stock and XRP. If I could, I'd gladly trade my stock for XRP to gain the added liquidity XRP brings.

It is important for you to know that I'm not rich enough to be worth kidnapping.

It is also important for you to know that if I was a savvy trader I would be. I discovered bitcoin when the price of BTC was 5 to a dollar. I didn't buy it then and haven't traded much over the past 8 years at all. I also had someone point me to Microsoft stock in the very early days. I didn't buy that either. I don't gamble when I go to Vegas and I don't even like to follow the price of XRP and BTC because volatility gives me a huge amount of anxiety.

So it should be absolutely clear to the average observer, that no one should take trading or investment advice from me.

But if you want to know my personal unsubstantiated opinion I'm happy to tell you.

In the long term, I expect Ripple as a company and XRP as an asset to succeed big time. Big time, means dramatically transforming and improving the world's financial systems and the way money works today. I'm expecting XRP's longterm moving average to rise as more more and more transactional liquidity flows through a growing RippleNet.

In the short term, I expect XRPs price to be volatile and prone to spikes. I expect this volatility will be true of all other traditional cryptocurrencies as well. The reason I think so, is that it appears to me that speculators are trading multiple cryptocurrencies at a time using similar buy/sell strategies. I don't have any evidence of this, it just seems so to me from watching correlation (not causation) in the price charts.

In the long term I expect XRP to be the "winning" cryptocurrency displacing all the others. I've come to this opinion without considering the low level technical details of the coins or their marketing spin. My opinion is based on the observation that all business transactions are circular. And this circle determines how currencies are valued. Here, the concept of circular business transaction means that when Alice buys widgets from Bob in exchange for currency, from Alice's perspective the value of the good equals the value of the currency used to pay for it. That seems obvious to the casual observer, but in the crypto space people rarely talk about it.

In thinking about this I realized that the return value flow (the goods or services delivered) defines the value of the currency used to make the payment. Not the other way around. (Perhaps the goods or services have intrinsic value while the currency's value is relative, but that starts to sound like philosophy rather than economics.)

So I began thinking about the business cycle along with the full transactional circle. Of course, no business transaction can take place without the agreement of BOTH Alice and Bob. Alice wants something and Bob wants something. The relationship is circular but it is not symmetrical. What Alice wants (the good or services) drives the transaction. What Bob wants (the money) is secondary. So in the business flow, Alice always decides what she wants first. Only then can Bob tell her what he wants in exchange (Alice's cost).

So in my mind, the value of a currency is strictly CAUSED by the number of transactional circles it can participate in. If you make the presumption that any given Alice could potentially want something from any given Bob. And also the presumption that any given Bob could deliver to any given Alice. Then return value part of every transactional circle is unconstrained. So then you must focus on how Bob's choice of currency (what Bob wants) constrains the number of circles that can be completed. Which obviously brings us to set theory. 

That's just a fancy way of saying if Bob wants a currency that Alice doesn't have then they can't do a deal. So if Bob wants EUR but Alice only has  USD then the deal can't be done. And if the deal can't be done, the return value (goods or services that don't trade) can't support the value of either USD or EUR. So both of those currencies subsequently becomes worth less than it would have been if that deal could be done.

Curiously, if you add a bridge currency like XRP into the transaction in order to complete the transactional circle, then the return value (which now does trade) equally supports the value of all three currencies. Which seems odd so lets do some simple "figurin".

Alice wants (X widgets) from Bob. Bob wants (Y EUR) from Mak. Mak wants (Z XRP) from Mark. Mark wanting (Q USD) from Alice completes the transactional circle. So as we stated before by definition if Alice pays then she decided it was a fair (equal) trade. And Mark and Mak thought their deals were fair (equal) as well.  So: (X widget) = (Q USD) = (Z XRP) = (Y EUR). But what would happen if both Alice and Bob used XRP?  Well then you'd have: (X widget) = (Z XRP)

So my lay man's conclusion (I am not an economist) says that XRP being used as a bridge currency supports XRP's value equally as much as XRP being used as a retail currency. But the set of transaction circles that can be created using XRP as a bridge currency is DRAMATICALLY larger than the set of transaction circles that can be created using XRP or any cryptocurrency as a retail currency. And actually, the set of all transactions that can be completed using XRP as retail currency is a proper subset of the transactions that can be completed using XRP as a bridge currency.

So to maximize XRP's value, you must focus on the XRP bridge use case. And that is exactly what Ripple is focused on.

 

But, can't the same be said of any cryptocurrency? Meaning if BTC became the de facto bridge currency then it would be the most valuable cryptocurrency.

Actually, yes. If that came to pass it would be true.

But, I proved to myself that you can't actually get BTC there from here. It just mathematically can't happen. BTC as a bridge currency will always initially be a more expensive transaction path than an alternative path without BTC. And nobody has enough BTC to force (subsidize or incentivize) BTC into that position. My same logic hold for all the currently popular cryptocurrencies.  

But, I believe, it is actually possible to force XRP into the position of de facto bridge currency. And that is what that patent is about.

 

Of course, I could be wrong in my logic somewhere, or Ripple could fail in their execution, or a million other bad things might happen along the way. So let me repeat, no one should take trading or investment advice from me.

Edited March 12, 2019 by BobWay

[Guest]

5 hours ago, BobWay said:

But, I believe, it is actually possible to force XRP into the position of de facto bridge currency. And that is what that patent is about.

so in summary, is it fair to conclude that ripple (or another designated entity) sitting on a massive pile of xrp is in fact a preferable strategy to distributed minting (mining) and other token distribution methods? this is what i always thought was ripple's secret sauce, not because of how much they own in and of itself, but bc they can use the stash to bootstrap and fund liquidity over and over again until xrp is a defacto bridging asset... and in fact, even if we assume a BETTER (faster, cheaper, more secure) network token comes along, it can't compete without using the same strategy (of holding back massive amounts of the token to fund the network rolout and liquidity incentives)

[BobWay]

Bingo!

[BobWay]

20 minutes ago, Dario_o said:

This means Mark & Mak will use XRP to fill order books, but those XRP are probably borrowed directly from Ripple? Hence they gain from spread but they don't have to buy XRP to start their market-making business?

So loaning XRP or deferred purchase or probably several other analogous process like this might work (at least temporarily), they all suffer from some annoying characteristics. I'm going to call them "outside proposals" because I heard proposals like these from non-Ripplers all the time.

1. Most seems to (or in many outside proposals do) require favoritism on Ripple's part.
2. Many outside proposals attempt to enforce price stability rather than assuring the narrow spreads necessary to reduce bridge payment transaction cost.
3. Many outside proposals attempt to subsidize the proposer's risk.
4. Most outside proposals I heard tended to be potentially very inefficient in their deployment of Ripple's XRP.

1. Perceived or real favoritism invites vicious criticism from the non favored individual. Paraphrasing you above, "Why to they get "free" XRP to start a profitable market making business but I don't?" This is likely followed by and endless parade of comparison complaints like, "Those guys got piles of XRP from Ripple and look how badly they did at (...). Personally, those sort of proposals from outsiders annoyed me as well, so I was alway quick to push back on them. But it took a really long time before I could propose a non-biased mechanism that served the necessary goals. Some forex market have what are called "specialists". These are market makers that special preference within the trading engine in exchange for guarantee liquidity. Of course that annoys the non-specialists there as well.

2. Nobody wants price stability. Think ideas like large buy and sell "walls" with a narrow spread. XRP's price must be able to increase as its necessity in supporting bridge payments increases. But at any given instant, what is the right price that narrow spreads should be based upon? Well of course no one knows.

3. I've heard proposals that went, "I'll make narrow spreads and if I make money doing it, I get to keep the profit. But if the market volatility moves against us and we lose money, Ripple should cover our losses (by selling or giving XRP). These were especially annoying to me.

4. If you subsidize the wrong price in any market anywhere in the world, you invite arbitrage. It doesn't matter how high a buy or sell wall you put up. If you put it at the wrong price someone absolutely WILL take all your money. Subsidizing arbitragers is equivalent to giving away free XRP to random strangers.

----

The mechanism that we patented:

1. Is completely non-biased. It doesn't care which trader facilitated a payment.
2. It works without enforcing or attempting to enforce price stability. Each market follows standard supply/demand dynamics.
3. It only subsidizes risk on the trader supplied funds that actually facilitate bridge payments.
4. Is scrupulously efficient in deploying XRP. This is what prevents it from putting a downward pressure on price.

[BobWay]

1 hour ago, Liagala said:

Not to be a wet blanket or anything, but doesn't the Stellar Foundation own something like 80% of their tokens?  What's to stop them from doing the same thing, in terms of distributing/bootstrapping?  All of the rails are currency agnostic, so it can't be the lack of a network.  The Internet of Value is all about everything being able to use the network just like everything can use the internet today.

I really don't know. I remember at the beginning Jed promised to give the vast majority away. But I don't know how it actually ended up. It turns out giving away free cryptocurrency in a way that is perceived as fair, is really really hard. In my option that is why Ripple inadvertantly still has so much XRP. It turns out that is a fortunate thing for both Ripple and XRP.

The real obstacle Stellar or any new startup trying to do the same thing, is that to be the de facto bridge currency for the world, you need to divert payments that currently happen fiat/fiat, into payments that happen fiat/crypto + crypt/fiat. And banks have a statutory monopoly on fiat in most or all countries. Meaning they are already "favored specialists". So you need to work with banks and gain their trust. They need to assure that your proposal is at minimum "win/win" but also that it DOESN'T erode banking's structural advantage.

Most cryptocurrencies don't have that kind of credibility. Most talk in the crypto space has been about "overthrowing the banking industry".  You go try to sell that idea to bankers. I dare you! :-)

Edited March 12, 2019 by BobWay
typos of course

[BobWay]

8 minutes ago, zerpdigger said:

Is it also scalable, either manually somehow or ideally programmatically (i.e. in an automated, online manner)?

Absolutely, it has to be 100% automated. There is simply too much information to keep up with otherwise.

And it also has to be scalable in the sense that as the volume of payments through XRP as a bridge increases dramatically, the amount of XRP you need to support the mechanism does not increase linearly with volume. Otherwise, you'll eventually run out of XRP, the mechanism will fail, and XRP will cease to be profitable as a bridge currency. Always remember, "It's a profit deal!"  If you can assure that, it takes all the pressure off!

[BobWay]

33 minutes ago, rippCurrent said:

well said, i wonder if @BobWay could give us insight into any concerns he might have of jed being able to 'skirt' around the patent.  I do believe the point you referenced as far as the banks is valid, however, with worldwire it seems that stellar and xlm are getting themselves closer and closer to the banks.

I think what @Liagala said above was quite sensible. If something seems impossible, then nobody even bothers to look for a solution. But once one solution is found, nobody can criticize your looking for looking for another.

The analogy I like to use is, "What the Wright brothers did was take something that was thought to be impossible, and made it into something that was only really hard." It actually too Boeing and other big companies to make flying easy.

NASA took going to the moon from being impossible, to being really hard. Ripple is working to make going to the moon possible for everybody!

 

 

No, I'm not worried about others attempting to duplicate the effort. In fact, I'm not a fan of offensive use of patents. I suggest we file it defensively so that, 1) nobody could say they had invented the method and stop Ripple from using it. And more importantly 2) to take the inventions from being a trade secret to something we can all talk about. The coolest things about patents, is that you can't patent a secret.

That's the circular business transaction you make. In this case Alice (you all) gives Bob (& Ripple) the right to control the invention for a limited time. In exchange, Bob gives Alice (all of you) the right to know about the invention. Consider the underlying concepts. (You can't patent a concept) Then improve upon the mechanism.

And I think that done in the spirit in which patents were invented, that trade is just awesome and speeds up innovation for everyone.

 

I think that Ripple has been so farsighted in this area that nobody else who started now can come even close. But please realize that my view is more than a little biased! 

[BobWay]

27 minutes ago, LongRun said:

Aside from the above quoted usecase and its potential impact on the XRP value, how you think about the impact of other usecases for XRP on its value?

What usecases (current or future) have the biggest (possible) impact on XRP’s value and how? 

Other use cases for XRP and the XRP Ledger can only increase the utility of XRP and hence its price. From my perspective, that's what Xpring is all about.

In working through the dynamics of forcing XRP into bridge currency usage while not putting downward pressure on the price, I restricted my analysis to forces with strict causation. In my mind that is the most pessimistic case. But there are a lot of correlations that might actually be social or psychological causation if you are willing to be a little less pessimistic.

For example, the biggest likely correlated upward pressure on XRPs price, might come from people wanting to hold the world's most liquid asset. A psychologic reason might be both that you can convert it to ANYTHING else that you need instantly. That's great if you like to travel or deal with folks all around the world.

But psychologically many might also consider that as the world grows, more and more value (goods and services) is actually created by the growing world population. Value creation is not a zero sum game! And since XRP is in limited supply, who can own how much XRP is a zero sum game.

Which bring you back to my "Landed Gentry" argument. The landed gentry were perpetually rich, because they held a monopoly on a fixed supply commodity. (The land)  But there was a growing population who NEEDED (not wanted) to use their commodity. So as the population grew, they could always keep increasing the rent.

The same argument hold for using gold coins as money. They are in fix supply and the population is growing, you can keep charging more and more for them. So you keep getting richer even though the primary asset you hoard (gold), generates zero value to the world at large, while you are hoarding it. It only generates value for others when it circulates (medium of exchange).

So it's clear there is a tradeoff with XRP.  You might become perpetually rich. But, don't expect that others won't become annoyed that you have done so.

[BobWay]

50 minutes ago, DucPeter said:

Thanks for another great answer, @BobWay! But to help me understand you right: what would you consider short term or long term?

I wrote in the top post that I believe that in the short term the XRP price will be spikey.

XRP becoming a the worlds de facto bridge company take some time, but the process has already started with xCurrent and Ripple's long ongoing discussion with banks and other financial institutions. 

[BobWay]

42 minutes ago, Edm22 said:

First off, thank you for all your time and effort. I may be off here, but isn't this an argument for an increase in XRP price/value, so that if XRP is say worth $100 per unit (just an example), much smaller amounts of XRP would be necessary for large TX's, hence leading to a much longer lifespan for XRP?

Yes, growing XRP value is one causation factor that could reduce the absolute XRP quantity need to support XRP's use as a bridge currency.

But I also convinced myself that once XRP became intrenched as a bridge currency, the need to spend XRP to keep it so will tend toward zero. Then any remaining XRP that Ripple holds can be used to encourage additional use cases. 

[BobWay]

19 minutes ago, UncleMikey said:

@BobWay when institutions use XRP as a bridge currency, will those transactions also flow through the current exchanges (i.e. coinbase) that appear to only be retail speculation at the moment, or will they be processed elsewhere?

When bridge payments flow through exchanges they can profit based on fees that charge to help deliver the payment. This is in addition to any other fees they charge the trader for his trade. In in the future, exchanges will be competing among themselves for this payment flow by adjusting the fees that they charge rather than the price of XRP on their particular exchange.

Arbitragers will assure that all exchanges have roughly the same price. Arbitragers profit on others mis-pricing, not based on any externally driven value.

So if you are a speculator in XRP's price, you don't need to worry too much where you trade. But certainly exchange will want the additional fee revenue and they will compete for the payment business. And note that was in Coinbase's original vision.

I have no knowledge of what Coinbase's current plans are however.

[BobWay]

13 minutes ago, kanaas said:

This brings me to another inside person you may know very well and who was leaning to a much more negative view on XRP. I'm talking about Vinnie Falco. By the end of his career @Ripple he even was extreme bearisch on XRP and sold all his holding before that famous run from 0.006 to 0.2 and later even to 3.

When someone is that negative he must have had a reason for that. Any idea from your side? Not to rant against him, because he seemed very talented and smart, but more like to understand his and yours view and how they differ.

I love Vinnie!  He couldn't be more awesome, he traded his XRP for BTC, then dig just fine when BTC went up along with XRP.  Last I talked to him he was very happy for the both of us. He retired from having to deal with other people's ******** (not a direct quote). And now gets to do what he wants. And he's been doing awesome things.

I'll answer what you really want to know as part of a larger story. I created a Chapter titled "Crossing the XRP desert" and linked your question there.

[BobWay]

20 minutes ago, Rey said:

Considering the contributions by Vinnie to the XRP ledger software this seems interesting indeed. David Schwartz mentioned the number of commits on Twitter last month.

The reason are interesting, but don't expect anything scandalous that will change your outlook going forward.

Hindsight is a very strange beast. 

[BobWay]

22 minutes ago, elias said:

When Ripple has been saying they were incentivizing market makers, is this the method they have been using?

Also, does anyone have a link to this patent?

Anything you have heard from the company in the past has likely been more situation specific. You need a lot of flexibility in bootstrapping a new network.

What I've posted is a tool for coherent growth. It is one of the arrows in Ripple's quiver in fighting to establish RippleNet as the dominant solution.

In the "Hi, I'm Bob!" forum someone posted a link.

[BobWay]

I didn't know "Wen Moon" was a definitive thing. I was just stealing a meme that I heard. I hope I used it in the correct context.

But I can't seem to open the tweet or image, I get a refusal by the twitter site.

If you would post the diagram so I can expand it, I'd love to read it.

Edited March 12, 2019 by BobWay
Didn't mean to quote the whole thing.