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In order for a blockchain to succeed, it needs to be a public resource. That means few alternative blockchains are likely to achieve much traction outside a small niche.
June 26 -
The digital currency world is readying itself for more regulatory penalties over the failure to meet Bank Secrecy Act and anti-money-laundering requirements following federal agencies' action against Ripple Labs last month.
June 10 -
Though lukewarm about Bitcoin itself, bankers see promise in the technology it runs on, specifically the distributed ledger, for efficiency and security improvements in areas like payments and securities handling.
June 1 -
While the penalty is a blow to Ripple Labs, it could have significant implications for the industry at large and its efforts to legitimize itself in the eyes of regulators and banks. Here's how:
May 6
Editor's note: This post is adapted from a comment the author wrote on
Financial institutions worldwide are
I want to clear up some basic misconceptions about one such system, Ripple in particular, the meme that the entire project is intended to remain centralized under the control of Ripple Labs, the company that develops the protocol, and/or its partner financial institutions. I will assume the reader has a rudimentary understanding of Bitcoin, the most well-known decentralized cryptocurrency. Through this lens, I will explain how Ripple is different, with the clear design goal of evolving out of the centralized monopoly which its critics currently focus on.
A good place to start understanding the breadth of current options is with the widely read and
The Bitcoiners' objections to one side, I would assert that Tim's basic premise that distributed ledgers can only be put in a binary classification of "permissioned" or "permissionless" is exactly the paradigm Ripple aims to undo.
I do agree with Tim that "permissioned" seems to be a core requirement for the ongoing adoption of distributed ledgers and other blockchain models by many established financial institutions, fintech providers as well as corporate and federal treasuries. Where Ripple diverges is by providing the ability for every participant to "choose your own permissions."
This architecture is permissioned in one sense and permissionless in another. It allows anyone to participate (permissionless) and allows everyone to individually select the transaction
This is a unique capability which derives from Ripple's consensus algorithm, designed to deliberately sacrifice "liveness," i.e. always confirming transactions in the consensus round it was submitted with, in favor of "correctness" only ever confirming correct transactions. Another critical, technical difference is that Ripple is not a "blockchain," it is a "ledgerchain." This feature enables a decentralized market to exist within the protocol and is a key economic component to the total functionality of Ripple as a cross-border payment rail and global marketplace for capital float.
Furthermore, Ripple Labs has designed the protocol with robust security and compliance features similar to familiar current banking regulations. There are also security tools (vetted, audited and mandated by the Financial Crimes Enforcement Network as part of a
Ripple's novel consensus algorithm allows for a softer set of rules to govern the participant permissioning process. The rule set makes it possible to participate nominally without any trust or permission required whatsoever, but also empowers actual network growth and scalability by allowing all participants to extend and revoke trust or permission to any partners they wish to include with meaningful contributions to transaction processing within their selected quorum. The decision to extend or revoke trust can be based on any multitude of parameters, but would most likely revolve around past performance, contractual obligations, business relationships, a change in credit rating, political or economic upheaval or could be in response to the potential presence of an attack or other legitimate or even arbitrary reasons.
Ripple achieves this capability with a unique solution to the
Ripple uses a sequential, rolling series of exceptionally fast, computationally controlled voting rounds which either pass the transactions up to the next round or keep them back to be reviewed again perpetually. With each round of voting the majority requirement for agreement among the known, trusted validators listed by each node its
Should an attack surface, like that envisioned in Bitcoin developer Peter Todd's partial
The first is the flexibility of the consensus algorithm to hold transactions in limbo without forking the ledger between disagreeing validators. Perpetually stuck transactions are visible, alerting network operators to identify misbehaving nodes and resolve the hang-up, either by delisting nodes for running an incompatible or perhaps tampered-with protocol, or by repairing the nodes should they be malfunctioning or compromised.
The second feature that would thwart a hypothetical attack is the validator
Ripple Labs' holistic intent is to build what it calls "the Internet of value." To do so, the firm needs much more that what a mere "blockchain" can offer. It needs a ledgerchain, which stores data of the entire
Ripple's ability to store ledger state delivers the capability for partial payments, negative balances, trade offers and counterparty IOUs with every consensus round, a trove of data which offers substantial capabilities and features. Most crucial is an embedded decentralized market for assets, whether counterparty IOUs for pegged assets like dollars or yen or the integral token
The parameters and characteristics designed into this system of counterparty IOUs are also critical to Ripple's ability to function, given the current regulatory requirements of value transfer and political realities. Monitoring and freezing capabilities have been incorporated into Ripple for individual IOU accounts as well as entire currencies (except the native token) to comply with anti-money-laundering and anti-terror-financing laws. These features allow banks to operate as
With transparent accounting and tracing, Ripple enables rapid modeling of potential fraud and money laundering and other real-time risk assessment tools. Ripple still has to address the quintessential dilemma of public ledgers yielding transparency at expense of privacy. Securing identity still promises to be
In closing: Ripple aims to offer a kind of "soft permissioning" where any entity, corporation or government can join in running a validating server which processes transactions. But each actor is individually capable of deciding which other servers to trust with full voting rights in validating transactions. This creates a meta-layer of control which is absolutely decentralized by assigning every single participant the ability to choose its own quorum of validators. The concept of gated quorums voting on transaction sets isn't new or revolutionary and most critics latch onto this concept as evidence Ripple will remain centralized. I believe the critical innovations the Ripple team has developed are key steps to enable diversified, decentralized voting quorums to coexist in a real-time, global, permissionless, and stable topology on the future Internet of value.
Thomas Sean Kelleher is a technologist and architect in Kailua, Hawaii.