Bitcoins and Gravy #54: David Schwartz explains Ripple! (Transcript)


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John Barrett (Announcer) : Welcome to “Bitcoins and Gravy”, Episode 54. At the time of this recording, Bitcoins are trading at $227.00 each. And everybody’s favourite, LTBCoin, is trading at 0.000253 US dollars each. Hmm…Hmm…Hmm. Now that’s gravy.


[intro music]


John : Welcome to “Bitcoins and Gravy”, and thanks for joining me today as I podcast from East Nashville, Tennessee, with my trust Siberian Husky, Maxwell, by my side. Say hello, Maxwell.


Max : Grrr….


John : I’m just your average Bitcoin enthusiast who loves talking about Bitcoin, and sharing what I learn with you, the listener. Thank you so much for tuning in once again. And new listeners, thanks for joining us. Hope you enjoy the show.



John : On today’s show I am thrilled to be speaking with David Schwartz, the chief cryptographer at Ripple Labs ( ), and one of the architects of the Ripple protocol. David gives us a fantastic explanation of what Ripple really is. And for the first time I feel like I might actually understand Ripple, and where it fits in here at the dawn of the “Age of Crypto-currencies”.




John : All right. Today on the show I am pleased to welcome David Schwartz. David is the chief cryptographer at Ripple Labs (  ) and one of the architects of the Ripple protocol. David, welcome to the show.


David Schwartz : Pleasure to be here John.


John : Yes sir, yes sir. And I will just read something else about you really quickly. It say, “David was developing encrypted cloud storage and messaging systems for organizations like CNN and the NSA – Whoo - when he discovered Bitcoin in 2011, and soon became active in the Bitcoin community as “JoelKatz”.” By the way, I do remember “JoelKatz” from back in the day. In late 2011 he was hired by Jed McCaleb to design and implement what is now the Ripple Network. Wow. You know, David, a lot of people who love Bitcoin – the “Bitcoin fanatics” – some of them would say, “Wow! You went over from Bitcoin to Ripple? You are a traitor!” Now what would you say to those people?


David : Yeah, I think that’s true. But I think, over time, people have evolved to understand that the blockchain, and the technologies behind Bitcoin, are where the magic really is.


John : Yes. I agree with that. Okay, so David, tell us – if you would – for people who have not even heard of Ripple, or who have just heard of it, but they’re really not sure what it is. What is Ripple, and how does it work?


David : Well, for people who understand Bitcoin, a simple way to understand Ripple is, Ripple is very much like Bitcoin, except that it can allow you to move any currency, or any asset.


John : Okay.


David : So it’s a distributed payment system. It doesn’t require any central authority. But it can move any asset. So dollars… it can move cross-currency, [and] cross-border. It’s essentially targeted at use cases like : cross border payments, correspondent banking… those kinds of things.


John : Okay. It is open source, like Bitcoin, right?


David : Yes. It is open source.


John : I seem to remember reading something on Reddit ( ) a while back – this was, I don’t know, months ago – where someone was criticizing Ripple – as some of the Bitcoin fanatics will often do. Someone was criticizing Ripple, and they were saying, “Well, it’s not even decentralized. It’s a centralized business, on a server.” Now how do you respond to that?


David : So it is – to some extent – centralized today. It’s decentralized in the sense that if you cut off the head, it keeps going. And I think that’s the most critical form of centralization. Like, if you look at a company like Ebay ( They’re decentralized in the sense that they don’t carry their inventory – they’re not the seller, [and] they’re not the buyers. But if Ebay went away, that would stop. There would be no way for the sellers and buyers to contact each other anymore.


John : Right.


David : The Ripple network is centralized in the sense that, right now, Ripple Labs runs most of the servers and most of the validators – just because other people are not that terribly interested in doing it yet. We’re working to change that. But it’s decentralized in the sense that if Ripple Labs went away, other people could continue to run the Ripple protocol, and the network would not go away.


John : Okay. I like that. Yeah, that’s, kind of, new information for me – a new perspective right there. So, from what I’ve been reading, Ripple Labs has been focusing on attracting financial institutions onto the Ripple network, whereas Bitcoin has been really working to attract new users, and then also, new merchants, it seems, right? What kind of response have you been getting to that strategy of trying to attract new financial institutions?


David : Surprisingly, to me, we’ve actually been getting an extremely positive response, from everything from the Federal Reserve, to small and medium-sized banks, to payment consortiums. Everybody seems to recognize that the payment system is broken, that remittances are broken, correspondent banking is extremely inefficient – it’s slow. You may have these beautiful front ends, that are modern, but you dig down a couple of layers to where the settlement is happening, and it’s like you’ve gone into a time machine into the – if you’re lucky – the ‘60s - and if you’re not lucky - the ‘40s. These systems are ancient, and Ripple, rather than working from the top down, is working from the bottom up, going right after the way that large amounts of money actually move, and trying to modernize that.


John : I see. So, can you walk us through a scenario, in explaining how this would work, to somebody, and how this is relevant, right now, to banking and to finance, generally?


David : Sure. So, if you think about the way those payments happen today, there are numerous intermediaries. There’s a messaging that goes on, where the sender and the recipient exchange a message that the money is going to move. But then the actual movement of the money takes place through a number of intermediaries. And you don’t have your choice of those intermediaries, because you have to use the intermediaries that are hooked up between the financial institutions that you are using.


John : Right.


David : Ripple is, kind of, like one big system that everybody can come to. And because everybody is in the same system, there’s no need for intermediaries. If you’re on Ripple, and I’m on Ripple, then there will be a connection between us through the Ripple system. And because Ripple can perform actions in real-time, there’s no batching, [and] there’s no delay. And it’s open. Anyone can access it.  Everyone has an equal right to use it. It’s not something that Ripple Labs tries to control or own. It’s essentially a public good.


John : Okay. Does this have any of the features of – I remember back, almost a year, when I interviewed someone about “Colored Coins” ( ). Does this have any of those features? In other words, somebody wants to buy or sell gold, and somebody else has U.S. currency, somebody else has Euros,[and] somebody else has Bitcoin. How do these values work within the Ripple protocol.


David : So it’s very similar in the sense that they’re both ways to represent different assets in a crypto-currency system, so that you represent dollars, let’s say, inside a crypto-currency system. “Colored Coins” essentially tags them through the Bitcoin system. The disadvantage of Colored Coins compared to Ripple is Ripple was designed, from the very beginning, to handle multiple assets. So it has things like “order books”, and Forex implemented natively. It has atomic payments, so you can use a longer path without having to worry about an intermediary failing to perform. So it was specifically built to solve the issues that exist in cross-currency and cross-border payments.


John : I see. So is this something, right now, that is much more interesting to financial institutions than, let’s say, your average person who wants to go buy a coffee, or send Bitcoin to their friend in another country?


David : I think that’s true today. I’m hoping that, over time, that will change, and it will become something that is more attractive. One of the things that we look at at Ripple Labs – as, kind of, a mental way to think about this – is the growth of the internet, and how originally it was researchers who were messing with new technologies, and found it interesting. And then companies that had specific problems that it solved started to adopt the internet as a cheaper and better way to communicate. And now we have an ecosystem where you have internet users who are their own market. But you couldn’t have built Twitter or Facebook in the early days of the internet. There wouldn’t have existed this group of internet users to be your target market. So we, kind of, see the payment system, right now, in the “Federation” phase. Which was like when you had companies like AOL and Compuserve, who were using the internet, but they were, sort of, their own universes. And you could connect between them, but you always knew where you were. If you were on AOL, you had a distinct experience. That’s where we are in payment systems today. If you are on a particular payment system, or a particular bank, you have the unique experience from that point of view. You can reach other systems through these gateways and bridges, but it’s not uniform. It’s not cohesive. There’s no market to target.


John : Right.


David : What we’re hoping is that by bringing financial institutions on board, and creating a system where there is liquidity, and where there’s easy ways of getting money in and out of the system, that will become an attractive platform for developers, [and] for individuals. That will be where the easy access to payments will be.


John : I see. And trickle down to the average, everyday user eventually.


David : Right. And the average user will have access immediately. Just like the internet, there will be early adopters – most of them coming from the Bitcoin community, because a lot of them get it. And they’ll be the early adopters who can take advantage of these things before it’s ready for the mass market. But I don’t think it’s ready for the mass market yet. One of the problems is having to be responsible for your own security, with no – like, there’s no customer service department for Bitcoin, right? That’s why you have companies that bring Bitcoin to ordinary people, and they provide layers like security, reversibility, customer service. You’re going to need those things if you want mass appeal.


John : Are banks, like Bank of America, open to Ripple right now? And if they are – or when they are, eventually – how can Bank of America use Ripple right now, today.


David : They are surprisingly open. That’s another one of the things that surprised me, because you, kind of, think of the existing financial system as perfect for banks, and banks not wanting to disrupt a system that works well for them. But actually, banks have huge problems in payments. When Ripple first came on the scene people, sort of, saw us as a competitor to Western Union. Western Union moves money. Ripple moves money. They’re competitors. But actually, Ripple makes it easy to move money, and Western Union needs to move a lot of money. So it’s a perfect fit. And it’s the same for banks. Bank, right now, have to exchange a lot of payments with other banks. And they do it now with correspondent banks, which are intermediaries. If banks start to come to Ripple, they can exchange payments between banks on Ripple directly. No delay. No worry about settlement risk, or tracking payments. It’s instantaneous. And they can know immediately that the funds are good.


John : I see. Is it easy to explain how a bank would actually use Ripple?


David : So we have people who do the integration for banks, and help them to integrate their systems onto Ripple. The basic idea is you replicate a portion of your own ledger. So a bank has a ledger. They know who they owe funds to. You replicate a portion of that on the Ripple network. And then the Ripple network manages those balances, so when a payment occurs between two banks, the Ripple network will adjust those balances. As far as the financial institution is concerned, it just sees money move from one of its accounts to another one of its accounts.


John : Okay. So it’s as simple as that, really.


David : Yeah. It’s really simple from their point of view. If you think of about like if I make a $50 payment to you, what happens is my bank owes me $50 less, and your bank owes you $50 more. And to make it all fair, somebody owes my bank $50, and your bank owes somebody else $50. So to make a payment work, you are really essentially just adjusting balances. You just have to know that the funds are good, and that all of the balances have been adjusted.


John : I see. Wow. That sounds pretty neat, actually. Now, can you give a use case for an individual – someone who’s in the Bitcoin world, who listens to this show, and they say, “Hey, I want to try Ripple out, tomorrow.” What do they do?


David : One of the things you can use it for is, an individual can easily use it to buy and sell Bitcoins, to trade between different currencies. Out biggest use case for individuals right now is probably moving between different currencies. We have a thriving Forex market. You can place trade offers from Ripple trade right now. You can see order books, bids and asks, there’s market-making going on by individuals. It’s actually, kind of, an exciting playground. And as more and more real money moves through it – right now there’s more than a million dollars a day traded on the Ripple network - live, cross-currency trades. So it’s an exciting playground to understand Forex markets, and move between currencies. It’s a good way to buy and sell Bitcoins. It’s a good way to buy and sell XRP – Ripple’s native currency.


John : But are there any arbitrage opportunities, or any opportunities unique to the Ripple protocol that would allow someone to make money, once they get into the Ripple protocol. Because, you know, a lot of people that are into Bitcoin, they’re just in it because they’re speculators, right? Are there opportunities right now for speculators using the Ripple protocol.


David : There’s definitely opportunity for arbitrage and market-making, creating liquidity. There’s real remittances going on right now, and there’s definitely opportunity for providing liquidity between currencies, and closing those remittance loops. This is especially true for someone who has a, sort of, counter flow. Like there’s a lot of people In the United States that need to get money into Mexico. So if you have a case where you have a lot of money in Mexico, that you need to get into the United States – let’s say you know somebody who has grocery stores in Mexico, and he needs to get some of those dollars to the United States – well that’s a counter to the remittance flow. So you can close a remittance loop, and whereas today you might be paying to get that money to the United States, now you can move it to the United States at a profit, because the people who need to do remittances are paying.


John : Well, now how is this affecting - or how is this being received by - a company like Western Union?


David : Well, Western Union has the ability to get cash in and cash out at an enormous number of locations. That’s going to be valuable no matter what. And making it easier to move money improves their business. It makes those cash in-points and cash out-points more valuable. So let’s say, today, Western Union has a cash in-point that’s perfect for me, but they don’t have a cash out-point that works. I may need to make payments to some country where they don’t have as much of a presence, or vice versa.


John : Sure.


David : With Ripple, the party that provides the cash in, the party that provides the cash out, and the party that provides the liquidity and the cross-border flow, can be completely different parties. So you can set up a remittance business specializing just in one of these three parts, and people will find you. We have live remittance pathways that have just established from completely unrelated parties, providing all of the pieces needed to make a remittance pathway, and then people find that pathway. It’s an amazing piece of organic growth.


John : Wow, that really is amazing. And from what I gather right now, not many people have heard about it. If I walked around and asked in Nashville, “Have you heard of Ripple?” they would refer to the Grateful Dead song “Ripple”, right? Or “Rocky Ripple” – I think that’s an ice cream, right? But nobody’s heard of Ripple yet, right? But just, as you mentioned before, starting with the bigger financial institutions, it’s kind of starting at the top and working its way down.


David : Right. We’re going right to payment alliances. We’re going to financial institutions. We’re going to the Federal Reserve and central bankers. We’re really trying to work this from the top down, get liquidity into the system, [and] get cash-in and cash-out pathways, so that it will be more useful for everyone. It’s kind of surprising that we’re where we are - that we’re being taken seriously by central bankers – that we have banks that are using the Ripple network today, to make payments between banks.


John : Yeah. You know, I feel like a lot of people within the Bitcoin community may have missed – or are still missing – what Ripple is actually trying to do, or what Ripple is capable of. I think a lot of people still look at Ripple as a competitor to Bitcoin – something that’s competing with Bitcoin – in the same way that a lot people look at Etherium as competing with Bitcoin, when it’s not necessarily the case. Is that right?


David : There’s a subtle distinction here. To some extent you can look at Ripple as competing with Bitcoin as a payment system. But Ripple doesn’t really compete with Bitcoin as a currency. In fact, one of the major use cases for the Ripple network, right now, is moving Bitcoins around, because it provides faster settlement. So if you believe in Bitcoin as a currency, Ripple is a good way to move that currency around. It’s not a competitor. If you’re really attached to Bitcoin as a payment system, or as a great way to actually do the movement of funds, then you could actually see Ripple as a competitor, because Ripple pitches itself as a better way to make real-time payments.


John : I see. So Ripple really can help move Bitcoin more quickly. Is that right?


David : Yes. And I think that addresses some of the problems that Bitcoin has with confirmation time, and transaction volume. Other systems that can allow Bitcoin payments to be made, I think, are good for the Bitcoin ecosystem.


John : I’ve read something about Ripple that talks about how important trust is. Can you explain how trust works within the Ripple protocol?


David : Sure. So, Ripple can’t actually move a dollar bill from my pocket to your pocket. One of the interesting things about the Bitcoin system is the Bitcoin system really can move a Bitcoin across the planet, because a Bitcoin is nothing but a number. If I move a Bitcoin from my account to your account on the blockchain, that’s as much moving a Bitcoin as you can possibly do. Now it’s different with dollars. With dollars, they connect to the real world – the non-electronic world – in various ways. So in order to make a dollar electronic, someone has to hold that dollar -  and someone that you trust - to pay you back that dollar on demand. Now this is exactly what banks do in traditional payment systems. If I want to pay you money, and I have $50 in my pocket, I’m  probably not going to mail it to you. What I’m going to do is I’m going to have that $50 in a bank, and I’m going to send you a check. But the important thing to understand about how that trust works in Ripple is that it doesn’t matter whether the sender and recipient trust the same party. So I can trust a local bank in my country, or my city. You can trust a local bank in your country or your city, to hold the funds – and the payments just work perfectly smoothly. So it’s not like a big, central system where everybody has to trust the same party. But somebody has to hold the funds, and the individuals who put those funds in the system have to trust those people [holding?]. It’s the same thing that you do with a check. If you want to receive want to receive money, you have a bank account somewhere, and people pay you by making that bank owe you more money. And you’re trusting the bank that they’ll pay you that money. If the bank disappeared, or didn’t pay you that money, then you wouldn’t be able to materialize the funds from those payments. One of the things we’re working on is getting regulated financial institutions - that have FDIC insurance, and analogous protections in other countries – to be those trusted entities to hold the funds. That’s another reason it’s important to get financial institutions on Ripple. You’re already trusting financial institutions to hold your money. So if you can use your local financial institutions, then it really isn’t any additional trust.


John : But doesn’t that rub some people wrong when they talk about, “Yeah, but we don’t want to have to trust – you know, I want to send $100,000 to somebody, to put a down payment on an estate somewhere. But am I going to trust a bank, that they’re going to do things right for me? What if we’re right in the middle of a war, or the economy is really bad? They can do a bank bail-in, and next thing I know the money is gone.” That whole idea of having to trust some institution is what, I know, scares a lot of people. And yet, most of the people it scares, they have bank accounts, right?


David : Well, that’s the pitch for Bitcoin, right? That’s the pitch for a currency that’s not regulated by central banks, that’s not issued by a government. And we certainly like Bitcoin, and I’m not going to say bad things about Bitcoin. That’s definitely the pitch for it. There’s a little bit of a counter pitch though, and it, kind of, goes like this. If the Bitcoin system fails -  if there’s a double spend, or something goes wrong with the Bitcoin system – your Bitcoins are just gone. There’s nobody who takes responsibility. There’s nobody who owes you those Bitcoins. By contrast, if the Ripple network to disappear tomorrow, all of the funds would still be held by the people who hold them. You just wouldn’t have the Ripple network to facilitate the payments. So, for example, if your bank uses Ripple to make payments, and Ripple disappears, then your bank can’t make payments. But your funds are still in that account. The bank still owes you that money. So while you do have this, sort of, counterparty risk - in the party that you specifically chose to trust - you also have a counterparty who’s responsible for the security of your funds, and legally so. And again, it’s important to understand that you’re only vulnerable to the counterparties that you choose. So you choose who holds your funds, and that’s the only person who you’re relying on. You’re not vulnerable to, sort of, intermediary defaults, or recipient default. It’s just the parties that you specifically chose to trust.


John : Okay. That makes sense… You’re in Oakland, California, is that right?


David : Yup.


John : How’s your weather there today?


David : Really good, actually.


 John : I love Oakland, man. I used to go there with some friends, and we’d meet these “cats”, and we’d “slap bones”. People are like, ““slap bones”? What are you talking about?” It was like these black guys we knew over there. They were “domino crazy”. They just loved to play dominoes, and they’d call dominoes “slapping bones”. So we’d go up into the Oakland hills, and we’d drink beer, and we’d “slap bones”. It’s crazy, man. It was a blast. I remember the first time I did that – hung out with these cats – I won, I beat them.


David : Maybe they were letting you, to get you to bet money.


John : No, no. We didn’t play for money. It was all for fun. But then were mad that I won. And it was really just one of those examples of “beginner’s luck”. But, yeah, I love Oakland, man. That’s sure changed since the days when I was there, with all of the gentrification and everything. Kind of, the good, bad, and ugly of the gentrification, right?


David : Yeah. I mean, it’s hard to get angry about property values going up, and schools getting better. But on the other hand, people who have been living here for decades, their kids can’t afford to live here. Or sometimes, they can’t afford to live here. They have to sell their house because they can’t afford the taxes on it. It is definitely a source of strife here.


John : Yeah, I see that in East Nashville, too. My fear is that one day I will wake up and all of my neighbors will be doctors and lawyers, and I won’t have any more neighbors who are bartenders, or musicians, or whatever. Then I’ll look around and think, “Wow! This is really boring.”


David : And all of your school teachers and policemen won’t live in your neighbourhood.


John : Exactly! They won’t be able to afford it, right?


David : Exactly. So they’ll come in for the day, and then they’ll leave. And, yeah, it’s kind of sad.


John : What this country needs is a good depression.




David : There are a lot of people who would agree with you. You know, the people throwing rocks at the Google buses?


John : Well, I think the Google buses deserve that, don’t they? And the “smart cars”? I mean, some people are going to really have a lot of fun when the smart cars are out there on the road. Like, “Hey, there’s a driverless Google car. Let’s run it off the road! It’s not going to hurt anybody.”


David : But think about drunk driving. Think about your elderly parents.  I mean, the potential for good is enormous.


John : It really, absolutely is. I think starting out with it is going to be a strange thing.


David : When there’s change, even when there’s a lot of winners, there are also always people who lose out, and there’s always people who like things the way they were – and often for very good reasons.


John : Yes. Absolutely.


David : You know? It’s not just silly, romanticism, or something. There’s often really good reasons, and that is kind of sad. You can’t have everything.


John : No, you can’t. And the future is going to be here, whether we want it to be or not.


David : Yup.


John : But we digress in tandem, which is okay [laughter]. Okay, so let’s say that I’m in Nashville, and I want to send something to you. Is there some advantage to me using Ripple, and what’s the easiest way for me to do that?


David : Well, one of the advantages with Ripple, for doing that, is that you can hold any currency you want. So if you want to hold U.S. dollars, you can. But if you’d prefer to hold Bitcoins, or you’d prefer to hold Euros, you can. And when you make the payment, you can pay me in my preferred currency. So if I prefer to hold dollars, or I prefer to hold Euros –or whatever currency I prefer to hold – I can receive whatever currency I want.


John : Okay. Let’s say I’ve got a thousand bucks, and you want that thousand bucks in Euros – I’m not going to be able to convert it right now without a conversion table. But you want a thousand dollars in Euros, and I have a thousand dollars in USD, and I want to send that to you. What’s the first thing I do?


David : So, you could log in to your Ripple trade account, and select me by name – my name on Ripple is “Joel Katz”, so you can type in “Joel Katz” as the recipient. Then you can say the number of Euros you want to pay me, whatever it is. Let’s say it’s 700 Euros. The Ripple trade client will immediately tell you all of the possible ways that you can make that payment. So if you’re only holding dollars, presumably your only option will be to make the payment with dollars. But if you’re holding Bitcoins, and you’re holding Euros, or Yuan - or various different other currencies - you’ll get an option to pay in each of those source currencies. And you’ll see the actual rate live from the network immediately. And what’s interesting about that is no matter how big or how small your payment is, there’s no wholesale or retail distinction in Ripple. You get the very best rate that anyone on the network is offering - even if it’s an indirect path. You might need to sell your dollars for Bitcoins, and then use the Bitcoins to pay Euros. But if that’s the cheapest price, then that’s what the network will find for you.


John : Okay.


David : And you’ll see the price live on your screen, you push the “pay” button, and in about five seconds the payment completes. So the user experience is as simple as it could possibly be.


John : And what does that cost me?


David : So the transaction fee is way, way less than a penny. The only reason there’s a transaction fee is to prevent, essentially, spam – where people saturate the network with millions of meaningless transactions. You’ll get whatever the best Forex rate is at that moment. So, market-makers will place offers to trade to the typical spreads that you would find. As more and more market-makers are attracted to the platform, those spreads will come down, and the ability to make larger payments - without affecting the market – should be significantly improved.


John : Okay. So let’s continue on with a different line of the scenario… “Wait! Wait! I didn’t mean it! Oh, I already pushed the button. I want to take it back. I realized that you didn’t really sell me that thing that you said you were going to sell me.” Or, “I sent it to the wrong person. What do I do? Can I take it back? Can I reverse the payment?”


David : You cannot reverse the payment yourself. You can ask recipient to return it, but payment are irreversible. And that’s a plus and a minus. And I think that may be a reason why using the Ripple network directly may not be something to target at consumers, certainly in the short term. It is certainly a bad experience, and certainly something that does happen, where you enter an extra zero in an amount, or you pay to the wrong person, or the wrong currency. It certainly does happen. And that’s one of the reasons we don’t think these technologies – at least directly – are ready to go to the consumer yet.  The consumer probably needs and intermediary that can provide customer service, that can provide reversibility, and those kinds of things.


John : Yeah, yeah. These days it seems like it’s getting worse and worse. Eventually, the consumer - or the customer - is going to need a nanny to actually hold their hand, and walk them toward the computer, and sit them down, and put their hands on the keyboard, and say, “Now, here’s your mouse over here, and here’s the keyboard. Put your fingers on the home keys, and get ready…” Like, wait, wait, wait, we’re adults here. So really, I push “pay” and it goes to you, and it’s a thousand dollars, and it’s out of my account. I’m the one who’s responsible, right? I mean, I’ve got to make sure that when I sit down to do that I’m not drunk and stoned at three in the morning – not that I would ever be drunk and stoned at three in the morning – but, you know, I’m an adult here. But I do get your point. Your point is well taken, that for your average consumer they do need those protections, because there is the possibility of making some kind of mistake.


David : Right. It’s a complex technical challenge to come up with ways to make it harder for people to make mistakes. Like, the obvious answer is, “Well, you pop up a confirmation box, and you highlight the recipient and the amount.” The problem is people don’t look at confirmation boxes. And if you have too many confirmation boxes then people just get fatigue, and they just ignore them. It’s a challenge to make the software such that it’s safe. I’m, kind of, a technologist at heart, and I think that more sophisticated software will eventually be able to make these very sophisticated technologies safely accessible by ordinary people, without your grandmother – I guess, would be the stereotype. But we’re not there yet. We’re definitely not there yet. I don’t know any Bitcoin system that’s there yet. Certainly, Ripple is not ready to be used for mass consumer, direct use.


John : I still see things online all the time, where you go to the right and there’s a button. One of the buttons is “edit”, and the other button is “delete”. They are right next to each other. They’re really close to each other. Like, you could put a piece of paper in between the two. It’s like, “Why would you put “edit” and “delete” right next to each other?” But, of course, if you - by accident - hit the “delete” button, you hope that there’s another screen that comes up and says, “Is this your final answer?” You know?


David : It’s really difficult. There are people who specialize in that, and it’s really difficult to get right. We’re a long way . Unfortunately, we’re a long way from making these systems safe enough for mass consumer, direct use.


John : Right. And in the Ripple and Bitcoin world, when you say “a long way”, that just means what? Like six or seven weeks? [laughter]


David : If I had to guess, I would say the fastest would be two to three years, which is really not that long.


John : No.


David : Yeah, technology moves very, very quickly. And, of course, it’s an open platform, so anybody is free to develop on top of Bitcoin or Ripple however they want. So anyone who has good ideas for ways to make that better, or use cases, is free to develop.


John : Right. Right. That’s a good point. You know, there’s someone here in Nashville that’s part of the Nashville Bitcoin Network, and they are constantly talking about Ripple and XRP, because they claim to own something like a half-a-million Ripple, or a half-a-million XRP. So, their belief is that in the future they can be rich, because they own half-a-million XRP. And we’ve talked to them about that, and said, “Well, you may and you may not. The odds are better that you won’t, because XRP is not really the same as Bitcoin, in terms of how the value can go up, and how it’s traded, and all of that.” Can you address the value of XRP, for our listeners, and for that guy?


David : Well, obviously, it’s hard to predict the future, and there’s certainly no such thing as a sure thing. Risk and reward always come in pairs. So, the thinking is that if you have a large number of currencies on the Ripple network, and a large number of institutions issuing them, it would be very difficult to find a direct path between two currencies. So if you have U.S. dollars issued by a local chain, and you want to pay somebody in Guatemala - who gets cash at his grocery store – the probability that they’ll be someone offering to trade one of those currencies directly for the other is pretty low, and the liquidity will probably be through some intermediary currency. The Ripple network has a native, intermediary currency, called “XRP”, or sometimes called “Ripples”.  The advantage of Ripples is that there is no counterparty. It works just like Bitcoin. Your Ripple balance is just a number on your Ripple account, on the Ripple network. The theory is that because XRP doesn’t require any trust, or anything in common, it can flow between any two accounts. You don’t have to agree to have somebody hold it for you. And so, if that becomes the premiere intermediary currency, then two types of people will want to hold XRP. One will be people who don’t know what currency they’ll need next. If the path from dollars to euros tends to go through XRP, then if you don’t know whether you’ll need dollars or euros it makes sense to hold XRP, because then you only have to pay half the spread. And then the other thing is market-makers. If you’re just trying to make a market, and people who are selling their dollars want XRP, because that’s what they need to buy euros, then if you want to be able to buy dollars XRP is the currency that you’re going to need to hold to buy them. If that’s the way it plays out, then the demand for XRP will go up, and therefore the price will go up.


John : Mmm Hmm.


David : But again, nobody’s crystal ball is clearer than anybody else’s. That is certainly something that may, or may not, happen. So it happens automatically when you make a payment. The network finds the cheapest path. That might be through XRP, [or] it might not. It could be through U.S. dollars. It could be through Bitcoin.  There could be multiple paths that you draw from, so you get the very best offers on multiple order books. So you wouldn’t be consciously aware, unless you drilled into what was happening behind the scenes. You wouldn’t necessarily be consciously aware of what intermediary currencies you held for a notional split-second. But because XRP can flow between any two accounts, and is trustless, it has a privileged position inside the network, that could cause it to be preferred as an intermediary currency. If that happens, demand will go up.


John : I see. But what if it doesn’t happen?


David : It certainly might not. It could be that, for example, the Federal Reserve decides to issue dollars directly into the Ripple network, and everybody thinks that’s the perfect intermediary currency. And then XRP doesn’t get that kind of role, in which case you would not see that increase in demand.


John : I see. Is it possible that, just as the USD is the reserve currency of the world right now – against what a lot of people would like to see – is it possible that the USD could eventually be the reserve currency of the Ripple protocol, Ripple network?


David : It’s certainly possible. You could also see another government – and any country could do this – introducing, let’s say, gold. A 100% reserve-backed gold on the Ripple network, and people might decide, “Ooo! That’s what I want to use as my reserve currency.” Because maybe the government of China does that, and people trust them. There’s certainly any number of ways this could play out. To some extent, Ripple Labs has bet on XRP. Ripple Labs holds an enormous number of XRP, and our primary business model is that they’ll appreciate in the future. But, of course, there’s no guarantee.


John : I see. So now, that concept that the U.S. dollar could be the reserve currency of Ripple, of course, you know that people hearing this show, and hearing that  - if they’ve not heard that before – talk about Ripples going out, that’s going to cause a lot of people to be afraid, and to think, “Wow! We don’t want Ripple, because the U.S. the government, I’m sure now – since they heard this episode of “Bitcoins and Gravy” – they’re onto it for the first time. You know, they’re slow – they’re sleeping – usually.   Now there’s going to work as hard as they can to get the U.S. dollar to be the reserve currency of Ripple, and we’re back to the same place we were before Ripple, and Bitcoin, and all of this!” What do you say to someone like that?


David : Well, they have to compete in a fair playing field. So the intermediary currency could be the U.S. dollar, and you could still hold whatever currency you want. You can hold Bitcoin. You can hold Ripples. And that would just be where the liquidity is. And they would have to compete on a completely fair playing field, because people don’t choose intermediary currencies. They just make payments with the cheapest path they can find.


John : Ah.


David : So, it’s going to be competitive, just like it is outside the Ripple network, except people will be able to move more easily between currencies. So if one currency has a small advantage, that only affects a narrow group of people, they can still hold that currency without having the large cost that they would normally have to bear for making a different choice.


John : I see.


David : So, it does enable more freedom of choice with currency. And in that kind of market it remains to be seen what will be the preferred currency. It could be Bitcoins.


John : Yeah. Yeah. This is exciting stuff. I mean, it sounds like of like, you’re hinting at, sort of, a free market?


David : It is. It’s a very free market. It’s essentially a perfectly free market, and a perfectly fair market. You don’t even know the identity of the market-maker, or the currencies that you’re using. All you’re looking for is the cheapest path.


John : Wow. Now just as far as the example we gave a minute ago, of me sending money to you, and you receiving it in euros. Are people starting to get wind of this? I mean, why wouldn’t someone be using this all the time? To send money to their kinds in college? To send remittances? And I’m just talking about $20 here, $50 here, a birthday gift of $100 to somebody. Why aren’t people just using this all the time? It seems like this is – if you’re talking about it being that quick, and that cheap, and flexible, it just seems like a “no brainer” to me.

David : It is. You need three pieces for it to work. The person who’s making the payment needs an easy way to get cash in. The person who’s receiving the payment needs an easy way to get cash out. And someone has to provide the liquidity between the two assets if they’re not the same asset. So we’re working on building up those pieces. And when you have the right pieces, a remittance pathway will emerge, even without somebody having to do anything special to make it happen. So we have remittance pathways from the U.S. to China. There’s a gateway in the United States called “Snapswap.” There’s a gateway that provides cash out in China through Alipay. And so that remittance pathway has just been found by people. Another great remittance pathway is from the United States to Mexico. We don’t have great cash out in Mexico right now, but one of the things you can do is, rather sending cash to relatives in Mexico, you can pay their electric bill or their phone bill. It’s much easier to get money to an electric company, or a phone company, then get it to an actual person in the middle of a country. So that remittance pathway is live on the Ripple network today, and it’s well used.


John : Pardon me. Of course, my question may be naïve, but it sounds like the electric company there in Mexico, or the water company – or whatever utility – would have to have a Ripple account themselves. But that’s not the case though, right?


David : Right. So what you need is a bridge. We have what are called “inbound bridges” and “outbound bridges”. And essentially this would be an outbound bridge, and so there’s a company [“Saldo De Lamex”?], I believe, that runs an outbound bridge from Ripple to utility companies in Mexico – like phone companies and electric companies. So you, using it, may not even realize that you’re using Ripple. You might pay them with PayPal, and then the U.S. dollar to Mexican peso takes place on the Ripple network. And a Ripple payment to the outbound bridge takes place on the Ripple network. And then the electric bill, or the phone bill, or whatever the utility is gets paid. And the user doesn’t necessarily even know that the Ripple network provided the exchange rate behind the scenes.


John : Wow. And now what kind of fee would you be looking at for something like that?


David : I’m not exactly sure what the fees are, but the currency exchange is fairly cheap. It’s certainly less than you would pay with a service like Western Union – at least today.


John : Okay. So David, let’s jump away from Ripple just for a moment – if you don’t mind – and talk about Codius ( ).  You turned me onto this, and I’d like to read a quick definition, and then let you explain it to our listeners. “Codius is a smart contract system using standardized, attested hosting, that can be used with any cryptographic payment systems. It’s basically a way for multiple parties to all have confidence that the rules they agreed on will be followed. And it permits software to receive and spend money – rather than the people running that software”. Wow!


David : Yeah. This is something really exciting that we’re working on. You can use Codius with Ripple. You can use Codius with Bitcoin. You’ll be able to use Codius with other systems, like Etherium and Colored Coins. It’s a generic platform, and the basic problem that it solves is being able to trust the execution of software. So Codius is a hosting  platform. So it’s a way of getting other people to run software for you in a way that third parties can trust that the software is going to do what it’s supposed to do. So, currently today, if you run a piece of software, you can trust that that software is going to do what it’s supposed to do, but other people have to trust you, because you could run software other than the software you’re supposed to run. Now, there’s a variety of use cases for Codius, from the individual up to the enterprise. So if you imagine an enterprise trying to deploy  some sort of software that deals with a cryptographic payment system, one of the biggest problems that they have is the security of the hosting. The hosting system has to hold keys that can unlock their funds. And they might trust their software to only make payments when it’s supposed to. But how do you trust that the software won’t be sabotaged or modified. Codius provides a secure way to distribute code such that the keys that that code controls can only be used in the way that the code wants them to be used. So it eliminates the security problem with hosting, and because it’s standardized, it means you can distribute that hosting over multiple providers, without having to learn different deployment schemes, different payment schemes, and so on. On the individual end, Codius could become a preferred way to do things like hold Bitcoins. So right now, if you want to hold Bitcoins, either you’re responsible for your key – in which case  you might lose it – or someone else is responsible for your key, in which case you have to worry about them disappearing, or you have to worry about them stealing your funds. Codius allows the hosting instances to control the keys, so that multiple providers have to cooperate in order to make your payments. And you can handle things like subscription payments. You can handle automated payments. You can have whatever rules you want. You can have a rule where to make a payment you have to respond with an SMS message. And the security is completely under your control.


John : To me, it sounds like what I’ve read about smart contracts.


David : Right. It’s a way of implementing the software that does smart contracts. Exactly.  It’s a platform to execute that code securely.


John : So now, how does Codius fit in with what you are doing with Ripple. And are you also a developer for Codius?


David : I’m personally not working on Codius at the moment, although I meet with the Codius team pretty regularly, to see what they’re up to, and offer suggestions,  and listen to their great ideas.  So Codius solves a, sort of, different problem than Ripple. Codius solves the problem of integrating with cryptographic payment systems, including Ripple. So if you have a payment system that deals with Ripple, you have cryptographic keys that you need to keep secure. You have software that you need to run in order to issue and receive your Ripple payments.


John : Mmm Hmm.


David : Well, how do you securely deploy that software. How do you securely manage that software. It solves a huge integration problem that people have when trying to implement systems like Ripple and Bitcoin on an enterprise level.


David : I see. Wow. Now let me ask you a question. You being a tech guy, I did a little investing in Etherium. I bought some Ether. I think I spent a Bitcoin on buying Ether. Are you following Ether> Are you following what’s going on? I know it has nothing to do with Ripple, and nothing to do with Codius, but do you have any take on that at all?


David : I keep hearing that they’re on schedule, and that they’re going to be deploying their initial release in just a couple of months, but that’s about it. They have some great ideas, great execution. They’ve raised a lot of money. They took a big loss when the cost of Bitcoin dropped, which is kind of surprising. They validated an interesting funding model. You might not have thought that their funding model would have worked, and they proved that you can fund – you know, what did they raise $14 million or so U.S. dollar equivalent?


John : Yeah.


David : And that was definitely an amazing example of crowdfunding from Bitcoin . They’ve got a lot of smart people. It just remains to be seen whether they can execute, and if so, when. I also bought some Ether, by the way.


John : Yeah, yeah. We’re all sitting on our Ether, just waiting. Come on Ether!


David : It’s going to be like an IPO, right? Like, when people can first trade Ether, what’s going to happen to the price? Is it going to drop into the toilet? One theory is that people realized how much was sold, and it was way too much, and the price is going to drop. And another theory is people regret not buying when they had the chance, and the Etherium project has announced some good stuff, and it seems like they’re reasonably on track, and the price could shoot up. It’s going to be an interesting experiment.


John : Yeah, I think it’s all going  to hinge on getting it off the ground, and what practical uses it has, right?


David : Yeah. On the bright side, though, for people who bought Ether with Bitcoin they already had. If their alternative would have been to hold that Bitcoin, they would have to lose quite a bit, before they would suffer any actual losses, right?


John : Yeah, that’s exactly true. Of course, you know, people who actually hold Bitcoin – and I have some. I don’t have a lot, but I wish I did. We still believe – of course, we have to believe – this is not the end of Bitcoin . We still believe that it’s going to one day go to the moon, right?


David : Yeah. So I have no illusions about the risk. Every time someone thinks that they have an exception to the rule - “With great reward comes great risk.’ – history has tended to prove that the risk was there. I don’t think this is going to be an exception. I’m very bullish on Bitcoin . I think the future is bright. But I also have no illusion about the risk. I think there is always the possibility of technological obsolescence. There’s regulatory risk. There’s all kinds of things that could go wrong, either with Bitcoin specifically, or with the entire crypto-currency sector generally. I would never tell people not to buy Bitcoins. But I would definitely tell people that they should understand that it’s an extremely risky investment to make, with tremendous upside potential. I think payment systems are going to become completely revolutionized over the next 10 years, at most. I hope it’s Ripple that does it. I can’t predict the winners and losers, but I know that the technology is here to completely revolutionize antiquated systems like correspondent banking and Forex.


John :  Yeah, it sounds fascinating, man. I feel like I learned a lot, today, about Ripple that I didn’t know. And I’d even watched some of the Ripple tutorials, but I fell  like you really laid it out well, and explained it well. I hope my listeners feel the same way. It was great having you on the show, and maybe I can have you back on sometime, and we can find out more about what’s going on with Ripple, maybe six months or a year from now.


David : Anytime, John. It was a pleasure.


John : All right. Well, I have to ask you, before we go, David, can you tell our listeners how they can get in touch with you, and how they can learn more about Ripple?


David : You can find out more about the Ripple network at , and more about Ripple Labs – the company behind it – at .


John : Okay. And let me ask you, David. Do you, yourself, hold any XRP?


David : I do, actually. I hold, I think, something like 16 million XRP.


John : Good lord, man! Sixteen million. [laughter]


David : Well, you know, it’s funny. I would hold more, and I think the risk-reward makes sense. I mean, if it’s a 50% chance that it will double, it’s a good investment, right? The problem is my job, my stock options to some extent my professional reputation. You know, how many eggs can I put in one basket, you know?


John : Well, that’s true. Hey, let me buy a million from you. How much for a million, man? [laughter]


David : Uh, I don’t know what … [?]. So the price has been like a roller-coaster. So it’s like 1.4 cents right now, and it was up at 2.5 cents just a month ago.


John : Oh, wow.


David : And it’s been as high as 5 (cents), and it’s been much lower. I can’t figure out what the price depends on. It doesn’t seem to correlate with our announcements. I mean, we’ve had major announcements. We announced that we added to the board of directors, a former director of the “President’s Economic Council”, and that didn’t seem to have much effect on the price. We announced big partnerships and it doesn’t seem to… and then of a sudden, for no reason, the price will just suddenly jump up from half a penny to 2.5 cents.


John : Well, that’s weird.


David : I totally don’t get it.


John : Have you been tempted, at any point, to sell off a certain percentage of your XRP.


David : No. Not really. Not really. When the price goes up, I don’t feel tempted to sell, and when the price goes down I feel tempted to buy. I see it as a long term, high risk – essentially.


John : Yes. I think that’s a good way to look at it. That’s realistic.


David : Yeah. But I have no illusions about the risk.  I completely understand the fact that the Ripple Labs could disappear tomorrow. In the beginning, we didn’t even know if what we were doing was legal. People were arguing that things like Bitcoins were inherently counterfeit, and that they were violations of various federal laws.


John : Mmm Hmm.


David : We don’t have that fear, but I always had this philosophy that we could disappear at any minutes. And that hasn’t faded as quickly as, perhaps, it should.


John : I think that’s smart to think that way, and just hedge your bets, and keep your head in reality. So if somebody wants to buy XRP, or sell XRP, where can they go to do that?


David : Right on the Ripple network. Right from Ripple Trade.


John : Oh, is that right? Okay.


David : Yeah. You can deposit Bitcoins onto the Ripple network through BTC to Ripple, which is operated by Snapswap. It’s a Bitcoin inbound bridge. Then you can trade between Bitcoins and XRP – or any other currency – right from Ripple Trade.


John : Okay. Hey, there’s one more thing I forgot to ask you. Now if somebody wants to set up a Ripple account, so that they can, let’s say, buy XRP or sell XRP. Or, if they want to send value to a family member, or what-have-you. What is required to set up that Ripple account, in terms of the “Know Your Customer”, and what you all are required to do?


David : To set up a basic account with Ripple Trade, currently, all we require is verifying an email address. You may hit thresholds if you move, in or out, larger amounts of funds through regulated gateways, where they may insist on more information, like perhaps a scan of your driver’s license or passport.


John : I see.


David : But initially, to set the account up, all they need is a verified email address.


John : Okay. And where would they go to do that? ?


David : You can go to . ( ) will take you directly to the trading client, which is probably the best thing for end users.


John : Okay. Great. Hey, fantastic David. Thank you so much for being on the show. Listeners, you have been listening to David Scwartz, the chief cryptographer at Ripple Labs, and one of the architects of the Ripple protocol. David, thanks a million for being on the show.


David : It’s a pleasure, John.


John : Hey, say hello to Oakland for me.


David : Will do.


John : Thanks a lot, man.


David : Welcome.


John : Bye.


David : Bye.


[Segway music]


John : I know that may sound absurd, but I have for you a magic word. And today, the magic word is “Ripple”… R – I – P – P – L – E. Ripple. As in the sentence, “Man, I sure used to dig Jerry and the boys getting mellow with the ripple. It was oh-so-very groovy, baby.”


[music and lyrics to “Ode to Satochi” song]

John Barrett : Now climb aboard y’all! This train is bound for glory… and there’s plenty of room for all…

“Well Satoshi Nakamoto, that's a name I love to say,

And we don't know much about him, but he came to save the day.

When he wrote about the way things are,

And the way things ought to be,

He gave us all a protocol this world had never seen.


Oh Bitcoin! as you're going into the old Blockchain,

Oh Bitcoin! I know you're going to reign, gonna’ reign,

Till everybody knows, everybody knows,

Till everybody knows your name.


[guitar instrumental]


Down the road it will be told about the Death of Old Mt. Gox,

About traders trading alter coins, and miners mining blocks.

But them good old boys back in Illinois,

And on down through Tennessee,

See they don't care to be a millionaire,

They're just wanting to be free.


Oh Bitcoin! as you're going into the old Blockchain,

Oh Bitcoin! I know you're going to reign, gonna’ reign,

Till everybody knows, everybody knows,

Till everybody knows your name.


[instrumental interlude]


From the ghettos of Calcutta, to the halls of Parliament,

While the bankers count our money out for every government.

Oh, Bitcoin flies on through the skies of virtuality,

A promise to deliver us from age old tyranny.


Oh Bitcoin, as you're going into the old Blockchain,

Oh Bitcoin, I know you're going to reign, gonna’ reign,

Till everybody knows, everybody knows,

Till everybody knows your name.

Till everybody knows, everybody knows,

Till everybody knows your -- "Give me some Exposure" --

Everybody knows your name.



Oh Lord, pass me some more,

Oh Lord, before I have to go,

Oh Lord, pass me some more,

Oh Lord . . . before I have to . . .

Go . . .


[instrumental finale]



John : Oh-ho. Thank you East Nashville. Y’all be good to each other out there, ya hear?


[Segway music]


John : Good news about my winnings from Coin Telegraph. Maria did, finally, email me. Hip.. hip… hooray! She asked for a brief bio, and a photo, and she said she would be sending me “a ticket” – singular. I responded by sending her a screen shot of the initial contest, wherein it mentioned that the winner would receive “tickets” – plural. So I don’t know what to say, but thanks Maria – for reaching out to me. And I can’t wait to get my tickets – or ticket – whichever the case may be. I suppose it’s true what they say, “Beggars can’t be choosers, today.”

And remember listeners, coming soon you’ll be able to find full transcripts of each episode of “Bitcoins and Gravy”in the “transcript”section of . Professional transcription [is being] provided by one of our fans, “Franky”, who can be found at .

And of course, for more information on how to reach Franky, and other valuable information, just scroll down a little bit to the “show notes”. You can find show notes here, on the Let’s Talk Bitcoin Network :

Or, by going to SoundCloud :

Or, of course, on my web site at :

And don’t forget to listen in to all the other great podcasts, here on the “Let’s Talk Bitcoin” network, as well as all of the other great articles and educational resources to be found right here on :

And now, I’ve never done this before, but let’s get a show of hands for how many people think the Let’s Talk Bitcoin Network is absolutely, hands-down, the friendliest, and most informative Bitcoin site in all of Bitcoindom? Let’s see a show of hands… Okay.. Okay. About 90% of you. [applause]. Applause, applause.  Thank you.


But seriously, folks. Where else can you go, where you feel like you’re sitting right there in your living room, with good friends? And I mean that from the bottom of my heart. I should also add that doing this show each week is a genuine honor. I am honoured to be here with each one of you, each and every week. Thanks for having me.


[instrumental music]


If you’ve enjoyed the show today, please take a minute to leave a comment on Let’s Talk Bitcoin, in the comments section, right there below the show notes :

You can also leave a message on Soundcloud, or do the old fashioned thing and send me an email.

And, of course, Bitcoin and Litecoin tips are always appreciated by the hardworking writers and podcasters in the Bitcoin world. Many of work as volunteers, and sure could use those tips. You can send me $5 or 5 cents, and I will be just as happy knowing that this podcast put a smile on your face, or made your day a little bit better.

Signing off now from East Nashville, Tennessee. I’m your host John Barrett, with my trusty companion Maxwell by my side. Say goodbye Maxwell.


Maxwell : Grrrr…..


John : Y’all be good to each other out there now. And remember, the only thing necessary for the triumph of evil is for good men and women to do nothing.


[show outro music]


[music and lyrics for Valentine’s Day song]


John (singer and guitar instrumentalist) :


“You are the fairest girl here in Eden,

You are the loveliest flower in bloom.

A sunny day, you make the rain go away,

And I am in love with you.


You are as sweet as peaches and topping,

You are delightfully, lightfully true.

A capital “A” for an angel, yay,

And I am in love with you.


But not long ago,

My heart, it beat so slow,

I guess it was waiting for you.


But now I know,

Our love will grow, and grow, and grow,

And I’ll be holding you soon.


[instrumental interlude]


You are my maiden voyage of laughter,

You make me smile with the things that you do.

A sunny day, you make the rain go away,

And I am in love with you –

Yes, it’s true.

I am in love with you.


Happy Valentine’s Day my dear.


Max : Grrr…