Event Recap — Orichal Partners with Ripple’s Chief Cryptographer David Schwartz
Orichal Partners was honored to have an open interview with David Schwartz, Ripple’s Chief Cryptographer at Eaton Club, Central last month. If you were not able to join the event, the following is the extract of the interview.
Please walk us through briefly your path and how did you get into Ripple eventually.
David: I was working for a software company in Santa Clara before. It seems that they were very happy with the products they have. At that time, I discovered Bitcoin and I see that it could be the next big thing. I started to become part of the Bitcoin community and contributed Bitcoin codes. This is how I got into the crypto space.
I started to realize that the proof of work model won’t deliver. One of the main problem is that proof-of-work is not an equalizing force. Someone can get the cheapest power and someone else can buy the cheapest.
Bitcoin can do a lot of things and it allows reorganization, etc. However, a complex system can drain system performance. Ripple’s focus is on one thing — to solve the double spending problem with consensus. Ripple can handle a very high transaction volume with up to 2000 transactions per second. It is a very high volume because it is very streamlined.
Will it translate to the price of XRP?
David: There is a network of banks that move a payment from hub to hub. What a user want to make a payment in USD to deliver some fund to Mexico. In fact, there are two domestic payments, one in the US and one in Mexico. The person who got the USD supplies XRP to the person who supplies the Peso. It turns out that there is actually a lot of money in the delay and significant costs. Because when the money is moving, nobody has it.
Companies can buy XRP by facilitating someone else’s payment, and you can supply MXN and take the XRP. You don’t buy XRP by paying a spread, instead you buy XRP by making a spread.
Ripple doesn’t actually do the settlement and it doesn’t actually move the money. In this case, the price of XRP will be moved in an indirect way.
Tell us about the XRP Consensus and what are some use cases with this algorithm.
David: With Ripple’s high scalability, it seems that a decentralized exchange is what it was back in 2013 when it was introduced. It is a daunting task to figure out what was important and what was the distractions. In fact, you only need to solve the double spending problem.
There are only two legal transactions. If you need to verify which transactions go first, you would need to sort the transactions and know every transactions that has ever happened. You will also have to process these groups of transactions, and agree on the groups of transactions. On the enterprises payment case, it takes a lot of computing power and it is also extremely inefficient.
Ripple has a simple mathematical algorithm that order the transactions that everybody agrees on. There is no need for a fixed block size. The confirmation time per transaction is so much faster and it is delivering a much higher performance as well.
Talking about the XRP ledger, we are driven to put a lot of innovation in the ledger level. The multisig would be a case in point. With throughput of 12 transactions per second for BTC, it is difficult for Bitcoin to follow because a very high cost is incurred in the change of system. This is the reason why it makes innovation very slow.
What are some of the biggest challenges that Ripple has faced when partnering up with financial institutions such as banks and asset managers?
David: Historically, regulatory challenges have been major because they were not ready for the technological innovation back in 2013. Recently, more institutions are interested in this technology and we have faced a lot less objections. There is definitely challenges in terms of system integration, but we have been tightening up the cycle by working with more than 100 banks.
Another challenge would be to ensure enough liquidity in our partners, and a very high reliability in the system. In a system with such high transaction volume and large sum of money, it is necessary that institutions are assured that the system would not mess up. It works on a 90–10 principle, where 90% of the things could go wrong and the rest of the 10% are the things that work well.
Most of the institutions out there are conservative. Our strategy to carry on the partnership is not by telling them that we are going to save them some money, but to really understand the real world problems that they are dealing with, and how can our solutions can change that. It is essential to ensure they have the incentives to put the solution into production.
Ripple offers custody solution to traditional financial firms. Security is the drivers of financial institutions. In the existing financial system, the encryption is only graphed at the end. With blockchain technology, every piece of information is authentic and is properly signed by stakeholders. Features like multi-sig and key rotation allow users to set a threshold and change the threshold when necessary.
Going down the road, where will you see Ripple be?
David: Ripple is active in looking at other use cases for the XRP Ledger in order to solve particular business problems. XRP can be used as a payment asset, settlement asset, buy other things, distributed exchange, pools of liquidity between XRP and other assets, or a gateway to other assets as well. Gaming could be a big vertical that Ripple can be applied in.
Ripple’s XRP Escrow lock up some fund and unlock upon certain circumstances. It is appropriate for transactions with high value but low volume. It scales up beautifully for micro-payments as well. When everybody is honest, everything will work perfectly and efficiently.
For the Dollar Peso example, did institutions help you do that and how do you envision this strategy?
David: That has been dealing with liquidity between XRP and the Mexican Peso. They are connected to the Mexican domestic payment system so they can cover a significant portion of that.
One of the interesting ways that scales is once you have a pipeline into the XRP and Mexican Peso, you can have a pipeline in XRP and HKD, you automatically have a pipeline in USD. And we expect that to scale really nicely.
We are not a financial institution so you can see us doing it indirectly. Even most of our XRP sales are done indirectly to protect us from accusations like manipulating the market. We tried a lot of partnership before and there was just not enough volume, we look to incentivise partners in countries where we do not already have the presence.
Can we get some of your comments on Ethereum’s Plasma, Bitcoin’s lightning network and Hashgraph? They are going to make transactions 3000 times faster. What is Ripple trying to do to scale up and stay ahead?
David: Those are all very very interesting projects and it requires a tremendous amount of innovation. Everybody’s got the thing that they are doing. Our answer to those sort of technologies are in the ledger, which is also the foundational technology behind xCurrent.
Most of the technology you are talking about are accelerating the blockchain itself. Their aim is to make the blockchain more scalable, which is great. The problem is that a blockchain is sort of a world garden, I don’t think you are going to have one blockchain that is going to take over the world. The primary reason is that everyone has to follow the exact same rule on the blockchain. If users want some rule changes that is tremendously useful for me, it imposes costs on every single one of you that uses the blockchain.
I don’t think scaling a blockchain is the solution. I think every blockchain should provide as much performance as it can. But there are people that would want different features on the blockchain, so I don’t think a one blockchain world is going to come in the near future.
My answer to scaling the Ripple world is Interledger, which is not a blockchain scaling network but a protocol. It coordinates payments happened across multiple ledgers. The beauty of that is that a protocol scales horizontally across ledgers.
In terms of developer friendliness, if I am considering to create a crypto asset, is Ripple a good choice, or is Ripple focused on financial payments?
David: Ripple has not done enough developer support as we should have and we are looking to change that. Ripple the company is focused on international payments and uses XRP as the international assets. This is not the only use cases in XRP but this is how we built a company around that.
We have the XRP Ledger and we are happy to engage with developers for new use cases. Ripple would like to have a more robust developer community and we recognise this is what we want.
Ripple submitted the latest peer review on February about the second whitepaper, how did it go and what is the timeline for the deployment of Cobalt.
David: The peer review status is unknown at this time. However, the deployment of Cobalt is probably a year away from now. The main challenge is transitioning a live network of people that are relying on the network to transfer a large amount of money. Ideally, it won’t make any difference in six months.
Probably in a year from now, you will have an algorithm that is decentralised in the sense that there is no parties that you can press on to stop it from making progress. You never would have to worry about double spending and system failure. Potentially, you do not have to worry about the Denial-of-service attack as well. It takes a long time to convince people to put their billions of dollars in the new network, and that requires a lot of third-party networks and testing.
What are some of the software product that you would like to see that would add value to the Ripple?
David: Better wallets, definitely. More user friendly wallets. Wallets that support multi signs and key rotations. However, I am not that big on applying the system for retail adoption unless it is wrapped up in a system. It has some custody issues.
Another problem of retail adoption is that without hardware wallet, users are very vulnerable to phishing and software compromise. Retail adoption is really hard. It is one of the Ripple pivoted away from retail uses. Bitcoin pivoted away from that as well even though their model are built on paying your coffee with Bitcoin. However, we can see that the use cases don’t work very well.
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