A history of Ripple and XRP

April 07, 2018
James Hester

Ripple describes itself as offering “the world’s only enterprise blockchain solution for global payments.” The San Francisco-based company touts its global payments network, RippleNet, as a “frictionless” way to send money around the world using blockchain technology.

Ripple is enticing financial institutions to join its network with the prospect of being able to process their customer payments instantly, reliably and cheaply. Although often used interchangeably, strictly speaking Ripple is a company and cryptocurrency network. XRP is the name of its crypto coin.

In terms of market cap, XRP is currently the world’s third most important crypto. However, its market cap of $29bn puts it well behind leaders Bitcoin and Ethereum, which sum to around $149bn and $79bn respectively.

Ripple cites the principal benefit of its technology over Bitcoin and Ethereum as speed of payment. It claims RippleNet payments can settle in just 4 seconds compared with settlement times of over two minutes for Ethereum and longer for Bitcoin. This all compares to a three-to-five-day settlement time for traditional payment systems.

XRP

XRP

A brief history of Ripple

Ripple’s original payment protocol was engineered by Vancouver-based web developer Ryan Fugger. Fugger sought to manufacture a decentralised platform that would enable individuals and communities to create their own money. The first version of the system was launched via RipplePay.com in 2005.

In 2011, Jed McCaleb, who had already founded the file sharing service eDonkey Network, was busy developing a new digital currency system in which transactions were confirmed by consensus among members of a network.

This approach differed from the mining process associated with Bitcoin, where miners can reap rewards by solving challenging mathematical puzzles to complete a new block on the transaction chain.

This same year, Fugger ceded control of Ripple to McCaleb and his partner Chris Larsen, who had himself also previously co-founded various technology startup companies. They renamed the company as OpenCoin. In 2012, the company launched its digital coin XRP.

Larsen

Chris Larsen

Ripple makes waves

In 2013, the business reverted back to the Ripple brand and made Ripple’s code open source. Developers who advocate the open source concept believe that allowing others to modify their source code will make their application more effective over the longer term.

However, the year was one of mixed fortunes for Ripple. For instance, it launched and later withdrew an unsuccessful app that was meant to allow users to send money from their iPhone. It was also to be the year that McCaleb parted ways with Ripple. Chris Larsen stayed on, in the role of chief executive.

The following years brought a seemingly unstoppable run of good news for the company along with significant rises in the market value of XRP, as the latter gained in popularity. XRP’s price rose by 36,000% during 2017 alone.

Ripple attracted millions of dollars in funding from big financial institutions. Many household banking names adopted Ripple’s technology, including the likes of Santander and American Express.

A Ripple pioneer.

A Ripple pioneer

Development and growth

Unlike Bitcoin, which operates through a proof-of-work system, Ripple transactions work through consensus protocol. Ripple builds a decentralised shared ledger among users. It is a consensus model because a network of servers validate transactions by constantly comparing transaction records. Validators include other companies and internet service providers.

Much of the Ripple success story centres on the relatively fast adoption of its institutional payment-provider system, RippleNet. More than one hundred customers have signed up to the system, including some of biggest banking names in the world. Those banks signed up to the network can use Ripple’s technology to send instant payments across borders, at a minimal cost.

Although Ripple has XRP, money can be sent through RippleNet as a variety of traditional fiat currencies such as the US dollar or other digital currencies such as Bitcoin. Citing its super-fast, low cost traits, independent experts have claimed that RippleNet could boost remittance profitability for smaller banks by as much as 60%.

The price of its crypto coin XRP has been boosted by the steady stream of positive developments announced by the company, as big financial names have sought to pilot or adopt Ripple’s technology and new bespoke services for such firms have been unveiled.

Spanish-listed banking giant Santander has been among the most ardent backers and adopters of Ripple’s technology. In 2015, its UK arm became the first bank in the country to begin using it for international payments.

While numerous big banks have signed up to RippleNet, many of which deals came in 2016 and 2017, this year Ripple has been busy expanding its customer base in emerging markets. Early in 2018, Ripple also announced a new partnership with money transfer firm MoneyGram.

MoneyGram

New partnership

Centralisation/decentralisation debate

Much of the debate surrounding Ripple and XRP is on centralisation/decentralisation. “Ripple is not centralised. To be clear, if Ripple disappeared today, XRP would continue to function. To me that’s the most important measure of whether something is decentralised,” said Ripple chief executive Brad Garlinghouse in a blog published last year.

However, critics point to the centralisation of XRP in terms of ownership and control compared to the decentralised state of cryptos such as Bitcoin, which can be mined by anyone with the right software.

Ripple has the power to freeze XRP transactions. Theoretically, Ripple could also create additional XRP if it wanted to in the future. This makes Ripple sound a bit like a central bank running a fiat currency.

Many of those that have faith in the outlook for Bitcoin point to the finite number of coins that can be digitally mined. Some also worry about the long-term value and purpose of the XRP coin, pointing out that the Ripple network doesn’t need XRP to function.

It’s almost the same as Garlinghouse’s point about decentralisation, but the other way around.

There’s much debate over how much XRP banks will actually want/need to use as a bridging currency, even if they all end up adopting Ripple technology. Ripple has also been criticised in the past for not using enough validation nodes for transaction consensus, though it has been making progress to increase these.

Garlinghouse

Brad Garlinghouse

The centralisation argument is more important than it may first seem. As the argument goes, if it is deemed to be essentially under the central control of Ripple, regulators are more likely to view XRP as being a security, with all the additional regulatory obligations this would imply.

With Ripple currently owning more than half of XRP coins, this may well be the factor that eventually sways regulators into classifying XRP as a security. They may come to view XRP akin to Ripple shares, in much the same way as the securities of companies listed on the stock market.

The regulatory dimension has been cited as the likely reason why crypto exchange Coinbase has so far declined to allow XRP to be traded on its platform alongside the likes of Bitcoin, Ethereum and Litecoin.

Rather than being mined, XRP coins are distributed. Of the 100 billion XRP coins created:

  • 20 billion XRP were ceded to individual Ripple founders
  • The remaining 80% of XRP coins originally went to Ripple itself.

Key players

Ryan Fugger – Founder of the original Ripple project, Fugger describes himself as a web and “decentralised” systems developer and consultant. Last year he was reported to be an adviser to the company behind the crypto CLOUT. However, his web page says he is not currently taking on new projects, having suffered from chronic fatigue syndrome. It cites the aftermath of “a bad viral infection” he contracted in 2001.

Jed McCaleb – After leaving Ripple in 2013, McCaleb went on to cofound the Stellar platform, a decentralised network that uses an open-source protocol to exchange money. It is known for its increasingly popular Stellar Lumens (XLM) digital coin. McCaleb emphasises that blockchain networks must be “decentralised” to be successful.

Chris Larsen – Larsen is currently executive chairman of Ripple, having passed the role of chief executive to Brad Garlinghouse in early 2017. Earlier this year, Larsen, who holds a 17% stake in Ripple, was widely depicted as one of the richest people in America. This was when XRP had leapt to a new record high, at just under the $4 mark.

Brad Garlinghouse –  Before assuming the reins as chief executive in January 2017, Garlinghouse previously held the role of Ripple president and chief operating officer. He originally joined Ripple from cloud technology business Hightail.

“Our goal hasn’t been to go out and earn favours to speculators. It’s really been to solve a big problem in how payments flow across borders for banks and payments providers. We’ve been very fortunate to focus on that segment and sign up over one hundred customers, ranging from the largest banks in the world to small banks,” said Garlinghouse in a recent television interview with CNBC.

XRP

XRP coins

What other people are saying

Gautam Jain, global head of digitisation at Standard Chartered, on adopting Ripple for real-time payment services: “The successful launch of our commercial cross-border payment service marks a significant milestone in the financial industry’s progress in applying distributed ledger technology for corporates. We are incredibly proud to be leading the way in this area.”

Alicia Pertusa, head of Digital Transformation at BBVA, on completing the first real-time international money transfer between Europe and Mexico with Ripple: “This pioneer initiative is a clear demonstration of how payment processes can be vastly improved through the implementation of emerging technologies. These improvements will benefit our clients.”

Craig Cole of CryptoMaps: “Ripple is helping financial institutions save money and it is only expected to become even more prevalent in payment flows. The virtual currency is certainly on the rise and has the potential to be the first token to truly disrupt an industry, and if it does, expect XRP to reach Bitcoin-like levels of ubiquity in the near future.”

Jose Luis Calderon, head of global transaction banking at Santander, on partnering with Ripple to speed up cross-border payments between the US and the UK: This blockchain solution opens up a new channel between the US and the UK and presents significant opportunity for payments globally.”

Eddy Travia, chief executive of blockchain investor Coinsilium: “Ripple has done a good job of convincing big institutions to use their currency. The worry is that when the price goes up so much it moves the focus from the technology to just the speculation.”

McCaleb

Jed McCaleb

Timeline

  • 2005: Ryan Fugger launches RipplePay.com
  • 2011: Jed McCaleb begins developing a cryptocurrency.
  • 2012: McCaleb assumes control of Ripple with his partner Chris Larsen, renaming the company OpenCoin.
  • 2012: OpenCoin launches XRP as a digital coin.
  • 2013: The business reverts back to the Ripple brand and makes its code open source.
  • 2014: Santander commits $4m in funding.
  • 2015: Various big banking names begin to pilot Ripple’s technology.
  • 2016: Ripple receives a further $55m in funding from a consortium, including Santander, Accenture and Standard Chartered.
  • 2017: Ripple becomes more widely recognised as a banking payments system.
  • 2018: Ripple’s price reaches an all-time high of $3.84 in early January but then falls back amid a wider crypto sell-off.
Post written by James Hester
James Hester is a financial journalist, specialising in investment. He has spent much of his career writing about traditional asset classes like equities and bonds. But with a strong interest in technology, today he also enjoys covering cryptocurrencies.

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