What Is Ripple?
Ripple Labs is a blockchain business founded in 2012, and is one of the oldest cryptocurrency-based technology companies. It developed the Ripple payment protocol, a transaction network meant to replace SWIFT and other legacy financial networks with decentralized counterparts. Some RPP products use the XRP crypto token during transactions.
Introduction To Ripple Labs, Ripple Protocol, And The XRP Token
It’s important to note that although Ripple and the XRP token are, to many in the blockchain industry, synonymous, Ripple Labs is adamant that the two are very separate entities. More on that to come.
Bitcoin jump-started the cryptocurrency market with a promise of disrupting the banking industry, but it’s the RPP (for now known as RippleNet) from Ripple that comes the closest to fulfilling that promise. Blazing trails comes with heat, however, and in 2015 Ripple got hit with one of the first U.S. government fines against a blockchain project.
By then, co-founder Jed McCaleb left Ripple to launch Stellar, a competing blockchain platform that forked from the original Ripple code developed by Ryan Fugger.
Co-founder Chris Larsen has since worked tirelessly to maintain compliance and update Ripple (formerly known as OpenCoin and Ripple Labs) the organization, RippleNet (formerly known as RipplePay and Ripple) the blockchain network, and XRP, the cryptocurrency used for tokenized transactions and currency trades.
It’s because despite strong evidence to the contrary, Ripple Labs worked frantically for months of 2018 to disassociate completely from the XRP token, claiming that it was not created by Ripple, and that it exists completely independently of the business.
Many observers suggest that this is simply a last-ditch effort to avoid punishment by the SEC for selling a possible security without a license. If declared a security (and the SEC pointedly did NOT mention Ripple alongside Bitcoin and Ethereum, in suggesting that they are not securities) then Ripple could be in a lot of trouble.
XRP isn’t another cryptocurrency trying to clone Bitcoin and Ethereum. It has blazing fast transaction speeds, settling payments in a matter of 3.5 seconds or less. RippleNet’s underlying technology can be adopted by banks to replace current technology with blockchain-based alternatives.
Also, it’s not a traditional blockchain, although it does use a similar consensus algorithm, known as the Ripple Protocol Consensus Algorithm (RPCA). Distributed nodes use this consensus to prevent double spending and other fraud.
Before exploring the viability of Ripple Labs as a company, let’s explore the crypto market performance of its Ripple products and the XRP token.
Market Performance of XRP Cryptocurrency
The total supply of XRP is 99,991,643,723 XRP, and the peak price so far was $3.80 on January 4, 2018.
Unlike most cryptocurrencies, the XRP token isn’t necessary to process transactions. No gas is involved in xCurrent RippleNet transactions, which is what makes it such an attractive platform for financial institutions.
The RippleNet platform and XRP cryptocurrency aren’t codependent. However, the equivalent of approximately $0.00001 XRP is burned for each financial transaction using xRapid on RippleNet, which gradually decays the total supply. As of October 5, 2018, the max supply is sitting at 99,991,826,231.
XRP can’t be mined, and the full supply was released upon the network’s launch (with the founding team withholding 60 percent). Because the token isn’t a utility token, it’s essentially a currency backed by belief in the Ripple organization and RippleNet platform’s sustainability. Ripple can also mint new XRP at will, so even though the supply decays, it can always be replenished.
A variety of wallets support XRP, including the Ledger Nano S hardware wallet, Toast open-source software wallet, and Exarpy web-based wallet.
Pretty much every popular exchange accepts XRP, and daily trading volume exceeds $500,000,000. XRP is widely traded on Bitbank, Binance, HitBTC, Bithumb, Upbit, Bitfinex, Huobi, and more. Its trading pairs include BTC, USDT, ETH, and fiat currencies like JPY, USD, and EUR.
RippleNet Solves Today’s FinTech Problems
The Internet has everybody used to instant, on-demand everything, but financial institutions still lack behind. Payment transfers between two different financial entities (Bank of America and PayPal, for example) takes a minimum of 3-5 days to settle. This slow, archaic process is estimated by the World Trade Organization and Federal Reserve to cost up to $1.6 trillion a year.
RippleNet’s distributed node consensus model brings this processing down to 3.5 seconds. The network has so far been able to exceed 1,500 transactions per second, and upgrades to the protocol enable Ripple to compete with the Visa network’s speeds, reaching approximately 50,000 TPS.
Instead of a typical blockchain, which uses a decentralized model to validate each transaction, RippleNet uses a HashTree to summarize data for validating server nodes. If consensus isn’t reached, the problem is pinpointed and examined much easier than on the blockchain.
This makes RippleNet an attractive platform for any businesses performing value exchanges, and that’s exactly what it wants. Ripple has so far partnered with over 100 banks around the world to test its RippleNet platform and XRP altcoin, including MoneyGram, American Express, SBI, Santander, and BBVA.
However, Resona, Japan’s fifth largest bank, since ended its involvement in the project.
In 2016 (a year after its $700 million FinCEN fine), Ripple obtained one of the first BitLicenses from the New York Department of Financial Services. That year, it also raised $55 million in Series B funding from investment firms like Accenture Ventures and SCB Digital Ventures.
However, the centralized nature of Ripple also comes with criticism. RippleNet is a poster child for the debate between centralization and decentralization in crypto. On one hand, the network is as trustworthy as the nodes controlling it, and on the other those nodes are easier to compromise when they’re centralized. Think of how fast centralized Napster was shut down by the government versus decentralized BitTorrent.
Ripple spearheads efforts to be seen as a legitimate brand in the financial industry. Its annual Swell conference attracts speakers like Bill Clinton,
Of course, Ripple doesn’t care if the government forces it to change – its clientele is the banking industry, not the general public. Its competition are companies like Fidelity Information Services and SWIFT, neither of which are immune to government regulation either.
Roadblocks and Challenges for Ripple’s Future
Of course, not everything is sunshine and unicorns for Ripple. As mentioned above, it was the subject of a $700,000 fine in 2015 for not registering with FinCEN. Since then, the company has been laser-focused on compliance. That’s par for the course in financial companies – trust me, I’m a bank whistleblower.
That didn’t stop a class-action lawsuit from being filed against Ripple in May 2018 claiming sales of XRP constitute a “never ending ICO.”
Also, the XRP coin price isn’t tied in any way to the RippleNet platform, which can be good and bad. And it has competition, not just from Stellar. OmiseGo and other blockchain projects are hoping to disrupt the same sector, and legacy companies like Visa, Bank of America, and PayPal are researching proprietary blockchain solutions.
As with every blockchain and crypto project, Ripple’s success ultimately depends on partnerships and development. This community seems to have both in spades, something its team loves pointing out when taking jabs at McCaleb’s rival Stellar project.
Ripple And XRP Summary
Some blockchain projects are released with no real direction (or the competence to truly please the market). Ripple’s project is squarely focused on disrupting the banking industry by using blockchain-inspired consensus nodes to speed up financial transactions between any currency and party. Ripple’s success depends on these key features.
- RippleNet’s payment platform isn’t dependent on XRP tokenized transactions. Transaction speeds already reach over 1500 TPS and can hit upwards of 50,000.
- RippleNet’s consensus is centralized, making verification from trusted nodes a selling point for financial institutions. Ripple is not interested in consumer-facing applications.
- Instead of an ICO, Ripple held a traditional Series B funding round. In fact, it was focused on government compliance way before it was cool.
- Mainstream understanding of the difference between XRP and Ripple is a major challenge for the company, especially given the SEC’s position on centralized cryptocurrencies.
With these pieces in place, Ripple is well positioned to be a dominant player in the cryptocurrency industry. RippleNet has a niche, and it really knows how to service that niche.