Image Caption: Before reading this review, please read our disclaimer at the bottom of the article or Also, we wrote a 5 minute summary on Ripple you can find . here. here The Payment Network Token Ripple just became the second largest Cryptocurrency by market cap at an astonishing $122 Billion dollars. Making Ripple’s co-founder, Chris Larsen, the 8th wealthiest man on earth as he holds the equivalent of about $55B USD (as of January 4th, 2018 at 16:00 hrs EST). How did this happen? Why now? What’s Ripple? This article will answer those questions, and shed some light on both the positive, and negative aspects of the cryptocurrency, as well as the historical reasons that made this token jump from the 9th to the 2nd most valuable cryptocurrencies in a couple of hours. Even though this looks like an overnight success, this is a . story 14 years in the making Note : The price of this currency increased by 10 times during the hours writing and editing this article. Woah. If you want to read our shorter, 5 minute summary of Ripple, click here . Introduction Ripple as a token has been in circulation since 2012. During this time ICOs were essentially non-existent so this will be the first time we do a review on a company that didn’t have an ICO, but a strategy that involved multiple partnerships, clients, and movement of tokens. Ripple is trying to revolutionize payment systems through its platform. They described the current banking system as “slow, limited in transparency and expensive”. And therefore claim that it is also inadequate as a Global Payment System. Their idea is to reduce these barriers of entry to enable global payment to become a truly worldwide activity. And so RippleNet was born. Talk is cheap, but Ripple has been able to deliver on their promises by partnering with some of the most successful investors in silicon valley, as well as multiple international banking institutions, regulators, and leaders in technology, such as Google and MIT. RippleNet RippleNet is the name given to the Global Payment System of Ripple. It creates a global network of banks in which people can send and receive payments through Ripple technology. They claim the system to have real-time messaging, clearing, and “gross settlement certainty” of transactions. is the name given to the transfer of funds or securities between two banks. Gross refers specifically to the ability to enable those transactions to happen one-by-one instead of sending them as a bulk, for example if banks sent all their transactions of one day at the end of each day. Gross Settlements The way it works is by forming partnerships between banks to have access to the RippleNet network. Once a participating bank is part of the network, users around the world can interact with that bank through their own local RippleNet-enabled Bank. Users refers to corporations, individuals, and other organizations looking to participate in banking activities. The advisory team alone for RippleNet includes members of 6 different banks (and counting). Image under caption: RippleNet Banking advisory members, from Page 14 of RippleNet Brochure (PDF) Furthermore RippleNet has a series of products: xCurrent: Payment Processing xRapid: Source of liquidity xVia: Payment origination xCurrent Enables payment processing between banks. Their RippleNet paper describes it as: “A standardized technology enabling the ability to message and settle transactions between banks with increased speed, transparency and efficiency.” — RippleNet Brochure, Page 9 xRapid Banks need to hold foreign currencies in order to enable fast transactions (without constantly having to pair up transactions), otherwise known as “nostro accounts”. xRapid is a pool of funds that banks can have access to in order to transfer funds easily. “Access to an on-demand liquidity pool of digital assets that eliminates the need to hold nostro accounts in destination currencies.” — RippleNet Brochure, Page 11 xVia Finally, xVia is a global payment transaction system “A web services layer providing corporates with the ability to securely originate real-time payments with rich data attachments.” — RippleNet Brochure, Page 13 Banking Clients This is one of Ripple’s strongest value propositions. Anyone can come up with an idea, but execution is the real difficulty. As a two-sided market business, Ripple requires both Supply (Banks) and Demand (Users, Businesses). In order to succeed they need to get the Supply side first, and that’s exactly what they’ve done. The list of banks that Ripple has as customers continues to grow, the current list is quite impressive, and it is one of the main reasons that the price of Ripple has been shooting as high as it is. Image Caption: Ripple Customer Sample from Page 15 of RippleNet Brochure History Price of Ripple from January 2014 to January 4th, 2018. Price from CoinMarketCap.com found . here Ripplepay 14 years ago, in , before bitcoin was created, Ripplepay was a service created by Ryan Fugger to allow swapping of credit between trusting participants. Essentially if someone owed you $10, they could create an IOU worth $10 and if someone else trusted that person, you could then use that as IOU as $10 with that third party. This is also the way current banks operate and is one of the building blocks of the current financial system. This is a relatively simple concept and even cash notes are essentially IOUs just all issued by the same entity, i.e a bank/govt. 2004 This is very different from bitcoin, which is a trustless cash system, where you don’t require trust between two transacting parties, but you do require some form of verification that the asset being traded (in this case bitcoin) cannot be double-spent. If you could double-spend the same bitcoin, it is essentially like counterfeiting banknotes and obviously that is a problem. However, in the above a payment system described by ripple, you do need trust. If I owe Bob money, a third party, Alice does not need to trust Bob to believe that my debt is valid, she only needs to trust me. You can’t issue debt to someone who does not trust you. So, you need to set a trust line, or a credit limit, that defines to what extent you trust which participant. Trust lines can “ripple” through a network, allowing trading of IOUs with participants you may not know, but with whom you share trusted intermediaries. If Bob and Alice both trust me, Bob could pay Alice with an IOU that I issued to Bob. Ripple on the Blockchain After the introduction of bitcoin to the world, Ripple began development of a blockchain based payment network similar to their existing product, however instead of bitcoin’s proof-of-work ripple used something called global consensus to verify trust, which they explain in the whitepaper leads to faster transaction times and lesser transaction fees. This implementation of global consensus was new, even though the problem it was solving is well established in computer science literature. The validation of trust through consensus is a problem known as the “Byzantium general problem” and there are a few protocols which generated a solution for the problem, one of which was ripple’s new global consensus protocol. Another company, Stellar implemented a very similar protocol and came under heat for it in 2014 when a serious bug resulted in transactions being unconfirmed forever, however Ripple vehemently denied that their protocol was the one to blame and that it was an incorrect implementation. However leading cryptologists currently do not agree on whether the protocol is sound or not. The Idea As explained in the history section Ripple started out as Ripplepay, a simple debt exchange platform which did not involve any counterparty risks however it required trust between the participants on the network. Thus if Bob trusted Alice and Alice trusted Charlie, the line of trust between Bob and Alice could “ripple” through to Charlie and thus allowed Bob’s debt/credit be passed on to Charlie and vice versa. While there was no issue of double-spending with debt (the same person could issue the same debts to two different people and they would just owe two different people money.) However once Ripple started working on a blockchain based verification network. Now a simple problem of having a payment network without any counter-party risk now became a problem of having a system that does not only require trust amongst the network, but also a way to ensure that double spending does not happen (i.e XRP cannot be counterfeited). However how these two pieces fit together is quite complicated so we shall break it down into the following separate sections. The Token Ripple purports these settlement issues are caused by manual settlement done in order to translate one bank’s ledger system’s transactions into another bank’s ledger system. Ripple however introduces something called the interledger protocol which uses a new cryptocurrency (ripple [ XRP]) to settle accounts across two banks differing ledgers, allowing for much faster settlement times. Ripple’s White Paper Ripple submitted multiple documents and white papers. Some focused on the business development side, such as Ripple Solutions Guide ( ), and the RippleNet Brochure ( ). But the company also submitted technical white papers that go very deep into their technology, Consensus algorithm ( ) , and the Interledger Protocol ( ). PDF PDF PDF PDF Consensus Algorithm Ripple does not use bitcoin’s proof-of-work rather it uses a consensus protocol to validate transactions, this new consensus protocol is states in Ripple’s whitepaper for their consensus algorithm. The consensus algorithm was new and unproven when it was initially presented but since then Ripple has carried out several validations for the transactions. This together with the fact that they have partnered with many banks has shown that the consensus algorithm works well for validations of transactions. These validations ensure that there are no double-spends of XRP, however why this needs to be the currency is the real question. Interledger Protocol The interledger protocol is specified in Ripple’s whitepaper and is basically the way the ripple network allows for cross-currency remittances. In order to understand the interledger protocol, we need to explain how banks currently issue international remittances. They use different databases as ledgers to make sure that credit and debt assets are tallied in the local native currency. What Ripple does is it settles transactions across multiple ledgers by settling each separate ledger by using XRP as an intermediary currency. Validators In order to distribute the amount of control that the Ripple corporation exerts over the network, and more importantly, to enable the network to operate, even if Ripple fails as a company, a series of validators have been put in place. Validators (Unique Node Lists) are organizations and/or individuals that can verify a transaction on the Ripple network, so they act as a semi centralized agency. Validators also make sure transactions are not “double spent” by agreeing in the order of transactions. Amongst the current validators of the Ripple protocol there are: MIT (Massachusetts Institute of Technology) Microsoft CGI (Canadian Global Information) And many more Unfortunately this list is not extensive, and there is a series of nodes and addresses that are not public. So there could be a risk of decentralization, due to the fact that we don’t know if Ripple investors, employees, or the board of directors is part of this elite validators. Token Distribution This is one of the most criticized aspects of the Ripple protocol. Ripple controls over 50% currently, and once all the XRP have been released into circulation, the ripple company will own exactly 50%. Blockchain Test The Blockchain test refers to the question of whether or not a company requires the use of the Blockchain in order to be successful. This test was a result of a lot of companies abusing the ICO hype in order to just add the word “Token” after their name. “The Token for X” model. In principle Ripple needs the Blockchain as an improvement on current banking financial standards. The question is whether or not it was necessary for ripple to create their own cryptocurrency, and whether or not it was a good idea for them to do so in a semi-centralized way with obscure validators. Undoubtedly they could have used bitcoin or any other already pre-existing cryptocurrency to fulfill this role and the introduction of a native currency like XRP leads to a lot of questions as to why the extra currency is necessary. Furthermore, hyperledger which is an open source protocol very similar to the interledger protocol provided by Ripple existed prior, so why Ripple chose not adopt that is a reasonable question. Ripple claims that it is hard to do the kinds of international remittances that it does through the hyperledger protocol due to lack of atomic book transactions, however hyperledger is currently working on exactly that problem, and thus it is an important point to note. Ripple has also created solutions in order to easily transfer their token for others. In 2013 OpenCoin created the “Bitcoin Bridge”, which essentially allows users to transfer funds in any currency to a Bitcoin address. Essentially enabling anyone in the world to purchase items in exchange of Bitcoin, without having to own Bitcoin in the first place. The Bridge is one of the most interesting aspects of the Blockchain test for Ripple. It shows a great use of the technology, and also something that almost only Ripple would be able to do, since their global partnerships with banks allow them to provide the multi-currency liquidity and network to provide those services. Traction — Performance Besides all the activities, products, partnerships, investors, and clients that Ripple has, it is also important to discuss how the token has been performing over the last years in order to demonstrate traction and the validity that people have given the token since its inception. 2013–2016 During this period of time, one of the main engines moving cryptocurrencies forward was the rise and rise of Bitcoin. In the period of August 2013 until December, Bitcoin increased in price from around $80 USD to over $1,000 USD. by March of 2014 the bubble burst, and the price of Bitcoin continued to decline until it reached less than $200 at the beginning of 2015. For many, Ripple was “The Next Bitcoin” and while Bitcoin was at an all time high people saw the potential for Ripple to become the next best option. As Bitcoin prices crashed, people also lost hope on Ripple, so you can see a very similar price pattern for Ripple during the period of 2013–2015. However, during the all-time low of Bitcoin in 2015, many thought Ripple would replace Bitcoin to become the preferred worldwide cryptocurrency, so the price increased inversely to that of Bitcoin. Ripple Price Graph from Coin Market’s Ripple found . here Bitcoin Price Graph from Coin Market’s Bitcoin during the same period found . here 2017 This was by far the best year for the Cryptocurrency, and probably the reason you are reading the article now. 2017 became the most important year for investment in cryptocurrencies, so people started looking at the largest and most important ones in the market. Graph from Coin Market’s Ripple found . here For many Ripple was going to become the defacto banking cryptocurrency so a sort of self-fulfilling prophecy occurred. In the span of 12 months, the price off Ripple went from $0.006 USD (or about 0.6 cents) to over $3 for every token. This is an increase of about 50,000%. Of course, as the price kept increasing, people kept saying that the price would continue to do so, so more people invested in the currency, and the cycle continued. Part of the reason the token has become so popular recently is social media. As ICOs are becoming more popular and people are investing more, the price of cheap altcoins is attracting a lot of people to invest in it. One of the reasons that Ripple seems to be such a “cheap” token, is due to the massive volume of Ripple tokens that exists in production. Price is relative, and does not take into consideration a tokens total token volume. There are 100 billion tokens, so the price fluctuates much less than if there were 1 million tokens, in comparison there are 16 million Bitcoins, out of the total possible maximum of 21 million. Lately, criticisms have stopped the price from continuing to rise, these criticisms include the centralized nature of the network, the amount of tokens that the team gave to themselves and partners, and technical decisions that put in question the need for Ripple in the first place. Team Team History 5 years before Satoshi Nakamoto’s famous original Bitcoin paper “Bitcoin: A Peer-to-Peer Electronic Cash System” there was Ripplepay (2004). The project was originally created by Ryan Fugge, a software developer from Vancouver. The idea came from working at a stock trading exchange and development began 2004. A year later, Fugge had a working product that enabled consumers to be able to secure transactions over the internet, just 5 years after the internet boom. 6 years later, software developers Jed McCaleb, Arthur Britto, and David Schwartz development began to build their own digital currency system through a consensus algorithm. The following in year, in 2012, the new system was incorporated into the new company OpenCoin Inc. Fugge transitioned into helping with the creation of the credit network section of Ripple. As OpenCoin continued to grow and develop Ripple, the team continued to acquire veterans from the finance, software, and venture capital markets. The team now is heavily stacked and connected to both cryptocurrencies and Fintech, which is one of the reasons that has justified their valuation and quick rise so far. Ripple was co-founded by Angel Investor Chris Larsen, and Software Programmer Jed McCaleb. Fugge left his role as a developer at Ripple, and is currently working ICO advisor. His websites mentions he doesn’t have intentions to take new projects related to health conditions (We won’t link his website, as we are sure he currently appreciates privacy). On September of 2013 OpenCoin Inc. changed its name to Ripple Labs Inc. Which is currently the name for the company and main holder of Ripple, and with Chris Larsen as a CEO. The Team There are an estimated 2,000 billionaires in the world. Ripple as a company has created at least 3. We find that this is an important point to mention, since our criticism section talks about the distribution of the cryptocurrency amongst its founders, which could potentially created complicated incentives within the company. Ripple’s CEO is Brad Garlinghouse, he’s worked at executive levels at AOL, Yahoo, SBC, and act as CEO of Hightail, and Dalpad Communications. Brad currently owns 6.3% of Ripple, making his net worth a considerable $9.5 billion dollars. Chris Larsen is a Silicon Valley venture capitalist, he helped co-found Ripple, as well as multiple FinTech related companies such as E-Loan, OpenCoin, and Prosper Marketplace. Jed McCaleb, is well known for creating largest Bitcoin exchange ever by volume of BTC, the now defunct (hacked after McCaleb sold the company to Mark Karpeles). Jed is now worth $20B from his Ripple’s token and is on the top 40 richest people on the world. Mt Gox The Investors Ripple has a series of renowned technical investors in silicon valley and worldwide, including Google Ventures Andreessen Horowitz CME Ventures Accenture Santander Needless to say the Board of Directors is equally as impressive, and extremely well connected in the financial and banking sectors. How to Buy As one of the largest tokens, Ripple is readily available in a multitude of exchanges. From , the exchanges that trade Ripple are: their website (XRP/USD,EUR,BTC) Bitstamp (XRP/USD,EUR,BETC) Kraken (XRP/KRW,BTC) CoinOne (XRP/MXN,BTC) Bitso (XRP,JPY,BTC) Coincheck (XRP/KRW) Korbit (XRP/BTC) Qryptos (XRP/JPY) Bitbank (XRP/USD,EUR,BTC) Bitsane (XRP/AUD,BTC) BTC Markets (XRP/EUR) LikeBit (XRP/THB) Bitcoin Co Ltd (XRP/USD,JPY,CNY,EUR,,BTC,ETH) Gatehub (XRP/BTC) Bitcoin.co.id : different exchanges have different authorization stages, so in some it may become much more difficult to obtain Ripple or other currencies to ultimately obtain Ripple. Note Criticisms Business Decision Criticisms The amount of Ripple tokens that the cofounders have decided to reward themselves with has been heavily obfuscated by the company. Two of the founders are now billionaires, and one is the 10th wealthiest man in the world now. That money does not come from sales, but instead from the expectation that people have in how the cryptocurrency will behave. In order to mitigate this situation, the founders decided to escrow a large portion of their funds. This way the money will be frozen until certain events trigger the smart contracts to pay the founders. with this, hacking incentives to unlock these smart contracts could create incredible greedy situations. Just think about this, what would you do if you knew you are technically the 8th wealthiest people on earth, how far would you go to protect that investment? Even In May of 2015, the United States’ Financial Crimes Enforcement Network fined Ripple $700,000. “Ripple Labs willfully violated several requirements of the Bank Secrecy Act (BSA) by acting as a money services business (MSB) and selling its virtual currency, known as XRP, without registering with FinCEN, and by failing to implement and maintain an adequate anti-money laundering (AML) program designed to protect its products from use by money launderers or terrorist financiers. XRP II later assumed Ripple Labs’ functions of selling virtual currency and acting as an MSB; however, like its parent company, XRP II willfully violated the BSA by failing to implement an effective AML program, and by failing to report suspicious activity related to several financial transactions.” — FinCEN fines Ripple, through an immediate release found . here Technical Criticisms As mentioned in the above explanation of how Ripple works, XRP merely acts as the intermediary currency between cross-border ledgers to settle assets for the various banks. Initially this started off as a very centralized version of their consensus protocol with only Ripple as a validator and every transaction was verified by them. However in an effort to decentralize the trust-validation of the currency, they have started to slowly add other validators to the network and begun to dismantle the validators that they control. However this does not mean that the control over the currency is decentralized! Since Ripple (the company) controls the majority of the XRP supply, the power of usage with the currency is very centralized in the company and they control the pricing by controlling the demand/supply market. Conclusion No matter what happens, Ripple will have a formidable story. It will either become one of the largest financial assets in the next decade, or it will have an incredible implosion and hundreds of millions of dollars will be lost to competitors, corruption, unsolved technological challenges, unused technologies, or a combination of all of these. We are not sure what the future will be, but we will definitely be watching with excitement what happens in this space. We hope this review gives you enough information to start doing your own research in the token, and your own decisions. Certainly one of the most interesting stories, and an incredible series of partners, clients, and team members. 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