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Ripple was not always the company we know today, and has had a tough time hiding the scars caused by the discord between two of its founders. But the business is moving on with an impressive customer base and big-name investors behind it, and is much more than just a cryptocurrency.
‘Ripple is focused on fixing the inefficiencies and problems that exist in cross-border payments, regardless of whether these payments originate with a bank, corporate or other financial institution.’ - ripple
You could be forgiven for believing ripple is centred on XRP - commonly referred to as a cryptocurrency, but the company would prefer you called it a ‘digital asset’.
The company is actually based around its global payments network, RippleNet, which has been designed for the big banks and financial institutions that other cryptocurrencies are trying to undermine.
While XRP enhances the software by acting as a bridge between traditional ‘fiat’ currencies, providing liquidity and speeding up cross-border transactions, it is not essential to the network and doesn’t have to be used.
Find out more about ripple.
Before the formation of modern-day ripple, a web developer with a particular interest in decentralised systems named Ryan Fugger founded the ‘original’ ripple project in 2004 with the ambition of creating a ‘new kind of monetary system based on the trust present in our ordinary social and business relationships’.
‘Money as we know it is made from promises, specifically bank promises, in the form of bank account balances. Ripple's goal is to make your promises as useful for paying people as bank promises are.’ – Ryan Fugger.
Fugger’s concept came to fruition in 2005, when RipplePay was launched as a financial service to allow users to extend credit lines to their friends, family, and associates as well as make secure payments in traditional and online currencies.
Fast-forward to 2011, this trio began developing McCaleb’s vision for a better bitcoin. OpenCoin was to be a digital currency system that was based on transactions being verified by consensus among its users, rather than by the mining process used by bitcoin.
McCaleb was already known in certain circles, partly for creating decentralised peer-to-peer file sharing network eDonkey. However, he was best known for creating the now-defunct Mt Gox, which was at one point the world's largest bitcoin exchange.
In 2012, McCaleb brought in Larsen, whose previous creations proved to be much more resilient. Larsen co-founded E-Loan, the pioneering mortgage processor that was one of the first online lenders, after launching in 1997 bang in the middle of the dotcom bubble. In 2006 he co-founded Prosper, America’s first ever peer-to-peer lending marketplace.
E-Loan went public in 1999 (and was valued at over $1 billion by 2000), before being bought out in 2005 by Puerto Rico-based commercial bank Banco Popular for $300 million, when Larsen left. It then transitioned into a deposit and loan referral business, before becoming a division of Banco Popular’s BPPR, where it still operates as an online lender. Prosper has now lent nearly $11 billion since formation, up from $7 billion at the end of 2015.
It may appear that regulators around the world are wary of cryptocurrencies because, like many, they have only just started getting to grips with them. But Tokyo-based Mt Gox, handling 150,000 bitcoins per day at its peak, set off warning sirens back in 2014 when its CEO, Mark Karpeles, who purchased the exchange from McCaleb in 2011, plunged Mt Gox into bankruptcy after hackers stole 850,000 bitcoins that were worth about $450 million at the time.
This saw some call for more regulation and decry the lack of a central authority, while some put it down to Mt Gox being a poorly run operator, not the weakness in bitcoin itself.
At around the same time as Larsen was being brought up to speed, the OpenCoin trio approached Fugger with their idea in 2012. After creating RipplePay, Fugger unfortunately caught a viral infection in 2001, which led to the chronic health issues that he still deals with to this day.
Speaking to IG, Fugger explained how his concept for the network exchange system and McCaleb’s determination to build a better bitcoin came together.
‘Jed, David, and Arthur were working on OpenCoin when they approached me in 2012. They were just bringing Chris on board around then. They wanted to carry on the ripple project, since my work on it had stagnated, and they were implementing my concept of routing payments through a mutual credit network on a new kind of blockchain. I agreed.’
‘OpenCoin started as Jed's vision for a better bitcoin that didn't need to use up all that energy mining. It was only XRP at first, and later they added on trust lines and multihop payments (i.e. my concept) on top as some of the cool, important features they felt a second-generation blockchain should have.’ – Fugger.
McCaleb, Larsen and Britto (who is thought to still be featuring in the background) started operating their blockchain in 2012, with Schwartz as developer (he is still chief cryptographer to this day). XRP was fully incorporated into OpenCoin by 2013, and designed to act as a bridge between multiple different currencies – making it more of a settlement, or remittance provider, than a cryptocurrency.
XRP, in the wider cryptocurrency world, has been a clear outlier since inception. Bitcoin must be mined like gold, and there will only ever be 21 million created, with about 16 million in circulation at present. Meanwhile, all of the XRP that will ever exist has already been made.
While the jury is still out over whether bitcoin is a currency or like a commodity, such as gold that stores value (the volatility doesn’t help either case), ripple hopes XRP will be used by financial institutions to manage and speed up their cross-border transactions, using their network.
There will only ever be 100 billion XRP, and all of this already exists – with ripple holding the vast majority, thought to be about 61 billion. This means ripple controls the supply of XRP compared to other cryptocurrencies, which see supply dictated by the amount that is mined and the flow of trade.
This is where the story unfortunately turns rather sour. McCaleb left the project in 2013, after his vision for the future of the business failed to win support from the other members. He went on to create his current venture, Stellar, a ‘non-profit’ that spun-off to make the Stellar network (which is independent of the company), and its own ‘native asset’, Lumens, originally named Stellars.
The founders controversially awarded themselves 20 billion XRP at inception, and that is included in the 38 billion-or-so XRP thought to be in circulation today. McCaleb took his XRP with him when he left, and to avoid the risk of flooding the market, he and the company came to an agreement that governed how much he could sell on a monthly basis. McCaleb also sold off his stake in the company itself. That wasn’t the end of the disputes, however, which eventually led to lawsuits.
On December 7, 2017, having been a ‘responsible steward’ of XRP for five years, ripple placed 55 billion XRP in cryptographically-secured escrow account to create certainty of XRP supply at any given time. Up to 1 billion XRP can be released per month, but on average it has only sold 300 million per month since the middle of 2016.
Larsen is reported to hold 5.19 billion XRP and a 17% stake in ripple. He was briefly worth almost $60 billion in early January 2018 when XRP hit its peak, and was the fifth richest person in the world (taking over the likes of Facebook’s Mark Zuckerberg) before quickly dropping down to about fifteenth, worth closer to $37 billion.
Brad Garlinghouse (see below) is thought to own a 6.3% stake in ripple, plus XRP that reportedly valued him at $10 billion (when Larsen was worth $37 billion).
McCaleb’s reported holding of 5.3 billion XRP is held in escrow under agreement with ripple, limiting the amount he can sell per annum for seven years, with the allowed volume growing each year. He is thought to have sold his entire bitcoin holding to help fund the set-up of ripple. Separately, he is thought to now own about 1 billion of Stellar’s Lumens.
Fugger told IG he holds a ‘small amount of XRP’, which he has bought over the years. He did not receive any special allocation like the others.
’Bitcoin showed us what is possible, but it’s not going to solve every use case.’ – Garlinghouse.
Garlinghouse joined ripple in 2015 as president and chief operating officer, before taking over from Larsen as CEO at the start of 2017. Before taking over at the helm of the business, with Larsen having moved to the role of executive chairman, Garlinghouse had more than tripled customer adoption of ripple.
Beforehand, Garlinghouse became the CEO of cloud-based file collaboration service Hightail in 2012, when he refocused the business on file sharing and remote document access, to put the company up against big players like DropBox. However, Garlinghouse’s career spans back much further, having been president of consumer applications at AOL from 2009 to 2012, while also holding numerous positions at Yahoo! between 2003 and 2009.
More than 100 financial institutions have joined RippleNet, over 80 of which are banks operating around the globe, including MUFG, Credit Agricole, Bank of America, Mizuho Financial Group and Santander. However, uptake of XRP has been slower. Cuallix was the first institution worldwide to pilot XRP as a liquidity tool, to lower the costs of payments from the US to Mexico, with MoneyGram following suit more recently.
With ripple a clear outlier in the cryptocurrency space, by catering its network to the needs of big banks and financial institutions, it is unsurprising that it has some substantial backers.
In the earlier days when it was still OpenCoin, the company secured investment from the likes of Alphabet’s Google Ventures, Andreessen Horowitz, IDG Capital Partners and Jerry Yang's AME Cloud Ventures.
Since rebranding itself as ripple, it has welcomed further notable backers, including Standard Chartered, Accenture Ventures, SCB Digital Ventures, the venture arm of Siam Commercial Bank and SBI Holdings. Additional investors include Santander InnoVentures, CME Ventures, Seagate Technology and Venture 51.
Ripple has raised $93 million in total, with the latest round in September 2016 supplying $55 million of capital.
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