Where Did It All Begin?
XRP is a cryptocurrency: a digital asset that lives on a public ledger that can be transferred using digitally signed transactions. It was created in 2012 by Chris Larsen (Co-Founder of Ripple & Executive Chairman at Ripple), Jed McCaleb (Former Owner of Mt. Gox & Founder of Stellar) and Arthur Britto (Founder of PolySign and Co-Founder of Ripple). The total supply created was 100 Billion XRP, of which the founders retained 20%, and 80% was donated to Ripple Inc., whose original name was “OpenCoin”. This is where the “XRP is a security” debate stems from. To understand this further, we have to delve deeper into Ripple’s (the private company) history.
In 2004, Canadian engineer Ryan Fugger created a credit network called “RipplePay”. To this day www.ripplepay.com is still online, and it states: “The next version of the Ripple service is being developed at Ripple.com. It uses the principles of Ripplepay.com to create financial services that provide secure payment options to members of an online community via a global computer network through the use of traditional currency and virtual currency”. Although the original vision worked differently, it was an impressive innovation at the time. Therefore, Larsen, McCaleb, and Britto who were all running separate Silicon Valley startups at the time, decided to join forces and meet with Fugger to discuss taking over RipplePay. This was when OpenCoin Inc. was founded.
Raising money was an issue at the time as ICO’s were still unheard of. That’s why they pursued funding from usual routes, two angel rounds and one seed round from multiple investors (including Google Ventures). However, the total amount raised was 9 Million USD, which was a small amount for a Silicon Valley company. That is why, to fund themselves, they gifted the company 80% of the entire XRP supply (which barely had value at the time). They then changed the company’s name from OpenCoin to Ripple.
XRP was created to serve a specific purpose, optimising payment speeds. Offering solutions for fast, scalable and cheap payment networks. The XRP ledger allows payments to be settled in 4 seconds, whereas Bitcoin requires an hour to process a payment on its network. The ledger can process 1,500 transactions per second on-chain.
Is XRP a Security?
The last two statements are the reason behind the debate around XRP being a security. If it is deemed a security, it becomes taxable, only tradable on regulated exchanges and subject to traditional securities laws. All of which will limit the technology. The SEC has, however, remained quiet on the matter to this day. It is worth noting that the SEC is not obligated to comment at any point in time, this issue was only raised because of a few lawsuits from plaintiffs that bought XRP at the highs and are now in a loss.
The SEC has the “Howey Test” that they use to determine whether the asset in question is a security or not. It’s a series of four questions:
- Is it an investment of cash (or cash equivalents)?
- Is there an expectation of profit from the investment?
- Is the money invested in an entity such as a corporation or project?
- Do profits from the investment come from the effort of a 3rd party, i.e. the corporation?
The problem faced with these questions is that all answers are somewhat ambiguous.
Ripple has built an impressive team. CEO Brad Garlinghouse was previously CEO at Hightail, President of Consumer Applications at AOL and SVP at Yahoo. Ripple’s CTO, David Schwartz, is a very respected figure from the crypto-community, David Schwartz. Previous to this role, he was the CTO at WebMaster and had also developed secure cloud storage solutions for CNN and the NSA (National Security Agency). They also have Zoe Cruz on their boards of directors, who was co-president of Morgan Stanley from 2005 to 2007 and Gene Sperling who served as National Economic Council Director under Clinton’s presidency. These members of the company make it highly reputable.
What Solutions Are Ripple Looking To Solve?
The problem Ripple is solving is cross-border payments. Today these are served by SWIFT, a messaging system that no longer meets the standards of the digital age. It will inevitably be replaced by newer technology, regardless of whether that will be a development from SWIFT themselves or another company.
Ripple may have the upper hand as they have created an extensive network of international banks and payment providers, forming RippleNet. They offer them three products: xVia (standard access), xCurrent (full access) and xRapid (access on-demand liquidity with digital assets).
As far as XRP is concerned, the only product we’re interested in is xRapid. There are currently four customers signed to the product: Cuallix, Mercury FX, Viamericas and IDT. All four are non-banking financial institutions. When researching these companies, transfers prices and settlement times reflect the misuse of the product. Four exchanges provide liquidity tools for
xRapid: Bitso for Mexican Dollar, Bittrex for USD, coins.ph for Philippine Pesos and SBI Virtual Currencies for JPY. Although SBI VC’s release has been delayed to July 2019, and so this corridor is not yet currently in use.
Once these non-bank financial institutions start using the product they signed with, it will directly reflect on the price, hence, we can imagine what it will do once banks start to use it regularly.
Why these 4 customers have not yet integrated the product, is a question with no official answer. But one opinion is: In mid-September (18-21) we saw XRP rise 150%+. In that same time period, Ripple announced that xRapid will be launched live in the next month or so. The move was unique to XRP in the market, and it could have been alive pilot over a short period to check usability and effect on price. Seeing that the price rose dramatically, they need a strategy for it to remain sustainable and not too volatile for settlements.
Additional XRP Use Cases:
Xpring: Ripple’s new initiative to encourage entrepreneurs to use the XRP ledger to alleviate customer issues.
Coil: Founded by Ripple’s former CTO Stefan Thomas. Coil is a business that facilitates web monetisation and paying creators for their content. The web is filled with highly selective ads that are designed to monetise off our personal internet experience, and our browsing data is often sold to the highest bidder. To this day, this is the only way to make websites profitable ventures. We can, of course, pay a fee to remove ads but it’s a long process for each site. Coil has taken the next step in internet payment technology. Users pay a monthly flat subscription fee, and whenever they visit a partner website, the content creator is reimbursed with a small fee sent with each visit with no need of a bank account or specific currency. In return, the creators reward the users with a smoother and richer experience. So far, Coil has been integrated into both Twitch and YouTube.
xRapid: Ripple seems to be solving present payment problems on almost all scales. The particularly exciting product they offer is xRapid. A solution leveraging blockchain technology and the features of the XRP ledger. Adoption has started with major banks and payment providers partnering with Ripple to potentially adopt their products. It cuts fees and increases their speed.
Moreover, we have also seen the XRP ledger being capable of solving a much more diversified range of problems, such as helping content creators capitalise on their content itself instead of turning to sponsors.