Imagine being able to send money the same way you send email -- with no cost and no delay, even to recipients across the globe. That's the vision the folks at Ripple Labs (formerly OpenCoin) have for money, and the realization of this vision could prove to be a real game-changer for transactions between buyers and sellers who use different currencies.
By now, most people have at least heard of Bitcoin -- the biggest name in digital currency -- even if they don't quite understand how it works. Bitcoin has accumulated quite a large amount of notoriety over the past couple of years. Some of this attention is due to Bitcoin's dizzying price fluctuations; some is owed to its association with shady transactions that are facilitated by its anonymity. But there's another major player in the digital currency game that people should learn about. This player is called Ripple, with an uppercase "R" used to denote the protocol and a lowercase "r" used to denote the currency itself, which is also referred to as XRP.
Whereas Bitcoiners tend to focus on the currency unit, Ripple positions itself more as a system for clearing transactions free of transaction fees and delays. Ripple Labs created the Ripple protocol as a free way to move money across the globe using the power of the Internet. Ripple offers an explanation of what it means by "the future of money" in this video and with more technical details in this longer video:
Like Bitcoin's digital currency, which is limited to 21 million coins, Ripple Labs has set a cap on its digital currency, though theirs is much higher at 100 billion. Another feature the two have in common is irreversible transactions, which -- along with the lack of fees -- makes digital currency more appealing to merchants than traditional credit card payments. However, unlike Bitcoin and some of the coin systems that copy the same model, ripples are not released through computer mining. Instead, they are held by Ripple Labs.
In place of mining, Ripple confirms transactions through "consensus," which offers two key advantages. One is a major savings of electricity, as mining (at this point, when Bitcoin values hover around $500) consumes massive amounts of computer processing power. The second is much faster clearing. Ripple is designed to facilitate the transfer of money from any form of currency and to clear transactions in just five seconds, as opposed to the ten minutes (minimum) required for Bitcoin transactions to clear through the blockchain.
To clarify the exact figures and percentages involved in Ripple Labs' holdings, I contacted Michael Azzano, whose company represents Ripple Labs. He said that the founders of Ripple Labs retain 20% of all the ripples and the entity of Ripple Labs "retains 25% of XRP created to fund daily operations (through trading XRP) and distributes from the remaining to market makers, partners, and gateways to seed liquidity." The rest are put through the organization to eventually make their way into circulation.
Azzano also explained that, although XRP currency is given less of a starring role than we see for Bitcoin, it is "a functional part of the protocol that helps prevent attacks and serve as a universal currency for real-time FX trading." As the "Babelfish of money," it works as a "universal translator" for all currencies, whether they are fiat, digital, or even rewards like miles.
Ripple Labs has made progress toward its goal of realizing a "global value web" that operates "like today's information web," enabling money to be sent as quickly, easily, and freely as email. Among its milestones are making it into the mainstream in May when Fidor became the first bank to being using Ripple to move money. Another milestone was making inroads into seven countries in Latin America through a partnership with AstroPay in June.
Andres Bzurovski, founder of Ripple LatAm, observed, "Ripple LatAm effectively opens the region for business, allowing for real-time B2B cross-border payments between markets in each partner's currency of choice." As a simple example, a business located in the EU can now send payment to a business in Brazil without the delays and fees typically imposed by financial institutions for such transactions. Such seamless pathways for money can really speed up transactions along the global supply chain and even open up new opportunities for small businesses abroad to gain access to overseas customers without crushing fees or interruptions to cashflow.
While Ripple is gaining momentum, it doesn't garner visibility in the same way as Bitcoin because it is designed to work within the larger framework rather than force people into a closed system of digital currency. As Azzano puts it, "For many consumers, Ripple could become an invisible brand upon which their money moves, but they never know it because they interacted with better known banking brand names as the end points."
This means that -- although you're not likely to see "We accept Ripple" signs in the same way you see Bitcoin signs -- you may still end up using the Ripple protocol, especially for transactions between buyers and sellers who use different forms of currency. This is where Ripple could prove to be a real game-changer.