The Ripple Effect

Posted on October 07, 2019

By Natalie Lord

Ripple is a real-time gross settlement system that also supports fiat currency, cryptocurrency, and commodity exchanges and remittances, amongst other units of value like frequent flier miles or mobile minutes. The cryptocurrency of the platform are Ripples and use the abbreviation XRP. Ripple was created by Ripple Labs, a US-based technology company, in 2012.

Ripple relies on a common shared ledger, which is a distributed database that stores information about all Ripple accounts. The network is managed by a group of independent validating servers that continuously compare transaction records. The servers could belong to anyone from banks to market makers. Ripple validated accounts and balances instantaneously for payment transmission and delivers payment notifications within a few seconds. Payments are irreversible and there are no chargebacks.

Increasingly, Ripple has been adopted by banks and payment networks as settlement infrastructure technology because of the payment speed within the network, stability of the technology, and the ability to use its coin as a bridge currency. At present, more than 200 organisations use Ripple including Santander Bank, UBS, UniCredit, American Express, Itau, Standard Chartered and CIMB Bank.

Ripple was conceived by Jed McCaleb and built by Arthur Britto and David Schwartz. Once created, they approached Ryan Fugger who had unveiled a financial service in 2005 to provide secure payment options to members of the online community via a global network. Fugger’s system was called OpenCoin and it is this which transformed into Ripple. The company then went on to create its own digital currency, XRP. As of December 29 2017, XRP was the second-largest coin with a market capitalization of US$73 billion.

In 2014, Ripple Labs started working with Earthport, the global payments service. Ripple combined its software with Earthport’s payment services system. The partnership marked the first network usage of the Ripple protocol.

In February of the same year, Ripple Labs was also named as one of the 50 Smartest Companies in its edition of MIT Technology Review because of the creation and development of the Ripple protocol (RTXP) and because of the Ripple payment/exchange network. Two researchers from Stanford and Stockholm University carried out a scientific study that looked at the production of money from an energy consumption perspective and at a macroeconomic level. They reported that running a server on Ripple was comparable to the energy needs of running an email server.

But it hasn’t all been plain sailing for Ripple. In May 2018, a class-action lawsuit was filed against them. It alleged that Ripple led a scheme to raise hundreds of millions of dollars through unregistered sales of its XRP tokens, creating billions of dollars out of thin air and then profited by selling them to the public in what was termed as: “a never-ending initial coin offering.”

There were 100 billion XRP created at Ripple’s inceptions, which according to protocol rules, is the cryptocurrency’s cap. Of that 100 billion, 20 billion XRP were retained by the creators whilst the balance was given to Ripple Labs to sell.

In tragic news, on his passing in 2018 Matthew Mellon, an American businessman and descendent to Judge Thomas Mellon the Founder of Mellon Bank of the US, left behind the mystery of the missing Ripple. It is estimated that he owned at least US$500 million of XRP when he dies. Mellon said he kept the digital keys to his XRP locked in cold storage in other people’s names at various locations around the US. To date it is unclear whether that Ripple has ever been discovered.

 

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