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Ryan Fugger founded a company he called RipplePay in 2004. The core idea behind the protocol was a peer-to-peer trust network of financial relations that would replace banks.
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Ripple is a real-time gross settlement system, currency exchange and remittance network created by Ripple Labs Inc., a US-based technology company. Released in 2012, Ripple is built upon a distributed open source protocol, and supports tokens representing fiat currency, cryptocurrency, commodities, or other units of value. Ripple enables secure, instantly and nearly free global financial transactions of any size with no chargebacks. The ledger employs the native cryptocurrency known as XRP.
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The company challenging the dominance of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) by presenting Ripple's XCurrent messaging technology through the creation and development of the Ripple protocol (RTXP) and the Ripple payment/exchange network. Using the technology, running a server on Ripple was comparable to the energy needs of running an email server.
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In April 2013, OpenCoin received $1.5 million in funding from Google Ventures, Andreessen Horowitz, IDG Capital Partners, FF Angel, Lightspeed Venture Partners, the Bitcoin Opportunity Fund, and Vast Ventures. This was the first in many rounds of venture funding and it included some of the most respected venture-capital companies in the world.
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In September 2016, Ripple raised $55 million in funding in a round lead by Japan’s leading online retail stock-brokering company, SBI Holdings (8473 JP). SBI acquired a 10.5% stake in Ripple. SBI and Ripple have set up a joint venture, SBI Ripple Asia, which is 60% owned by SBI and 40% owned by Ripple. The company is hoping to provide a settlement platform using Ripple’s “distributed financial technology.
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On 4 January 2018, the Ripple (XRP) price reached a high of $3.31, an incredible gain of 51,709% since the start of 2017. This represented a market capitalization of $331 billion, putting Ripple’s valuation in the same league as Google, Apple, Facebook, Alibaba, and Amazon — the largest tech giants in the world.
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Ripple’s vision is to realize the Internet of Value. IoV means to use the Internet for monetary transactions the same way as it is used today to exchange information- quickly. The main reason this technology is being developed is that the current international payment systems (e.g SWIFT) are slow and expensive.
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Traditional means are slow because there is no direct connectivity between transacting parties so factors such as tractability and timing are a black box to the participating banks, businesses, and consumers. There is also the lack of standards between different networks that need to be connected for a single global payment to work.
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There are expensive because of the above reasons but the key burden comes from the need for pre-funded accounts. Simply put, banks need to hold a lot of cash in different currencies to be able to support transactions between currencies.
- All banks do is make and receive loans. A bank deposit is a loan to the bank from the customer.
- A payment from Bob to Alice in the traditional banking system is simply an update to their respective loan balances to the bank, with Bob’s loan to the bank declining slightly and Alice’s increasing slightly.
- RipplePay held that one could replace banks by creating a peer-to-peer trust network in which individuals could directly loan each other, and alterations to these loan balances enable payments.
- Payments, then, are simply updates to these loan balances, provided the system can find a path of relationships from the payer to the recipient.
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Ripple released its XRP coin in January 2013. Like Bitcoin, XRP is based on a public chain of cryptographic signatures, and therefore did not require the initial web of trust or gateway design. XRP could be sent directly from user to user, without the gateways or counterparty risk, which was the method used for all currencies on Ripple, including USD. Ripple perhaps intended XRP to be used in conjunction with the web of trust structure for USD payments — for example, to pay transaction fees. The company set the supply of XRP at a high level of 100 billion, with some claiming this would help Ripple prevent sharp price appreciation. Critics argued that the XRP token may not have been a necessary component of the network.
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The participants on the RippleNet are banks (looking to process payments), Payment providers (looking to supply liquidity), Businesses (looking to send disbursements) and Consumers (looking to send global payments).
The solution offers a cryptographically secure, end-to-end payment flow with transaction immutability and information redundancy. Rather than a constellation of disparate technologies, unstandardized communications, and centralized networks.
The main benefits for banks are the following:
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Access. Customer gains a single point of access into a global, decentralized network of financial institutions using standard rules, formats, and governance. Lowering costs for all players.
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Speed. The bank leverages on-demand, real-time settlements that enables them to transact in seconds instead of days. Speed is a major benefit in the eyes of the banks customers, you and me.
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Certainty. Risk of failure is lower as end-to-end visibility is increased. Each payment is traceable by exchanging transaction and fee information before payments execute.
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Cost. Banks reduce the total cost of settlements for every transaction by lowering processing costs and minimizing capital requirements for global payments.
- There are several companies presenting the same service to the market as of today. Among them Stellar lumens, OmiseGO and Nano can be enumerated.
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Ripple is changing that and offers technology that makes interbank transactions fast (4-seconds fast) and low-cost (est 60% lower).
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Instead of sending fiat currencies, banks will exchange XRP, the Ripple’s crypto, without the user ever knowing what happened.
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An example is MoneyGram. They use XRP for US/Mexico remittance payments. This requires smaller pre-funded accounts while being exposed to 1/10th the volatility of a typical fiat SWIFT payment.
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Banks join RippleNet to process cross-border payments in real-time with end-to-end tracking and certainty. Ripple cites that it has established a partnership with more than 300+ financial institutions for real-time, low-cost cross border payments.
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Some major companies using Ripple are Bank of America, American Express and Santander, SBI Holdings, MoneyGram, National Bank of Fujairah PJSC (NBF), MoneyMatch, Standard Chartered Bank (SCB), Westpac Institutional Bank and Bank of Australia, Royal Bank of Canada, UniCredit, Reisebank, ATB, National Bank of Abu Dhabi, UBS and etc.
- In conclusion, the ease of access, speed, certainty and the low cost of the developed technology makes sense to switch from the conventional means of transferring values to the modern one.