Key points
- Ripple is a blockchain project launched in 2012 that runs on the XRP Ledger network. Transfers and settlements use its native cryptocurrency, XRP.
- Ripple aims primarily at financial institutions and aspires to be an alternative to existing interbank systems such as SWIFT.
- Ripple Labs, which stood at the project’s origins, denies involvement in issuing XRP. For several years the company has faced lawsuits in the United States from investors alleging sales of unregistered securities.
Who created Ripple, and when?
Ripple was founded by American programmers Jed McCaleb and Arthur Britto, and cryptographer David Schwartz. The core concept belongs to Canadian programmer Ryan Fugger. After studying the Vancouver chapter of a local exchange trading system in 2004, Fugger became interested in building a decentralised payment system. In 2005 he launched the first iteration, RipplePay.com, which did not gain wide adoption.
In 2011 Fugger handed one of the company’s key management roles to Jed McCaleb. McCaleb brought in David Schwartz and hired Arthur Britto as business development manager.
In 2012 McCaleb founded OpenCoin, appointing American entrepreneur Chris Larsen as CEO, while Fugger exited the project. In 2013 OpenCoin was renamed Ripple Labs. The company’s current chief executive is Brad Garlinghouse, who succeeded Chris Larsen.
McCaleb left Ripple Labs in 2014 and founded Stellar. Under an agreement with the team, he received 9 billion XRP—18.6% of total supply. The funds were paid out in tranches over the next eight years; his last sale occurred in July 2022.
How does the XRP Ledger work?
The Ripple ecosystem runs on the decentralised XRP Ledger (XRPL). Its touted advantages include high speed (average block time of 3–4 seconds) and low transaction fees.
According to the official site, the XRP Ledger suits microtransactions in apps, NFTs and deploying DeFi protocols, as well as issuing stablecoins and CBDCs. XRPL also supports tokenising “traditional” assets such as securities or fiat money.
The primary developer of XRP Ledger is the non-profit XRPL Foundation, founded in autumn 2020. Notable users of the blockchain include the processor BitPay, custodian BitGo and the platform for building blockchain games, Forte.
The network uses its own consensus algorithm, the XRP Ledger Consensus Protocol.
XRP Ledger runs on nodes operated by validators. As of 16 August 2022, the network had more than 130 active validators, 35 of which were on the so‑called Unique Nodes List. This group is responsible for activating protocol amendments. The current state of the network can be viewed on XRPScan.
What is the cryptocurrency XRP?
XRP is Ripple’s native coin. One XRP is divisible into one million units called drops. The supply is 100 billion, all of which were issued at network launch: Ripple Labs received 65% of all XRP in an escrow account, and 35% entered circulation.
XRP can be bought on most exchanges and trading platforms. Transfers require, in addition to a recipient address, a destination tag generated in the wallet. Most popular multi-asset wallets support storing and transacting XRP.
XRP is used by large clients among financial institutions for transfers via payment bridges and is the unit of account in Ripple’s interbank messaging system, RippleNet. Staking for XRP is not provided.
The price of XRP for individual investors is set on exchanges through open trading. The current rate can be checked on aggregators such as CoinGecko or CoinMarketCap.
Ripple Labs, which holds substantial reserves, sells large volumes of XRP to corporate clients. According to a report published in May 2022, total coin sales for Q1 2022 and Q4 2021 were nearly $1bn. At the same time, Ripple Labs bought $1.4bn of XRP.
What is RippleNet?
Ripple Labs’ flagship product is RippleNet, a global network for cross-border financial operations used by banks, payment services and other financial organisations. RippleNet provides messaging, clearing and settlement of financial transactions in real time.
RippleNet launched in 2019, combining three of the company’s core products:
- xCurrent is a cross-border payment processing solution integrated into banking infrastructure. It improves the efficiency of traditional payment-messaging formats while matching security standards and regulatory requirements.
- On-Demand Liquidity (ODL) is a service that provides liquidity for fiat transactions. For international transfers, banks typically hold various local currencies. ODL lets them free up this capital by converting fiat into XRP—the cryptocurrency acts as a “bridge” for the payment. First, a bank’s base currency is exchanged for XRP; after the transaction is processed, the receiving bank converts XRP into its local currency. This product was previously called xRapid.
- xVia is an API designed to make it easy to use components of the RippleNet ecosystem. It requires no installation, functioning as a browser extension, and can be integrated into existing software.
ODL, in particular, can increase demand for XRP from financial institutions. In 2021, annual payment volume via ODL rose almost eightfold from the previous year to $15bn. The Asia-Pacific region leads in ODL usage.
How is the Ripple ecosystem developing?
According to Ripple.com, Ripple Labs provides commercial services to hundreds of companies in more than 50 countries. Notable clients include Australia’s National Australia Bank (NAB), Canada’s Canadian Imperial Bank of Commerce (CIBC), Japan’s SBI Holdings and Egypt’s National Bank (NBE). As of October 2021, more than 300 financial organisations belonged to RippleNet.
Ripple Labs is not limited to cross-border payments. In early 2022 the company announced Ripple Liquidity Hub, a crypto service for institutional clients designed for trading and custody of Bitcoin, Ethereum, XRP, Litecoin, Bitcoin Cash and Ethereum Classic.
In March 2022 Ripple Labs announced 1 billion XRP in grants for developers, and a $250m fund for digital artists and creators in the non-fungible token (NFT) space.
SEC versus Ripple Labs
Several years into operations, Ripple Labs began to distance itself from XRP. In July 2018 the project’s website published a post presenting the coin as a “digital asset independent of Ripple”. At the same time, the XRP distributed-ledger community rebranded the logo and succeeded in changing the trading ticker from Ripple (XRP) to XRP (XRP) on crypto exchanges and services.
The company’s leadership embraced the initiative. Chief technology officer David Schwartz said that the company was building a payment system and had nothing to do with creating the XRP cryptocurrency, having received it from the project’s founders.
According to reporting by Cryptobriefing, Ripple Labs sought thereby to avoid prosecution for trading unregistered securities—a category that could have encompassed XRP.
Despite these efforts, by August 2018 the company was defending itself in court against four class actions from investors over alleged sales of unregistered securities.
In the view of Jake Chervinsky, a lawyer and head of policy at Blockchain Association, waiting for those cases to play out was why America’s Securities and Exchange Commission (SEC) did not step in immediately.
In December 2020, however, the SEC filed a lawsuit against Ripple Labs, alleging that over seven years the California blockchain company sold unregistered securities in the form of XRP to retail investors. Ripple CEO Brad Garlinghouse and co-founder Chris Larsen were also named as defendants. As of mid-August 2022, the SEC’s case against Ripple Labs remained unresolved.