Ripple Labs: A Case Study
Overview and Origin
Name: Ripple Labs
Incorporated: 2012 (Was originally founded under the name OpenCoin, however this changed in September of 2013), Currently headquartered in San Francisco
Founders: Chris Larsen & Jed McCaleb
The central idea: Decentralized blockchain based payment network that uses consensus to validate transactions, opposed to the mining process employed by Bitcoin
Funding: Several venture capital firms participated in an "Angel Investing" round that allowed Ripple to begin operation. To date, there have been 7 rounds of funding, totaling $295 million. Currently, Ripple generates profit from it's XRP token, which is the native currency of RippleNet, Ripple's blockchain. Methods of profit generation from this token include selling the token on the open market, payment fees, investments, and interest fees from loans.
Business Activities
Purpose: Ripple’s primary utility is to provide retail consumers or larger corporate entities the ability to move money fast and exchange fiat currencies in a more convenient manner.
Users: Ripple is targeting both large financial institutions as well as the common retail investor. According to capital.com, "as of 12 April 2023, there were 4,559,305 wallets which held XRP". Also, according to altcoinbuzz.io, "Over 100 banks, financial institutions, and payment systems currently support XRP. In addition, PayPal added XRP to its list of supported currencies. This indicates how financial institutions take advantage of XRP’s payment options and see its potential." (Source 2 & 3)
Competitive Advantages: A faster network for lower fees. It can take days and be expensive to move money across borders under our current systems. For example, you need to move $1,000,000 to London quickly. The fastest way to traditionally accomplish this is to buy a plane ticket to the UK and put a briefcase loaded with bills in the overhead storage bin. Using the XRP token, that money can be moved in a matter of seconds. It takes an average of 3 seconds for a transaction to be validated on the Ripple network for 0.00001 XRP per transaction. It can also process 1,500 transactions per second. This is even faster than the Bitcoin network, which can handle a mere 7 transactions per second, which means it can take minutes to hours to validate a transaction. (Source 4)
Technologies implemented: RippleNet operates using a system referred to as a "Unique Node List (UNL)", which is comprised of over 150 validators. This differs from more conventional blockchain methods, such as proof of work or proof of stake. A transaction is only approved only when at least 80% of "trusted" validators agree on the transaction. According to Money.US.com, "Trusted validators are determined by Ripple Labs itself. "Ripple determines which validators are added to the default unique node list, and the Ripple organization accounts for six of the 35+ trusted validation nodes." (Source 5)
Landscape
Domain: Ripple Labs is a company that primarily operates in the domain of blockchain and digital payments within the financial industry.
Trends & Innovations: Ripple has succeeded in creating a suitable alternative to traditional money moving solutions. So much so that other financial giants are creating crypto alternatives. Paypal for example, recently created their own stablecoin. They believe "Fully-backed, regulated stablecoins have the potential to transform payments in web3 and digitally native environments." It is only a matter of time before other large peer to peer finance companies follow suit. (Source 6)
Relevant Competitors: Other major cryptos, Bitcoin and Ethereum among others present widely used, fast methods for exchanging currencies. The SWIFT Network is also a major competitor from the world of traditional finance. Currently, the SWIFT network is the predominant payment network and messaging system used by banks and large financial entities. This network is viewed by XRP enthusiasts as the "archaic" system RippleNet looks to replace.
Results
Impact: Ripple recently won a "half victory" against the SEC as the SEC alleged that Ripple was trading unregistered securities illegally. A judge ruled that XRP bought on the open market by retail investors are not securities. However it was also ruled that amounts of XRP sold to institutional investors directly by Ripple, did indeed violate securities laws. The crypto community saw this as a morale victory of sorts as it presented some clarification on what the United States government deems the identity of crypto to be.
Success by metrics: The XRP token on the RippleNet Blockchain is consistently among the top 10 market caps of cryptocurrencies. According to tracxn.com, "Ripple has 162 active competitors and it ranks 1st among them." (Source 1).
Performance: The recent ruling saw the price of XRP spike to 93 cents, a surge of 96%. As of this writing, the SEC has appealed the ruling which has effected public sentiment and currently the trading price of XRP is back down to 50 cents.
Recommendations
In my opinion, crypto's greatest innovation is decentralization. The most significant drawback of RippleNet is how centralized it is. Ripple determines which validators are trusted. Another great negative is the sheer amount of tokens. XRP's maximum supply is 100 billion. Half of the total supply is held by Ripple in an escrow account. This means Ripple can unload and dilute the supply of XRP at any moment which creates risk for greater volatility and negative value of the token. My recommendation would be to figure out some kind of alternate validator system. I realize this has widespread, fundamental ramifications, however a majority of users move to crypto because of the mistrust of centralized authority. In a word, the biggest issue with Ripple is trust. Ripple needs to provide more transparency to users and investors.