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Ripple is an online global payment network through which transactions can be made in any currency at low cost. Its simplified definition is “free paypal”. 1 Ripple does so by making use of existing trust relationships. Currently, the payment systems dominating the market rely on banks. Simply said, a bank’s business is built around the trust that it can issue and repay debt. 2 Ripple allows its users to act as a bank and create a chain of IOUs. Ripple can therefore be considered a form of mutual credit, but with an interesting twist, which is that credit is extended only between friends or trusted parties, not between individuals and the community.

Ripple was invented by Ryan Fugger and inspired by LETS’ creator Michael Linton. 3

In its current incarnation it is owned by Ripple Labs, previously known as Opencoin, and financed by some major companies and investment funds, including Google Ventures and IDG. One of the second generation developers of Ripple is Jed McCaleb, who is also the founder of Mt. Gox, and has recently left Ripple to found a fork of the idea and software called Stellar 4.

Ripple introduced its own currency, XRPs, which can easily be compared with Bitcoin. As a security measure, a small amount of XRP is asked for every transaction. 5 Ripple was welcomed as an interesting innovation in payment systems but is also being treated with some suspicion 6.

Ripple records IOUs between people who already know each other. Users can only send XRPs without the need of having a chain of trust 7. When your credit lines don’t suffice to make a transaction or when you want to repay a debt it’s possible to transact real money to your Ripple account 8. This is possible by the use of gateways. One can send money to a Ripple account by sending money to a gateway, the gateway will then send it to the Ripple account 9.


The primary communicated goal of Ripple, is to make payments faster, easier and cheaper 10. Ripple enables anybody to take on the role of a bank and move money through a network of people who the users’ trust. Ripple can potentially facilitate a system in which interest free money is used. It’s built to revolutionize the way we transfer money and give a significant boost to the burgeoning trade in and through digital currencies 11. Bloomberg Businessweek even stated that Ripple has the potential of being a world-changing concept 12. Furthermore, the ease with which users can start a gateway leads to Ripple being non-dependent on a few gateways 13.

But Ripple is criticized by some commentators for some of its values. In contrast to Bitcoin, the supply of XRPs is centralized. Ripple Labs has announced that it will ultimately create 100 billion XRPs. Ripple Labs will keep half of them for itself and will release the other half on the market 14. If the value of XRP rises Opencoin wants to use this profit to invest in Ripple. It’s already questioned if Ripple has fair giveaways 15.

This strategy has caused discussion inside the cryptocurrency communities 16. Ripple is accused of being a concept to make a lot of money by using the current hype around cryptocurrencies, and by devaluing Bitcoin. Ripple Labs has stated that Ripple wants to be complementary to Bitcoin and in a broader sense complementary to the wider financial system 17.

In addition, Ripple presents itself as open-source, in order to be transparent and have a secure system, but at present it isn’t 18. Ripple Labs has confirmed that Ripple will become open-source in the future, although no exact date has been fixed 19. Some commenters and user in the cryptocurrency community have their doubts as whether the intentions of Ripple are honest and whether Ripple will work efficiently and securely 20.

Community Overview

Ripple’s main user base is in the USA. Currently, only the early adapters of cryptocurrency have shown interest in Ripple. In October 2013, Ripple had almost 25,000 users 21. In comparison, it’s estimated that Bitcoin had around 60.000 users in 2011 22. Eventually, Ripple wants companies to start using Ripple to perform transactions. At the moment, Ripple only has a few companies who use it 23. Ripple has gateways in the U.S., China and Europe 24.

Organisation and History

Ripple is owned by Ripple Labs, formerly known as Opencoin, which strives for profits. Ripple Labs has a professional team and is financed by a group of well-established investors. Among them are Google Ventures, FF Angel IV, IDG Capital Partners, Andreessen Horowitz, Bitcoin Opportunity Fund, Vast Ventures and Lightspeed Venture Partners 25.

Currency Details

Ripple Labs also introduced its own currency, XRP. In October 2013 Ripple has almost 25,000 users and nearly 145,000 transactions 26. Ripple has started to give away its digital money called XRP, which are needed to complete transactions. It’s not transparent how much XRP is in circulation. Ripple Labs promised to bring half a billion XRP in circulation and keep the other half billion 27. The value of XRP is backed up by the fact that XRP is needed to make transactions through Ripple. Apart from this the value of XRP is determined by the level of trust people have in the currency.

On August 5th 2014, one could get 1$ for around 200 XRP. 28

How it works?

The key to the Ripple system lies in its ability to create a chain of trusted IOUs. This is best explained in terms of the origial proposals of Ripple before it got picked up by Ripple labs:

In real-life if your friend Bob owes you 20$, he needs to repay the debt before you can do something with your 20$. Alternatively, you could make use of your debt and use it to pay John, a friend of Bob. You buy an item for 20$ from John and use the IOU from Bob. Now, your debt with Bob is solved and Bob owes John for 20$. This only works because you know Bob and John knows Bob. 29

Ripple creates comparable chains of IOUs, only far more sophisticated. Suppose you use Ripple and are connected to your friend Bob. Bob trust you up to 50$. You want to buy a book for 20$ from Alice, she doesn’t know Bob. Ripple looks to start a chain to connect you to Alice. Suppose Bob knows Carol who knows Alice. They are all Ripple users. You start a chain of trust. Bob accepts your IOU of 20$. Carol, who is connected to Bob and trust him up to say 30$, automatically accepts the IOU from Bob and passes it on to her friend Alice. After completing the chain of trust, Bob and Carol act as intermediary between you and Alice.



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