The History of Ripple – Part 2

Jed McCaleb and Chris Larsen offered Ryan Fugger to work together. Fugger accepted and in September of 2012 OpenCoin corporation was born.

The goal of the company was to improve the blockchain technology used by bitcoin and to create a system that big players in the financial industry could use to send payments, yet to keep the technology decentralized. OpenCoin began to develop a payment protocol that later became known as Ripple protocol. OpenCoin released the first version of the protocol in 2012. In 2013, OpenCoin successfully attracted funding from angel investors in two rounds. The list of investors included Andreessen Horowitz, a venture fund of Marc Andreessen, the creator of Netscape browser, Google Ventures, IDG Capital Partners, Seagate Technology and other prominent venture capital firms.

In September of 2013, the company has officially changed its name to Ripple Labs and made their entire source code open-source. OpenCoin has released parts of its code in the past but the release of the entire code meant that the protocol could from now on exist even without the original developers and be fully supported and developed by the community.

In 2015, the company changed its name from Ripple Labs to Ripple. In 2016, it was one of the first companies to obtain a BitLicense from the New York State Department of Financial Services.

 

Ripple protocol in plain English

On its network Ripple represents money as debt. It does this on purpose. Transactions on the network become balances that go through an imaginary series of credit lines as they leave the payer and arrive to the receiver. The network is available to both individuals and institutions small and large.

Here’s a simple example that illustrates how Ripple protocol works. Suppose you have two friends, 1 and 3, who are going to the movies and who are agreeing to bring one friend per person with them. 1 brings 2 and 3 brings 4. While 1 and 3 are friends, 1 and 2 are friends and 3 and 4 are friends, 1 and 4, as well as 2 and 3, as well as 2 and 4, may or may not meet again in the future. 2 and 4 (the friends that 1 and 3 brought with them who haven’t met before) then go to get some popcorn and 4 doesn’t have any money. 2 pays, say, $2 for 4’s popcorn and 4 agrees to pay 2 back. Using Ripple protocol, here’s how the payment would occur: 4 would pay the person that he or she knows, which is person 3. Person 3 would pay the person that he or she knows, which is person 1. Person 1, in turn, would do the same and the money would finally get to person 2.

The key difference between the Bitcoin network and the Ripple network is that all transactions happen between parties that know each other (vs confirmations and block creation on the bitcoin network that occur because any miner can participate). Also, all parties on the Ripple network have a relationship of trust that doesn’t exist on the Bitcoin network, where parties trust the network but do not necessarily trust each other. Because Ripple uses a network with a trust relationship that is blockchain-based, banks can use it to move funds very quickly, yet there’s still accountability of the participants of the network. In a way, this is how the modern banking system works already.

 

Features of the Ripple protocol

Just like with the Bitcoin network, an integral part of the Ripple protocol is a decentralized fully transparent ledger of all the transactions that occur on the network. Users can make payments to each other both in a fiat currency and in XRP, which is the currency of the Ripple network. When paying in XRP, users use the internal ledger and when paying with other currencies, the ledger records transactions as debt obligations.

One of the most popular features of Ripple is the opportunity to send funds in one currency and have the other party receive funds in a different currency in a matter of seconds. Just like on the bitcoin network, transactions on the Ripple network have cryptographic security, are verified by the algorithm of the protocol and do not need a third party because the network itself serves as an intermediary.