There are more than 2,000 cryptocurrencies currently in circulation – fourteen of which have market caps of more than $1 billion. If this were the tech space, these fourteen would be called unicorns.
Bitcoin is – far and away – the largest and most well-known cryptocurrency on the market. The second largest is Ethereum, which is followed closely by XRP. XRP is the largest “non-mined” cryptocurrency available, nearly three times the market cap of the next largest “non-mined” crypto asset.
And while Bitcoin has had some semblance of broad acceptance, there is still some confusion around XRP, this despite nearly 42 billion XRP currently circulating throughout the global economy.
Part of this confusion is an inadvertent homogeny that has been created between the currency – XRP – and the company that created it – Ripple. They are, however, in no uncertain terms, completely different.
“XRP is a currency that can quickly and efficiently transact cross-border payments between banks and companies. Ripple is a software that is built vertically on top of the XRP platform to help banks and companies make those transactions,” Ripple CEO Brad Garlinghouse said in an interview. “But those XRP transactions can occur without the Ripple software. As the CEO of Ripple, I want Ripple to be successful. However, XRP would continue as a currency, even if Ripple – the company – did not.”
Ripple, Garlinghouse said, is building a global network for international payment solutions, leveraging blockchain technology to make that process seamless and nearly instantaneous. Although the Ripple platform shares a history with the XRP Ledger, their development has led to them being completely separate, something envisioned early on by the creators of the company and the currency.
In 2011, three developers – Jed McCaleb, Arthur Britto, and David Schwartz – noticed what they called “waste” that inevitably comes from the mining of bitcoin as well as the dangers of bitcoin mining leading to 51% attacks, where someone – or some entity – could gain control of a cryptocurrency. The outline of their idea is preserved today in a May 2011 Bitcoin Forum post titled Bitcoin without mining, which notes that the preservation of trust in a central ledger would be a defining feature of improving cryptocurrencies.
Fast forward several months to their first code commit in November 2011, which made public the open source software they developed. They named that code – and the distributed ledger arising out of it – “Ripple.” It included a digital asset that they would call “ripple” (XRP) to follow the same naming convention as bitcoin (BTC).
But what started as an effort to be consistent soon led to confusion as the Ripple name soon permeated the open-source project, the unique consensus ledger (Ripple Consensus Ledger), the transaction protocol (Ripple Transaction Protocol or RTXP), the network (Ripple network), and the digital asset (known as “ripples”). The developers quickly noticed this confusion and set about trying to fix it.
Growth and Adoption
By the summer of 2012, the XRP Ledger was fully functioning, and adoption was growing. Because the broad applications of “Ripple” made name association so confusing, most of the community just called the digital asset XRP. XRP was the de-facto nickname from birth.
In September 2012, the developers created a company named NewCoin, which quickly changed to OpenCoin, which then changed to Ripple Labs.
By 2015, their products were moving out of the lab phase and into production, so “labs” no longer made sense and the company’s name was shortened to Ripple.
Today, XRP – the currency – functions as a completely independent digital asset. The token does not represent a share of the company, and will continue to exist and be useful should Ripple ever cease operations, because the XRP Ledger is open and trust-based, and immune from 51% attacks. That was the whole point of creating the token, according to its creators.
Of course, the journey towards succeeding in realizing the original concept wasn’t unusual for an innovative product. Many may recall that the ubiquity of AOL in the 1990s was so pervasive that consumers often confused the broad Internet platform with the company. However, today as digital assets are trading on exchanges, there is often manipulative intention behind efforts to conflate Ripple and XRP to affect its value. Unfortunately, some journalists and analysts have fallen into the trap.
“Going from the lab to the marketplace was a long trip, involving technologically complex issues,” Garlinghouse said. “We look forward to continuing to work in the space to help define, educate and pave the way not just for how blockchain and digital assets can transform global payments but what the technologies can do to create an Internet of Value.”
At a time when exchanges are handling billions of dollars in assets, and new business models are posing a disruptive threat to the status quo of global financial services, it’s increasingly important for reporters, analysts, and investors to get terms right and understand the technology. There are a lot of interested parties hoping some will get it wrong.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.