Ripple: BitCoin in Business Atire

Cryptocurrencies, the most famous of all being Bitcoin, turned geeks and normal people with a bit of tech interest into virtual millionaires, overnight. In recent months they’ve hit the headlines for facilitating the sale of drugs and firearms by concealing the identities of those involved. They even accentuated the capital outflows from Cyprus during the country’s financial collapse and subsequent EU bailout earlier this year.

In 2011, those buying into cryptocurrencies were laughed at by investors and economists. Now, BitCoin is regularly the feature of two page spreads in the Financial Times and is rumoured to be a serious headache for regulators of the traditional banking system. Since the high profile take-down of The Silk Road (a shady, Deep Web marketplace mainly used for drug sales), the FBI have backed off.

In a further vote of confidence, the Chinese government recently indicated that they have no real issues with cryptocurrencies and have allowed a Chinese exchange to grow into the world’s largest, surpassing MtGox a few weeks ago. However, they’ve also eliminated the possibility of it ever becoming part of their official national finance framework.

In spite of its recent successes, BitCoin remains rouge. Personified, it’s a surly teenager protesting against “the system”. Big Business has given it nothing more than an amused smirk because BitCoin doesn’t wear a suit to work nor have Terms & Conditions attached. Ripple’s ‘XRP’, a new kid on the cryptocurrency block, does.

What’s a “Cryptocurrency”?

A crytocurrency is like cash in digital form. When you pay for something at a store using a €20 note, the chances of that note ever being traced back to you is slim. It will likely change hands dozens of times in that day alone and could end up on the opposite side of the continent. This is why criminals use cash as a primary source of payment.

But, like cash, it’s not intended for criminal use; it’s just an unfortunate side effect. You can use a cryptocurrency such as BitCoin, LiteCoin or XRP to pay for anything once the merchant accepts it.

More ‘Secure’ than Cash

The vast majority of cryptocurrency will remain virtual

The vast majority of cryptocurrency will remain virtual

Most cryptocurrencies will never take the form of cash in the physical sense (although some exchanges have minted coins with digitally redeemable serial numbers). You could then ask why we don’t just make loads of cryptocurrency if it’s not ‘real’. Well, you can’t. Every transaction has a unique serial code that’s virtually impossible to replicate. In this regard, cryptocurrency is safer than cash as even though cash (notes) will have a serial number, it’s very easy for criminals to make forgeries using identical serial numbers and go unnoticed.

Don’t Lose Your Wallet

Like cash, you can lose your cryptocurrency. Your account or wallet (like an online bank account) is unique by virtue of a long serial number and access codes. If you don’t write these down and save them in a secure location, your account will live on forever but you’ll never be able gain access. It’s like accidentally dropping a locked safe, full of your money, to the bottom of the Atlantic Ocean.

Riding the Exchange Waves

Just like any ‘real’ currency, you can buy and sell cryptocurrencies on open exchange markets. If I think the value of the US Dollar will rise against the Euro, I will trade my euros for dollars. When the price has risen I will convert my dollars back into euros to make a profit.

Around a year and a half ago, BitCoin became well known for many reasons (some good, some bad) and interest in the currency erupted. This caused a spike in demand which resulted in the price skyrocketing. When the currency was launched a single BitCoin could be purchased for less than a dollar. Now, it’s hovering around the $1,000 mark. So, if you had put a few hundred euros in Bitcoin two years ago, you’d be relaxing on the Virgin Islands enjoying the finer things in life.

This level of volatility has turned BitCoin into an “investment currency” similar to gold. People only buy it in the hopes that other will to, making the price go up. They then sell their Bitcoins on to make a profit. What little trade was conducted via BitCoin was severely reduced when the FBI succeeded in taking down the Silk Road and there won’t be an improvement until the price stabilises (if it ever does).

Enter Ripple

Regulators have no idea what to do with BitCoin. Banks are sticking their heads in the sand and law enforcement is only interested in making sure it isn’t used for money laundering or selling weapons-grade plutonium. This, combined with its volatility and difficulty to acquire (most exchanges require bank transfer) has kept it on the sidelines.

Ripple is like PayPal and BitCoin had a kid; it ticks all the boxes (like money transfer oversight and money laundering regulation compliance) that world governments want ticked but retains BitCoin’s main selling points (high degree of anonymity, no fees and instant transfer).

Complex Account Creation

Entering the cryptocurrency world is a step into the unknown and while Ripple do make creating an account a piece of cake, there’s a few barriers you mightn’t expect. But first it’s important to understand how your Ripple Wallet will work.

Once a wallet is funded, currencies can be converted or sent to other users instantly

Once a wallet is funded, currencies can be converted or sent to other users instantly

You can use your Ripple Wallet to hold virtually any world currency along with XRP, Bitcoin and several other cryptocurrencies. You can convert currency within your own wallet instantly. In order to conduct trade using your Ripple Wallet, you’ll need to know the other persons unique serial code (like a bank account number but much longer). This will enable you to direct a specified amount of funds (in your chosen currency) through the peer-to-peer Ripple Network to their wallet in the blink of an eye.

A simplified diagram of a Ripple transaction

A simplified diagram of a Ripple transaction

After you’ve created your wallet and saved your account passcodes, you’ll want to buy some XRP for verification purposes. This is easier said than done.

You see, in order to prevent fraud, all cryptocurrency vendors are barred from accepting soft, reversible forms of payment (such as credit cards and PayPal) because a fraudster could steal your credit card to buy loads of untraceable currency and disappear. It’s the digital version of stealing a card and withdrawing cash from an ATM.

So, to get some XRP you’ll have to go through a gateway which acts like a vendor. The main company providing this service is SnapSwap. They have different websites for different regions covering North America and the EU. You fund your SnapSwap account with USD or Euro and transfer it to your Ripple account. Here, you can buy XRP (or any other currency) using your newly transferred funds.

This transfer process is long, arduous and frustrating but is on par with every other alternative like BitCoin and LiteCoin, and while there are other ways to acquire crypto currencies through the grey market with a credit card, they’re unsecure and fraught with insanely high transaction commissions and outright scams.

Computing For Good

How your PC could help support the peer-to-peer Ripple Network

How your PC could help support the peer-to-peer Ripple Network

A final, less conventional way of obtaining XRP is to join Ripple Lab’s ‘Computing for Good‘ program. It is part of IBM’s World Comunity Grid which is a network of normal computers which donate computing power when inactive, via the internet, to help scientists solve complex sicentific problems such as DNA analysis to curing AIDS. Essentially, you download a piece of software that will link your computer to the decentralised global network which supports XRP transactions. In return for your spare computing power you’re wallet will be gradually funded with small amounts of XRP. The exact number of XRP you receive is relative to the amount of computing power you can give to the network.

Better Than BitCoin?

Can it be trusted?

My biggest concern with Ripple is how XRP is being distributed. Unlike BitCoin which generates more currency by computers mining (solving complex mathematical problems to generate a tiny amount of currency), all the XRP there will ever be has already been created. The private company behind it all, OpenCoin, which is owned by virtual currency entrepreneur Chris Larsen is holding onto over 70% of the XRP and ‘distributing’ the remainder. They say they’ll retain 25% to fund the company’s operations and gradually release the rest as user numbers grow.

This all raises questions about the trustworthiness of the new currency; however a recent investment has allayed some of my fears. A couple of major venture capital firms have invested in OpenCoin and Google also climbed on board with $200,000 in funding. These figures aren’t exactly mind blowing but they offer a high degree of credibility to the new company.

Robust network can withstand DDoS attacks

Moving on from credibility to reliability, we must consider the inevitable hacking or online vandalism attempts that all major services experience when there are large sums of untraceable cash involved. Any network can be taken down by a DDoS – all that’s needed is enough requests on the servers to reach overload. Although it’s not immune, attacking Ripple would be above the capabilities of the average hacker.

This is accomplished by each transaction having a tiny commission attached. It’s so small that transfers of thousands of dollars would struggle to reach one dollar in fees. However, the presence of these fees is a huge barrier to a bot generating millions of transactions at once in an attempt to take down the network; it would require large amounts of funding ultimately linked to a real bank account.

Will there be an XRP Boom?

It’s hard to tell. Previous booms of cryptocurrency have been fuelled by little else other than speculation which makes for a risky investment. Bitcoin could crash at any moment.

Similar currencies, like BitCoin, have exploded in value due to investor speculation

Similar currencies, like BitCoin, have exploded in value due to investor speculation

XRP is backed up by a much more versatile system that’s tailored to the needs of ecommerce more so than investors. Although there will be investment speculation (there already is), the fact that it facilitates trade much more easily than Bitcoin by allowing for seamless currency conversions and has legitimate backing from major corporations will allow for a higher percentage of capital flows of XRP to be commerce transactions rather than optimistic investments. This inspires confidence in a currency and will have a knock on effect of attracting more customers and merchants.

Final Thoughts

Ripple offers a greater degree of accessibility than BitCoin and has features that are robust enough to attract larger merchants. Recent backing from big tech companies and investment firms have spurred confidence but ultimately a currency and a banking system are only as trustworthy as the trade they facilitate and at present that’s next to zero.

However, the shift in opinion on cryptocurrencies over the past two years is undeniable and Ripple have offered a great “All-in-One” solution to accept and trade in pretty much any currency, crypto or otherwise. Essentially, they’re helping to bridge the gap between the traditional banking system and ultra-secretive crypto markets with sensible policies and a slick end-user interface.

Finally, if you are going to speculate on the future of XRP I suggest doing it now while a single unit costs next to nothing. But do so in the knowledge that cryptocurrencies have yet to be fully understood or even emerge from the margins of the online economy and could be worthless by tomorrow.


Summary

Ripple is a new form of online payment service that features its own unique cryptocurrency. Having recently secured funding from major companies, their platform has gained popularity and is rumoured to be a competitor for the highly publisised BitCoin. Ripple features virtually no transaction fees with instant money transfer and complies with all international finance regulations.

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