Prior to today’s ongoing legal feud between Ripple and the United States Securities and Exchange Commission (SEC), XRP had consistently ranked alongside Bitcoin and Ether as one of the top three cryptocurrencies by market cap. It even replaced Ether momentarily as the second-ranked crypto in 2017 and 2018. Today, XRP has dropped down to the seventh-ranked digital asset in the charts, in no small part due to its legal woes in the U.S.
Given the extent of these legal and regulatory difficulties, it may seem surprising to some that XRP remains a contender in the crypto scene. The asset’s role and established history in the crypto space — as well as partnerships with big players in the traditional financial world — may go some way to explain its staying power.
In this piece, we will explore the history of XRP.
What Is XRP?
XRP is a cryptocurrency designed as an alternative to Bitcoin, with a focus on facilitating trustless, instant and cheap cross-border payments. Like Bitcoin, XRP relies on a public ledger, called XRP Ledger, for storing transaction details.
However, the payment network built on the ledger does not utilize mining to validate and record new transactions. Instead, the XRP Ledger requires trusted validator nodes to reach consensus in record time and maintain the transaction ledger — roughly every 3 to 5 seconds. These trusted nodes are collectively called the Unique Node List or UNL.
Therefore, unlike Bitcoin and its proof-of-work consensus protocol, the XRP Ledger utilizes a consensus mechanism based on the Federated Byzantine Agreement (FBA) model.
Since the XRP ledger does not require mining, its native token, XRP, was premined at a very early stage of its development. A total of 100 billion XRPs were premined and launched in 2013. Today, over 46 billion of the total XRP supply is in circulation. Note that in addition to XRP it is possible to transact with other currencies in the Ripple ecosystem.
Before we dive into the history of this digital asset, it is important to know the difference between XRP, Ripple and RippleNet. As discussed earlier, XRP is the ecosystem’s native token. RippleNet, on the other hand, is the digital payment network that runs on the public distributed ledger, called XRP Ledger. Ripple is a for-profit company that controls the development and marketing of RippleNet.
The History of Ripple
The idea behind Ripple and its native token predates the crypto industry and Bitcoin itself. In 2004, John Fugger launched a peer-to-peer (P2P) financial network called RipplePay. The goal was to capitalize on the financial relations between network participants to eliminate the need for banks. In essence, if participant A trusts participant B, then B can act as a third-party whenever A wants to transact with another participant trusted by B.
This concept would later serve as the cornerstone of the crypto model that Jed McCaleb — an early Bitcoin pioneer and founder of Mt. Gox exchange — proposed as an alternative to Bitcoin back in 2011. McCaleb concluded that Bitcoin mining was an excessively resource-hungry and expensive system that would eventually undermine the usefulness of Bitcoin. And so he approached Fugger with a plan to evolve RipplePay into a crypto network. In 2012, Fugger officially handed over RipplePay to McCaleb and Chris Larsen — a serial entrepreneur and today, Ripple’s executive chairman.
Shortly after the handover, the team started building the first iteration of Ripple, called OpenCoin. Subsequently, the company’s name changed twice between 2012 and 2015. Notably, the project also underwent a series of cultural and systemic changes. The most significant was the switch to the Ripple Gateway system.
Recall that Ripple had initially opted for a peer-to-peer architecture. In the course of evolving their ideas, the team came to believe that reputable businesses, of a sufficient size, would be needed to ensure users’ trust. These businesses are what Ripple calls Ripple Gateways. This change in architecture marked a sharp shift towards a hybrid system that combines traditional banking structures with a peer-to-peer network.
This combination would later prove to be pivotal to the project’s popularity in the traditional financial sector, as established financial institutions viewed it as a less unfamiliar route into engaging with the crypto and blockchain industry.
Ripple, the for-profit company headed by Chris Larsen, soon began to secure high-profile partnerships and the number of financial institutions using RippleNet to facilitate cross-border payments began to steadily increase.
One of Ripple's main use cases is to facilitate the cross-border transfer of money. In achieving this aim, Ripple has had many high-level partnerships with financial institutions that make use of its services. For example, before the partnership ended in March 2021, Ripple and MoneyGram worked together (MoneyGram used Ripple's cross-border payment and foreign exchange settlement product).
In June 2020, Banco Santander (one of the largest banks in the world) partnered with Ripple to use its One Pay FX service — a jointly developed cross-border payments system. And in November 2020, Bank of America was confirmed as a user of RippleNet, along Santander, Standard Chartered and others.
Controversies and Legal Crises
The first controversial incident associated with XRP was the development team’s decision to utilize a centralized business framework, which gives Ripple full control of XRP’s supply. The company therefore has the final say over the distribution and sale of the remaining supply of XRP. This, together with the underlying infrastructure of its payments ecosystem, are clear indicators that unlike Bitcoin, XRP is a centralized cryptocurrency.
This also fed into unease regarding the possibility that Ripple’s founders, Jed McCaleb and Chris Larsen, may have unduly capitalized on this centralized structure in allocating 20 billion XRP to the founding team.
Jed McCaleb left Ripple sometime between 2013 and 2014 to launch Stellar. As he himself owned 6.5 billion XRP, there were concerns that he might dump his holdings and start a chain reaction that could potentially crash the value of the digital asset. This prospect prompted Ripple and McCaleb to reach a formal agreement intended to settle the company’s concerns, which was later revised in 2016 following a lawsuit.
In 2014, Ripple introduced the balance freezer feature as a measure to confiscate or freeze all non-XRP currencies from users deemed to be violating anti-money laundering rules.
In essence, any of the Ripple Gateways or financial institutions serving as non-XRP currencies issuers on XRP Ledger can censor the balances of users, provided that such balances are not XRP-denominated. This implementation further reinforced the appreciable fact that the XRP ecosystem is somewhat susceptible to elements of centralization.
The first skirmish between Ripple and the U.S. regulatory authorities was in 2015: Ripple was fined $700,000 for not complying with the Bank Secrecy Acts in its sales of XRP tokens without seeking the required authorization. As part of the settlement, Ripple agreed to introduce Know Your Customer (KYC) checks for future XRP investors.
Ripple was then the subject of another lawsuit in 2017. Blockchain firm R3 accused Ripple of illegally terminating an agreement whereby R3 would purchase 5 billion XRP at an exchange rate of $0.0085 before September 2019. In response, Ripple filed a countersuit alleging that R3 had not kept up its side of the deal.
From this history, it is clear that the company has weathered some controversies and legal battles until this point, while simultaneously continuing to add high level institutions to work with RippleNet. It’s therefore perhaps less surprising that both the value of XRP and the popularity of the payments network remain reasonably resilient, even in the face of Ripple’s current difficulties with the SEC.
As for the asset’s future, it remains to be seen whether the asset and its ecosystem can continue to withstand such hurdles — and which new partnerships RippleNet will secure.