In a time of regulation, Ripple will shine

In a time of regulation, Ripple will shine

Regulation Roadmap

Cryptocurrency regulation is a hot issue right now. Cryptocurrency technology is advancing quickly and fraudsters, scammers, etc. have been on a tear creating new Coins and ICOs to entice investors into "get rich schemes." There are investors on both sides of the fence in regards to regulation and how it will positively or negatively impact Cryptocurrencies. But lets not kid ourselves, regulation will occur in some form. I am not trying to sway a reader on either side, however, regulation can assist in the adoption and validation of Cryptocurrency technology which will lead to exponential growth, investment and advancements solving real world problems.

So, how will Ripple shine in a time of regulation? 

The Basics of Ripple

Ripple is a crypto 2.0 system launched in late 2012. It is based on a protocol predating bitcoin by a few years, known as Ripplepay. As any good crypto 2.0 network, Ripple allows its users to issue and transact in any currency. It also supports its own native currency – ripples, or XRPs.

XRPs have a few key uses on the ripple network. They are used to pay transaction fees, and are required as reserves for any address using the network and creating trust lines. All in all, it serves as an anti-spam measure for the network. Moreover, since every account on the Ripple network can accept XRPs, it is also promoted as a bridge currency.

IOUs are user-created currencies. While any address can issue their own currency, most people will be using IOUs issued by gateways. Those will usually be denominated in fiat or crypto. The IOUs can be traded directly on the network, sent from one user to another, and even perform atomic, multi-currency bounces in a single transaction.

There are a few key differences between XRPs and IOUs. IOUs have a counterparty risk: if the issuing gateway defaults, the tokens will be worthless. You can only send IOUs to or through people that also trust the same gateway. The gateways usually charge a small percentage fee on every transaction. IOU transactions are a bit bigger and more complicated, meaning they can cost more to execute. XRPs are their own cryptocurrency, meaning they are not redeemable for anything directly.

Beyond that, the Ripple network handles both XRPs and IOUs identically: both can be traded on the decentralized exchange built into the network, both can be part of multi-currency transactions, both operate at the same speed and they are both highly divisible.

But what is Ripple’s goal exactly? Ripple’s own definition is of a real-time gross settlement system (RTGS), currency exchange and remittance network. Ripple is revolutionizing international finance by making it possible to transfer money around the world within seconds. That has excited major financial institutions. With all the hype surrounding cryptocurrencies these days, surprisingly, there has only been limited media attention. Even though it has a market cap of over $29 billion, making it the third largest cryptocurrency according to Coinmarketcap

Another great advantage of Ripple is that it’s also much more stable than most cryptocurrencies. While it has seen some huge swings value, Ripple experiences far less volatility than almost any other cryptocurrency.

The idea behind Ripple is creating the “Internet of Value”, a concept where money moves seamlessly across borders as data. This is why the project has sparked so much interest from banking institutions. In November American Express had made a partnership with Ripple, and most recently Asian banks, like Bank of China, are testing solutions based on Ripple’s blockchain.

Also in November of 2017, Ripple held the Ripple Central Bank Summit in New York, where representatives of the IMF discussed the possibilities of Ripple’s protocol. This only shows how seriously banking institutions are taking the technology. This connection with financial institutions shows that Ripple will definitely secure its position as a bridge between the cryptocurrency world and that of traditional finance.

Centralized vs Decentralized

The main criticism argued about XRPs, and thus also against the Ripple network, is the way the XRPs were distributed. Ripple Labs, the creators of Ripple, created the network with 100bn XRPs in it, and no new XRPs have been created since the its inception. This is not an unknown practice in the cryptocurrency space – a lot of networks 'pre-mine' their tokens.

However, the network creators usually only keep a fraction of the tokens for themselves, pre-selling the rest to anyone that wishes to buy some. Ripple, however, still owns about 60% of the originally issued tokens. This raises a few issues.

First, the company could try cashing out and potentially crash the market. It is very unlikely, however. Ripple has recently taken steps to promote its XRP market and put the majority of their XRPs into an escrow (then again, the escrow is unlocking 1bn XRP every month for the next ~4.5 years, so it could be better).

Secondly, since the network fees are paid through 'burning' XRPs, they essentially enrich everyone in proportion to the amount of XRPs they hold (if 1% of the tokens got burned, the remaining tokens would be worth about 1% more provided the market doesn't change). This means Ripple Labs is essentially earning 60% of all network fees on the network. This probably doesn't amount to much at the current time, but it may be more important in the future.

Lastly, the amount of XRPs owned by one company gives it a negative reputation. A lot of people in the crypto space dismiss Ripple outright as a 'pre-mined scamcoin' just because of the amount of coins owned by Ripple. It is than argued that Ripple is indeed a centralized coin which is counter intuitive to cryptocurrency and its decentralized agenda. 

All in all, that isn't too damning, really. Ripple appears to be reputable enough not to try cashing out of what appears to be their golden goose. However, they are not the only major players around...

The founders of Ripple, Jed McCaleb, Chris Larsen and Arthur Britto, gave themselves 20bn XRPs early on. This later came to bite Ripple. McCaleb left the team to start his own version of Ripple called Stellar, and decided to sell his XRP stash, resulting in a legal kerfuffle, a settlement and a schedule for how those coins may be sold.

If those numbers are correct, McCaleb is still cashing out $20,000 per week, and come ~2019, he will be able to cash out 750m XRP (worth ~$656m at today's price of $0.75 USD/XRP). Not an ideal situation if the money from your network will be going to a former employee building your direct competitor to the tune of almost three quarters of a billion dollars. While some of those funds might go to charity, that's still not an ideal outcome.


Banks Love Regulation

In an interview with CNBC in October, the CEO of Ripple was asked whether the rush of new digital currencies to hit the market was actually "solving real problems." 

"There's plenty [of] examples of these recent ICOs that I don't think are good for the industry because they are not demonstrating or solving a real problem, and you are seeing examples of fraud," Garlinghouse said. "And so, I think it's good that you have regulators intervening and stepping in, in countries around the world."

The ICO phenomenon has been one of the primary targets of regulatory pressure in recent months. Much of this comes from the prevalence of scam and fraudulent ICO schemes that have been going on since ethereum popularized the process. ICOs are a way for tech start-ups to raise funds and involve the sale of digital tokens or coins which are exchanged for popular cryptocurrencies like bitcoin. China's government moved to ban ICOs completely, and some other countries are reportedly following suit.

Banks love Regulation!


Innovation in banking often results from the convergence of three key domains: financial services, technology, and regulations. The regulatory framework is a crucial aspect of innovation. When crafted in a balanced, proactive way, regulations can directly drive positive innovation and market competition.


Regulatory frameworks help ensure the safety and security of financial products and the technologies that enable them. They create certainty, instill customer trust and enable broader adoption. For this reason, it’s vital that the frameworks developed to govern new technologies, such as virtual currencies, be done so in a way that mitigates risk and protects customers, yet are balanced to allow further advances to occur.

While fintech may be new, the types of risk it may pose are not. We have well-founded principle-based frameworks for mitigating risk in financial services. These offer a great lens for looking at fintech. We’re not starting from scratch. And in February 2017, Philadelphia Federal Reserve Bank President and CEO Patrick Harker stated that proper fintech regulations not only protect the consumers, but also the innovators by providing certainty and ensuring safety and soundness as companies grow.

Balanced regulatory frameworks enable the promise of new technology to be fully realized while ensuring robust security and customer protections.

This is why Ripple will shine. They have supported and advocated for regulation because they understand the importance it will have moving forward.


One of the more recent scams, ponzi schemes, etc. was BitConnect (BCC). The scam is still making headlines and only hurts cryptocurrency's reputation moving forward. Everyone remembers Mt. Gox and it is still cited as a reason why investors should be weary of investing in cryptocurrencies. I am by no means saying regulation will stop future negative press or situations happening, but it might help mitigate and protect investors. When these scams occur, everyone cries to the government to intervene and help recovery their loses. However, supporting measures and interventions to mitigate these incidences is not advocated for. Its almost like people hating on cops but when your house is being broken into, who do you call?

My point exactly. 

Regulation in some form is going to occur. 


What are your thoughts? 

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