Does Ripple CEO Brett Garlinghouse have nightmares about dragons? That seems to be the case, based on his Red Scare-mongering appearance on a July 22 Bloomberg Technology broadcast that found him ominously describing BTC and ETH as “controlled by Chinese miners.”
But the growth of crypto mining in China — where electricity costs are next-to-nothing — should be the least of Garlinghouse’s worries at the moment. With Facebook’s announcement of Libra, the Ripple payment protocol may face its biggest challenge yet. Even with an extended battle in Congress looming, Facebook’s proposed coin is a sign that major change is coming. Change that could make Ripple — which produces the XRP crypto coin — obsolete.
Clearly, Garlinghouse and the Ripple team understand the threat. Their anxiety likely explains why the CEO feels the need to vilify other major cryptos to U.S. thought leaders and the general public.
A Brief History of Ripple
The Ripple payment protocol was created as a working prototype in 2004, but really took off in 2013 with an influx of capital into Ripple Labs from angel and seed investors. Ripple’s XRP is now one of Bitcoin’s biggest competitors, though Garlinghouse has always maintained that Ripple is not meant to compete with Bitcoin.
Garlinghouse said in an interview that Ripple is more of a “bridge currency,” that each major crypto should have a use case, and that no single crypto will ever “rule them all.”
Unlike Bitcoin, Ripple does not have its own blockchain. It is simply a payment ecosystem that allows for faster international transactions and low commissions on currency exchanges when using Ripple as a mediator.
The advantages to Ripple are manifold. In addition to offering quicker and cheaper currency transactions than Bitcoin, Ripple’s main focus is deployment by banks, making it less susceptible to regulatory checks and oversight than other cryptocurrencies. The currency can also be exchanged into any other currency or valuable with minimal commission. Ripple’s payment system is currently supported by approximately eight banks, including Santander and UBS.
Threats to the Ecosystem
Despite its success as a viable competitor to Bitcoin according to market cap, Ripple’s operations are highly centralized. Many even compare investing in Ripple to investing in a bank. Further, Ripple Labs owns somewhere around 60% of all Ripple coins. Many early crypto adopters therefore view Ripple as antithetical to the mission of complete decentralization.
Ripple took a major reputation hit in 2015 when cofounder Jed McCaleb attempted to cash out some of his billions in XRP, which resulted in a massive transaction freeze, a lawsuit and a public loss of trust in the company.
While some major banks have adopted Ripple’s payment platform, they still aren’t using the platform’s native token. Other banks reportedly remain in the testing stage with Ripple. Given this halting state of adoption, rumors that Ripple will soon be picked up and used by even larger banks, or that it’s onboarding new banks regularly, are likely overblown.
If crypto purists shun it, and the banks remain lukewarm on Ripple, it’s easy to see why Garlinghouse might be feeling the pressure. Libra introduces a third party into the mix, and a corporate-founded coin, in theory, will eventually destabilize or undermine the very banks Ripple relies on for growth.
Garlinghouse does not have the luxury of allowing Libra to become a distraction. Other popular cryptos still pose a major threat to Ripple, in part because Ripple was never meant to be used as money.
“As consumer awareness of cryptocurrencies rises, the interest of the masses will be on cryptocurrencies that can be used as currencies, not just for investment transactions,” said Shidan Gouran, president of Global Blockchain Technologies. Ripple may have uses beyond value-storage, but it will always lack the sexiness of Bitcoin. Nor is Ripple mined like Bitcoin.
“[Ripple] is not a cryptocurrency at all, it is the child of banks,” said Samson Williams, CSO of Ireland-based fintech SeedUps.
Gouran explained further that Ripple cannot be purchased with fiat currencies on most exchanges, but only with existing cryptos like Bitcoin and Ethereum. This creates a dynamic that feeds demand for other coins and solidifies their positions on the market.
With Libra threatening to turn a major social media corporation into a banking venture, and with all the attention on the bigger, blockchain-backed cryptos, Garlinghouse has every reason to spread the FUD far and wide. In the world of crypto, all it takes is a shiny next-best-thing to knock your project into oblivion.