The virtual currency Bitcoin is all over the news these days—in part for its volatility. If you can use it, or even understand why it has any value, you’re in a small minority. There are all sorts of aspects to the “math-based” virtual money that make it impractical for most people to use in everyday transactions, but its proponents are fanatical believers in its potential.
Now some of Bitcoin’s earliest evangelists and supporters have created what they say is a Bitcoin for the rest of us—another digital currency, called Ripple, that, unlike Bitcoin, transfers easily into and out of other currencies from around the world.
Today, OpenCoin, the company managing Ripple, is announcing new funding from some venerable Silicon Valley names like Andreessen Horowitz, Lightspeed Venture Partners, and Founders Fund. It’s also unveiling some ambitious goals. “You don’t have to be a wacky libertarian to understand that trust in political currencies is eroding,” says Chris Larsen, OpenCoin’s chief executive. “Our objective is to build a new global currency.”
Larsen has been trying to push the financial-services industry into the digital age for the last 20 years. In the 1990s he started eLoan, one of the first online mortgage companies, and in 2006 founded the Prosper Marketplace, the first peer-to-peer lending company in the U.S. “Finance hasn’t changed very much since the Internet was created,” he says. “Why does it cost so much to move money around? It doesn’t make sense.” Ripple, he says, attacks that problem: It’s a virtual currency with no interchange fees that enables fast payments to merchants and between consumers.
Larsen says that Ripple—the company bought the URL from a Grateful Dead fan—has one big advantage over Bitcoin. In many cases it can take a long time for Bitcoin transactions to clear because coins have to be “mined,” a computationally intensive process that involves sifting through large amounts of data to find numerical patterns that confirm the transaction is legitimate. OpenCoin maintains a single global ledger; transactions are confirmed as the network’s servers automatically check the ledger. The process takes about 10 seconds, the company says.
Of course, with Bitcoin prone to big swings, the future of digital currencies still seems very much in question, but Larsen argues that Bitcoin’s volatility underscores the need for Ripple. One reason the value of Bitcoins fell by $100 yesterday, according to reports, is that its largest marketplace, Mt.Gox, was under a denial-of-service attack and couldn’t satisfy orders fast enough. Ripple, he points out, doesn’t require such centralized servers; it is completely decentralized.
A few Ripples are already in circulation—OpenCoin did an initial giveaway to Bitcoin enthusiasts—and trade at almost 1,000 per $1 on Bitstamp, a Bitcoin exchange. Starting today, OpenCoin will begin to seed a broader market by putting 100 billion Ripples in circulation: It will gradually distribute 50 billion to users who sign up on the site; it will hold the other 50 billion. (The company hopes its Ripple reserves will appreciate.)
It is also introducing tools to manage the currency. On its website, people will be able to register for a Ripple account, monitor their balances, and send and receive payments. They can also exchange their Ripples for other currencies, including dollars and—yep—Bitcoin.
One of the aspects of the Bitcoin mystique, of course, is the identity of its anonymous creator, who called himself “Satoshi Nakamoto.” The genesis of Ripple is no mystery: It was created by Jed McCaleb, a 38-year-old Berkeley dropout and, more important, the founder of the Mt.Gox Bitcoin marketplace. Some Internet users speculate that McCaleb is actually Nakamoto. McCaleb denies it; regardless, he developed Ripple with Arthur Britto, Stefan Thomas, and David Schwartz, all early contributors to the Bitcoin community and active members in the Bitcoin forums.
In this light, it’s not a stretch to see Ripple as the Bitcoin community’s second attempt at a potentially world-changing concept—a virtual global currency, backed not by central governments but by the animating notions behind the Internet itself. McCaleb says he always found Bitcoin difficult to promote to other people. “If it gets big, there will be a huge waste of resources spent on mining. It’s totally unnecessary and it will just get worse as the system gets bigger. I wanted a system that didn’t need that.” He says Ripple “is just a better iteration.”