Next Big Thing

Is This the Next Bitcoin?

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Like Bitcoin, Ripple makes money easier to move around the world. But while Bitcoin is a currency, Ripple is an internet protocol that allows for financial transactions in any currency. For example, a user can transfer dollars over Ripple, and the other party can receive euros.

San Francisco-based startup Ripple Labs aims to make Ripple the standard protocol used by the world's banks to transfer money around the globe as cheaply and quickly as sending an e-mail.

To learn more about Ripple and how it might affect small-business transactions, we spoke with Gary Kremen, who founded Match.com and recently launched CrossCoin Ventures, an accelerator that mentors Ripple-based startups and helps them tackle finance-specific challenges such as compliance and customer-service requirements.

What are the advantages of Ripple?

Like Bitcoin, Ripple is a shared public database and global ledger. A process called consensus allows computers on the Ripple network to automatically agree on changes to the ledger within seconds, without needing to go through a central clearinghouse. This settlement speed was its major engineering breakthrough. That means Ripple transactions typically settle in three to five seconds, unlike Bitcoin transfers that can take up to 40 minutes to process.

How will Ripple help small businesses?

It will let small businesses receive money from customers from anywhere in a matter of seconds. Today, it takes up to three days for credit card purchases to hit a small business's bank account. Getting that money more quickly is a big help in managing a company's daily cash flow.

Since Ripple makes transferring money nearly free, credit card companies will likely lower their transaction fees in order to compete, thereby reducing small businesses' costs. Credit card fees disproportionately affect today's small businesses. Large businesses can negotiate better deals, but small ones can't.

If you're a small firm that does a lot of business overseas, the benefits of Ripple are huge. It can take up to five days to transfer money overseas, and the average transfer fee is 7 percent. Ripple gets the money there in three to five seconds and lets you transfer money for little to no fee.

Do you see Ripple gaining mass adoption? If so, when?

Crypto-currencies take time; they're rewriting the plumbing of financial services. But yes, I think the chances are good. Ripple Labs' focus is on compliance and getting regulators and banks to buy in. I wouldn't be surprised to see Ripple powering everyday purchases in the next 24 months.

How are the people behind Ripple making money?

Ripple is open-source and is more intended as a public good; Ripple Labs doesn't own or control the protocol. However, it did create its own crypto-currency to facilitate transactions, called XRP. Wall Street can trade XRP with other currencies and provide liquidity across currencies. This helps the market determine the exchange rates for Ripple transactions.

One hundred billion XRPs were created at Ripple's inception, and no more can ever be created, which is similar to how Bitcoin was created. But there's a radical difference: Ripple's XRP can't be mined like Bitcoin. One of Ripple's founders came from the Bitcoin community and took issue with the energy-intensive [computer] mining process necessary to create each Bitcoin, so he designed Ripple without it. The currency is just there, and to finally answer your question, Ripple Labs holds about 25 percent of it, and they use that to fund their operations.


The Stat: 67%

The U.S. ranks 30th among countries with the fastest average internet speed, according to the Internet Society's "Global Internet Report 2014."

Downloads in the U.S.--the fastest country in the Western Hemisphere--are 67 percent slower than in No. 1-ranked Hong Kong. The good news? The U.S. ranks 10th in the world in terms of mobile broadband access.

Edition: December 2016

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