It’s a moneymaking scheme a child might suggest: get rich by inventing a new form of money. All the same, Chris Larsen, CEO and founder of Ripple Labs, is getting other people to play along with him. And they aren’t just Silicon Valley investors. People are using Ripple’s digital cash to exchange traditional paper currencies.
Ripple’s currency is modeled on the digital cash Bitcoin, which has boomed and sometimes busted in value over recent years (see “Show Me the Bitcoins”), and both use similar cryptography to prevent fraud. But while Bitcoin is designed to be used like regular currency to buy things, Ripple’s cash, known as XRP, is intended to make many foreign exchange transfers faster and less expensive.
Traditionally, a person who has Burmese kyats, for example, and needs to send money to someone in U.S. dollars has had to wait days for the transaction to clear, incurring sizable fees in the process. That’s because international money transfer systems rely on centralized, decades-old systems to verify that payments are valid. But banks—or new, low-cost startup services—could use Ripple’s technology to sidestep those systems. They would convert the payer’s kyats into XRPs and then use the Ripple protocol to automatically find a partner willing to convert those XRPs into dollars, completing the deal almost instantly. A financial company might choose to hold a stash of XRPs of its own to make such transfers easier.
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