Just as information moves instantaneously between individuals and across networks, could the same be done with money? Ripple Labs aims to create an “internet of value” – a world where money is exchanged at the speed in which information moves today. Transactions would occur in real-time and across global networks, solving the problem of international payment systems that are not interoperable.
Ripple Labs is working to make this idea a reality by offering a distributed ledger service that tracks payments without the use of a central authority. The start-up’s platform is fundamentally inspired by Bitcoin, specifically the blockchain technology underpinning the digital currency’s movement, but the Ripple protocol is open to anything of value, including existing currencies.
CME Ventures Executive Director Rumi Morales recently sat down with Chris Larsen, CEO and co-founder of San Francisco-based Ripple Labs for a CME Group Tech Talk Podcast. Below is an edited version of the interview.
Chris Larsen co-founded Ripple Labs in 2012.
You speak a lot about the internet of value. What do you mean by that?
The problem we have in the world today is payment networks, even when they are efficient, are not interoperable. The U.S. system cannot easily talk to the European system, and it’s a lot like the situation we had before the internet in communications where it was incredibly expensive and out of the reach of most people to simply make a phone call or send a letter overseas. Of course now, we take it for granted. We have instant global, nearly free communications, which didn’t just replace phone calls and letters, but actually ushered in new models you could have never imagined.
So we think that’s what the internet of value represents. For the first time, you have a technology that solves that problem of a lack of interoperability between networks and will allow value to move like information. Why couldn’t value do this before? Until now, to confirm that value has been sent or transacted, you needed a central operator. So you needed some network operator in a country or a private enterprise to be the central authority to say that value moved. The beauty of distributed ledger systems is you don’t need that central operator, so that takes away that key problem that the world had.
How does Ripple compare to other distributed ledger systems, such as Blockchain?
Blockchain is the technology behind Bitcoin. Now sometimes blockchain is used generically to describe all distributed ledgers, but we were inspired by it. Our view was that maybe it’s not so important to have built a new currency, which Bitcoin I think very successfully introduced a new digital asset currency for the world.
We think that’s really interesting, but we don’t think that’s the key problem. The world has plenty of currencies; the problem is moving those currencies around efficiently. What Bitcoin lacked was the ability to put existing currencies in its protocol, (U.S.) dollars and Euro and RMB for example. We think most people and most institutions are looking for a solution for balances they already have. If you’re going to build an internet for value, you need to get the key custodians on board before you can really have any utility. Just like you needed the key custodians of knowledge before you can have an internet and enable things like Google and Facebook. Ripple allows anything of value to work on its protocol, and we think mostly that’s going to be existing currencies for the foreseeable future.
How can network users be assured that their money will be transferred and settled securely and safely?
Ripple is a system of settling liabilities to counterparties primarily. What we think will play out here is that actually these are additive technologies to banks and existing custodians of assets. In that world, most of the interface of users is going to be through their existing banks, and they’re going to get all the protections that their existing custodians provide today, and by the way all the regulators will get all the existing anti-money laundering protections as well.
At the ledger level, the Ripple fundamental level, the security is grounded in cryptography. We think there is mathematical certainty that this shared database, which is essentially what distributed ledgers are, is going to find consensus on what the current state of ledger is. State of ledger would be the balances that you have. Again, it’s important to note that most users are going to interface this through an existing stack of dispute resolutions companies, custodians of their assets, so you always have a double check by the ledger that’s being represented in these distributed ledgers.
I think from a security standpoint, people can feel confident that these are additive systems to our financial industry that make things more efficient, but don’t sacrifice all of the security protections that they have today.
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