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The Ripple system is really interesting, but on one point I can't help thinking part of it is a great scheme to make the founders (and OpenCoin) ridiculously rich. The reason that makes me wonder is that 100 billion XRP were initially created, and of these 20 billion are kept by the founders and 80 billion were given to OpenCoin (from their wiki). OpenCoin plans to give away some XRP, and sell some XRP, but it's not clear in what proportions or how much. No new XRP will ever be created, and the value of XRP will increase gradually as more people demand it for transactions (and XRP is the native currency of Ripple and will be the most convenient transaction medium inside Ripple). XRP also have intrinsic value in that they are strictly necessary to perform transactions, and because XRP used for transactions are destroyed the total amount of XRP in the system will decrease steadily.

So we have a system where the founders and OpenCoin have control over almost all purchasing power. Moreover, because of this, they can keep exchange rates of XRP as high as they like by keeping supply low. If Ripple would take off and be widely adopted, the founders and OpenCoin would get unimaginably rich because of the big shares in the fiat currency they created.

It makes me think of the famous quote: "Give me control over a nation's currency and I care not who makes its laws." It doesn't apply in full because the founders and OpenCoin won't create more currency, but owning all currency from the beginning will have the same effect over the foreseeable future.

So is this nothing more than a smart fraud that's incredibly big in scope? Are there any indications that the supply of XRP will get some kind of fair distribution?

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closed as not constructive by eMansipater, Stéphane Gimenez, Nick ODell, Colin Dean, David Ogren Apr 22 '13 at 16:42

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Hi 5th and welcome! I believe that this question is better suited for a discussion forum as it invites to a lot of discussion/speculation. Can it really be called fraud when they have made the initial distribution open for everyone to see? What is a "fair distribution"? etc. I'll let the community decide but in my opinion this should be closed. –  D.H. Feb 26 '13 at 9:15
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You're quite right -- it's better suited for a discussion. I think I'll post another, narrower and more answerable, question instead. Or should I do a complete edit of this one? –  5th Feb 26 '13 at 9:21
    
I posted a note on the Ripple wiki about putting XRP into circulation through a humanitarian channel (Introduction_to_Ripple_for_Bitcoiners)<br/> Benefits for Ripple would be:<br/> - Huge media buzz on all networks - Better image for crypto$ (not just for drugs or laundering) - Easy acceptance of "pre-mined" ripples –  user4166 Apr 10 '13 at 8:00
    
While that's an interesting approach, this isn't really a place to discuss open-ended questions like this. –  Nick ODell Apr 10 '13 at 16:38
    
it's funny, no one is bothered by the fact bitcoin's early adopters up to end of year 2012 are controlling a 50% stake there, when all most of them ever did for it was to run a mining program on the CPU or something. Yes some did put an effort into kickstarting the economy but most haven't. Yet it's still a 0.001% world minority that controls 50% of the bitcoin wealth. Talk about "we are the 99.999%". And nobody's challenging the fairness of that model anywhere. Meanwhile a virtual payment system issued by a VC funded startup that's doing all the development and kickstarting doesn't deserve 50 –  yonil Apr 21 '13 at 9:49

3 Answers 3

up vote 9 down vote accepted

Opencoin plans to give away 50 billion XRP. It is actually in Opencoin's best interest to make this distribution as wide as possible as the system will only be successful if it can gain a critical mass of users. Giving away enough XRP to keep the system as cheap as possible for as many people as possible for as long as possible is the only strategy they believe will work.

A lot of people have suggested possible nefarious schemes and conspiracy theories around Ripple. But you have to remember, if the Ripple payment network doesn't become popular, nothing else matters. It is simply a better strategy to give away lots of XRP as fairly as possible to drive adoption. Not to mention, not doing what they said they would do would reduce confidence in the system.

Billions of XRP will be distributed as widely as possible. The system will be fully open source. There will be no central authorities. That's what's in the founder's best interests, that's what's in Opencoin's best interests, that's what Ripple was designed to be, and that's what Opencoin intends to do.

The founders get 20 billion XRP. OpenCoin gets 80 billion XRP -- 50 billion of which can be given away to promote widespread adoption. That's the deal that was struck.

Note: I'm an employee of Opencoin and one of the architects of the Ripple payment system. I am speaking only for myself.

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Thanks David, that was the type of answer I was looking for, and kudos to you for disclosing that you are affiliated with Opencoin and Ripple. 50 billion XRP (half of the entire currency's units) shared between Opencoin and Ripple sounds like (and is) a lot, which is why people speculate. One may think of an established currency and imagine the fantasy figures half of the currency's units would amount to. Of course the people involved should be paid though, and it's hard to imagine what exactly those amounts of currency will be worth in terms of purchasing power. –  5th Feb 26 '13 at 9:54
    
I'm also thinking that the system will be unbalanced with that much currency in the hands of a small number of people, but perhaps people will simply stick to agreements with other currencies until XRP seems stable enough. –  5th Feb 26 '13 at 9:59
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@jtimon: No. The founders are the people who originally conceived and developed Ripple starting in late 2011. Opencoin is a for-profit corporation formed in September of 2012 to dramatically increase the resources available to develop and promote Ripple. –  David Schwartz Feb 28 '13 at 14:46
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@aroth: Usually people keep 100% of the value they create. I'm not sure why you think 50% is ridiculous. –  David Schwartz May 7 '13 at 5:00
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@aroth: The currency has almost no value that doesn't come from the payment network. –  David Schwartz May 9 '13 at 19:11

From Jed, one of the principal architects:

Vinnie: ...What's the OpenCoin business model?

Jed: ...we hold xrp and hopefully they gain value

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Remember that OpenCoin can give away 50 billion XRP and yet, this will not affect the price. If OpenCoin gives a user exactly 200 XRP this will not increase the total XRP in circulation because of the reserve requirement. In theory, the entire 50 billion can be given away in such small amounts that all of these XRPs are sequestered as reserves. –  Vinnie Falco Mar 15 '13 at 14:51

To send money to a friend in Ripple, you don't have to convert the money into XRP. You send the money as dollars, Bitcoins or whatever and spend XRP just as a transaction fee. That's why they won't be (and don't need to be) very valuable.

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