Ripple and XRP

Wonder

1. How can a network reach agreement without burning energy on puzzles?
2. Why did creating all 100 billion XRP at once give its company so much influence?
3. Why did a court treat XRP sold to institutions differently from XRP sold to anonymous buyers on exchanges?

Explore

1. Ryan Fugger, a Canadian developer inspired by Vancouver’s Local Exchange Trading System, published his Ripple paper in April 2004. His initial implementation, RipplePay, operated on a central server and allowed users to connect via email address. It functioned as a distributed credit protocol rather than a decentralized currency, allowing friends to extend IOUs without traditional banking intermediaries.
2. In 2012 Jed McCaleb and Arthur Britto, who had been building a new ledger, joined Chris Larsen to found OpenCoin, and Fugger handed over the Ripple name; the company became Ripple Labs in 2013. The new system, the XRP Ledger, was quite different from Fugger’s IOU network: it had its own consensus algorithm and a native asset, XRP.
3. The XRP Ledger reaches agreement through a list of validators each node chooses to trust, known as a Unique Node List (UNL), rather than proof-of-work. This federated consensus spreads trust across a web of institutions rather than concentrating it in miners competing for block rewards. A quorum of trusted validators must agree that a transaction is valid and ordered correctly, allowing for near-instant finality compared to Bitcoin’s ten-minute target block interval.
4. All one hundred billion XRP were created at launch; the company held most of them initially. In 2017, Ripple Labs placed fifty-five billion in escrow, releasing a fixed amount monthly to prevent market shocks. Jed McCaleb left Ripple in 2013 and co-founded Stellar, launched in 2014, while Ripple marketed cross-border payment products to banks, positioning XRP as an intermediary asset for fast settlement between financial institutions.
5. The US SEC sued Ripple Labs in December 2020, alleging that the sale of XRP constituted an unregistered securities offering. In July 2023, a federal judge ruled that programmatic sales on exchanges were not securities offerings, but institutional sales to wealthy investors were. The case ended with a civil penalty and both sides dropping appeals in 2025, leaving the 2023 ruling influential but non-binding; another judge in the same court rejected its distinction weeks later (SEC v. Terraform). The civil penalty, about $125 million, was set in 2024.
6. Transaction validation on the XRP Ledger does not require solving cryptographic puzzles like SHA-256. Instead, it relies on social and institutional trust networks to order transactions. This design prioritizes speed and low cost over energy-intensive security, creating a distinct trade-off: efficiency through trusted validators versus resilience through decentralized computation. The model remains controversial among purists who view centralized trust as a vulnerability.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• R. Fugger, 'Money as IOUs in Social Trust Networks & A Proposal for a Decentralized Currency Network Protocol' (2004)
• SEC v. Ripple Labs, Inc., et al., No. 1:20-cv-10832 (S.D.N.Y. July 13, 2023)
• Ripple Labs, 'Escrow Announcement' (2017)
• XRP Ledger Consensus Documentation