Chris Larsen is co-founder and CEO of OpenCoin Inc. Previously he was co-founder and CEO of E-Loan, a publicly traded online lender, and Prosper, a p2p lending marketplace.
What is Ripple?
Ripple is what happens when money finally meets the internet. Twenty years late, but better late than never.
Why does the world need Ripple?
Really basic reasons. Math-based currencies are needed as a way to move money frictionlessly. The way we send money today is as out-of-date as sending telegrams instead of email. Recently we sent a wire to Canada—it took eight days and cost a fortune. So much money is chewed up on payments, currency conversions, and middlemen. You can talk about the big picture, but the purely pragmatic case is overwhelming.
What is the “big picture”?
Trust in political currency is eroding. You don’t have to be libertarian to know that—everyone can see it happening. And gold’s not the answer. Math-based currencies are needed to restore the eroding trust in the current system.
Is Ripple a currency or a payment system?
Both. You can look at it as a decentralized currency that allows easy payments or as a payment system with a built-in currency. Bitcoin focused on solving the trust question, and that’s why their payment part has problems. Jed [McCaleb, first developer of the Ripple protocol,] came up with a new solution to the trust issue that also created a free payment system.
What is Ripple’s relationship to Bitcoin?
Bitcoin showed the way. Before that, people always thought crypto-currencies would break down—but that hasn’t happened. Trust is a human condition. You can apply that condition to a chunk of gold, a piece of paper, and also a distributed system. Bitcoin proved that yes, you can trust this. It’s an evolution of how we think.
But Bitcoin isn’t enough?
You still have to solve the problems with Bitcoin and Bitcoin can’t be re-architected. There’s at least one huge iteration that needs to happen, maybe two. It needs to be easier, faster, and interoperable with other currencies. The solution Jed came up with is absolutely genius.
What makes Ripple so powerful?
The three things currencies need are trust, liquidity, and utility. Gold is great on trust, but it’s terrible on utility—it’s heavy and you can’t buy anything with it. Existing currencies have better utility, but are weak on trust. Ripple has phenomenal utility and because it’s a math-based currency the corporations and central banks have been taken out of the equation.
Why do you use the term “math-based currency” instead of “virtual currency?”
There’s nothing new about virtual currency. Before Bitcoin there were lots of “virtual currencies” but those were all centralized virtual currencies. Credits in games, things like that. That’s not an improvement at all. These games are less reliable than central banks. You can trust math-based currencies as much as science, as much as gold. In fact, gold is also a math-based currency—we don’t need anyone to guarantee that it has 79 protons, it just does.
How will math-based currencies impact existing currencies?
Political currencies are not going away and are absolutely necessary. We’re not going to kill the dollar, the euro. If anything, currencies are going to become more diversified. The entire world isn’t going to adopt Bitcoin and Ripple. But they’re the first step towards a global math-based global currency for sure.
How big can this get?
How big will math-based currencies be? They could be as large as the Singapore Dollar. Bitcoin hit two billion last week…. the Singapore Dollar is 400 billion…. as math-based currencies become more interoperable, and increase their utility, I can totally see that happening.
What has it taken so long for something like Ripple to come along?
FinTech can be frustrating and you can beat your head against the wall. That’s why you see more internet innovation in entertainment and other fields. But with open-source projects it allows you to focus on the tech and just build. Because Ripple is a protocol, it opens up the pure possibility of technology.
You’ve been the CEO of three FinTech companies: E-Loan, Prosper, and now OpenCoin. Do they all share a common goal?
They all do for money what the early web was designed to do: take out the middlemen, take out the intermediaries, and give people direct control of information.
What drew you to these issues?
My dad was a mechanic, and I saw him get loans from Household Finance, take out second mortgages, things like that. And I saw what a terrible industry it was—big guys taking advantage of little guys. At Prosper, and before at E-Loan, the idea was “Can you completely disintermediate the Wall Street model?”
What’s wrong with Wall Street?
Asymmetrical power relationships are really the problem. You see it everywhere: intermediaries get this unfair power relationship, keep the source of the funding hidden, create a “mother-may-I?” relationship. The financial process is crazy. Your dollar has to climb up to Wall St. and all along the way financiers are taking fees. With the internet revolution and the changes in database technology, I saw a way to make it more fair for everyone.
What accomplishments are you most proud of?
Did you know that it was illegal to get your credit score before 2000? E-Loan was the company that fought that fight. We testified in Congress—which was kind of fun—and won the right to give people their scores. That made Prosper possible. At last people could see credit scores, evaluate accordingly, and make direct loans. It was pretty awesome for two years until the SEC got involved.
So Ripple is a natural next step?
It’s six steps ahead of anything E-Loan or Prosper could have ever done to give control back to users. E-Loan was running up the middle, hitting right up against the powers that be, but, eventually, bending to their rules. The beauty of the Ripple system is that it lives inside the internet. To shut it down you have to shut down the internet itself. That’s why it’s so transformational.
It’s also controversial. Everyone has a different opinion about these decentralized financial technologies.
That’s the way the internet was too. It served so many different people and was so multi-dimensional that it took awhile for people to understand what it meant.
How is funding going?
We’ve been getting a lot of interest. The VC community is waking up to what this all means. We’re fortunate to get seed backing from key people.
Ripple must appeal to idealistic tech-savvy types.
Absolutely. It goes to the core of what we’re trying to do out here. It’s an exciting time.
Because it’s open-source, Ripple’s features keep expanding. What are some of the things we should look out for in the future?
[Chief cryptographer,] David [Schwartz] is thinking about ways someone could build a social network within Ripple, ways you could build a voting system. That’s the power of an open protocol when super smart people get involved.