Bitcoin rival Ripple looks to make waves

A smaller, early-stage player in digital currencies secures its first round of angel funding

By Zach Miners, IDG News Service |  Internet

Ripple has about 3,500 early users and will be launched widely in May. People can sign up at its website to be notified when ripples are distributed. Ripples are currently far cheaper to obtain than bitcoins, CEO Chris Larsen said.

According to OpenCoin, Ripple's transfer model improves upon payment services like PayPal because there are no fees, its transactions are irreversible and it is available to everyone globally. Payments can be made through Ripple's own wallet service, or through third-party applications such as Bitstamp.

On Bitcoin, the currency can be purchased outright or accumulated by "mining," which involves employing the processing power of computers to crunch numbers and unlock new "blocks" of bitcoins.

While it might sound like free money, mining on Bitcoin has several problems, according to Larsen. People need to buy faster and more expensive computers to find new coins, and the electricity and hardware costs may eclipse the value of the Bitcoins that are mined.

Bitcoin transactions are also slow. Each transaction takes on an average 10 minutes to be verified before it is confirmed. By contrast, sending and receiving money on Ripple will take only a few seconds, according to Larsen.

Still, it remains to be seen if Ripple can emerge as a widely-used payment system. Many of its early users are also Bitcoin users, and it currently operates just 12 servers worldwide, Larsen said. Bitcoin, meanwhile, has well over a million users.

"I see Ripple being used more in localized, regional community environments rather than as a global international application like gold or bitcoins," said Jon Matonis, a board member of the Bitcoin Foundation, which funds Bitcoin's infrastructure.

Ripple's trusted pathways are unlikely to be formed between people who are not already connected socially, he added. "Someone in Japan is not going to care about someone's reputation in California," he said.

But Ripple has a software model that is attracting attention among developers, OpenCoin's Larsen said. The software supporting the service is open source, allowing developers to build additional transactional features on top of it.

OpenCoin held its first Ripple gathering through Meetup last week and drew more than 60 developers and hedge fund managers. "It's starting to really gel," Larson said.

Zach Miners covers social networking, search and general technology news for IDG News Service. Follow Zach on Twitter at @zachminers. Zach's e-mail address is zach_miners@idg.com

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