Altcurrency-cum-payment network Ripple turned on the faucet late last week, announcing a long-anticipated giveaway. The company sent ‘ripples’, units of its alternative currency, also known as XRP, to over 25,000 beta users.
The users had signed up to the email list as part of the giveaway. The coins are designed primarily to enable trading on the Ripple payment system. Every time a trade is made, a fraction of a ripple is destroyed from a finite amount. To make a trade in any currency, a Ripple account must have 12 ripples available for each order. And an account must be stocked with 50 ripples to be active.
Each user received 1000 ripples, and at the time of writing, they are still being pumped out in batches of 1000 every few minutes. But soon after the giveaway began, several users began complaining of errors. Some received messages telling them that their code had expired when they try to redeem it for ripples, while others got straight 404 pages.
There are 100 billion ripples in the entire currency, with roughly 20 billion held by the founders. The rest were transferred to OpenCoin, the company that currently controls ripple and the payment network.
However, in addition to serving as a security mechanism, ripples also have their own value. If the value gets too high, it could throttle back adoption of the trading system, as people fail to stock their accounts with enough ripples to trade anything else. OpenCoin founder Chris Larsen says that the relationship between account reserve requirements and the price of ripples is dynamic, and can self-regulate.
“As the value of the ripple currency increases or decreases, the servers in the network can raise or lower the thresholds for the reserve and transactions limits on their own through a process of consensus,” said Larsen. “As a result, Ripple is always working to build maximum utility and liquidity within the system. At the same time, it’s important to remember that Ripple can accommodate any currency – so the value of XRP does not limit the use of Ripple for payments, transfers, remittances, etc.”
Giveaways aren’t unique to Ripple. Many new cryptocurrencies enjoy ‘faucets’ in their first few weeks of life, in which pre-mined coins are given away to stimulate interest and get others mining the currency. However, in Ripple’s case, all the coins are effectively pre-mined, and it’s the growth of the payment network that they are hopefully stimulating, by encouraging more people to use Ripple accounts and trade using ripples.
The biggest challenge for Ripple, however, is getting more gateways and merchants to join the network, creating more links between the Ripple payment system and other businesses.
On May 31, Ripples closed at XRP 62.57 to the USD. At that value, assuming that 25,000 beta users received 1000 ripples, OpenCoin just dropped $400,000 into the market. The founders would, incidentally, be worth $320 million in ripples at that price. On Tuesday, Ripples closed at 54 to each US dollar.