Ripple Is Confronted With a Chance To Repair Its Closed System

In July, a United States magistrate ruled that Ripple Labs' XRP token was not a security when sold to the public on secondary markets. While the Securities and Exchange Commission will contest the ruling, the cryptocurrency community as a whole has embraced it, as crypto trades on exchanges may be exempt from the securities transaction classification.

Despite the ruling, the crypto market is still plagued by widespread uncertainty. Ripple has been embroiled in this conflict for quite some time, but this legal victory may serve as a partial emancipation, enabling the company to reignite its former flame. This case presents an ideal opportunity for the company to chart a new course, closing a previous chapter and launching a new era.

Ripple was created to supplant the conventional SWIFT system for international payments. As anyone who has experienced the aggravation of paying $45 for an international wire transfer that took four days to reach its intended recipient can attest, there were valid reasons for doing so. Ripple intended to create a cryptocurrency product that closely resembled the legacy financial ecosystem — a system optimised for everyday transactions, with a streamlined process, no weekend or holiday delays, and no exorbitant and unpredictable fees associated with SWIFT transfers.

This objective defined its product, prompting the company to undertake the daunting task of building an entire technology stack from inception. Nevertheless, this proved to be a Herculean effort. In addition to the technological obstacles, there were numerous processes and unanticipated points of contention, particularly when operating across multiple jurisdictions. The undertaking likely exceeded Ripple's initial estimates, necessitating adjustments and sacrifices in order to achieve its objectives.

One of the most significant concessions Ripple made was to establish a centralised structure, which was fundamentally distinct from other crypto projects. This decision turned out to be double-edged. Despite the fact that this configuration initially facilitated quick and inexpensive transactions, it inadvertently discouraged the participation of a larger Web3 developer community. This strategic decision inhibited individual engagement, creating an unwelcoming environment.

The centralised structure also resulted in the creation of a closed system, which prevented Ripple from establishing a crucial application-layer foundation. An open platform creates a system where, as Bill Gates once remarked, "the economic value of everyone who uses it exceeds the value of the company that creates it," whereas a closed solution allows Ripple to retain all of the value it generates.

Creating a true ecosystem, which is the alternative, preferable path to layer-1 blockchain networks, enables a thriving community of individuals and organisations with a vested interest in the success of the protocol. Community members and adherents serve as a beacon, continually luring in more participants and thereby establishing a self-fulfilling prophecy for the mission and expansion of a protocol. And while Ripple may now share the value generated by its ecosystem with its community members, it stands to acquire greater economic value by acquiring a share of a significantly larger pie.

Uncertainty exists as to whether this community would substantially alter the course or dynamics of Ripple's legal battle. Numerous successful projects demonstrate, however, that there are distinct advantages on both the business and product fronts when it comes to operating a layer-1 blockchain.

With regards to Ripple, it is not too late to change direction. Numerous Web3 projects began their journeys with increased centralization before gradually transforming into decentralised autonomous organisations that ceded control to their respective communities. Notably, Cosmos pioneered an innovative framework, supplying developers with the foundation for an interconnected blockchain network that continues to interface with other Cosmos-based platforms. Ethereum today thrives with a burgeoning layer-2 ecosystem — an unanticipated augmentation facilitating swift fund transfers, experimentation, novel app development and rigorous testing.

Regulatory ambiguity is a deterrent for startups that desire conformity with conventional or conservative institutions. Currently, Ripple enjoys a degree of certainty, which is advantageous when pursuing partnerships with these conventional organisations.

With any optimism, Ripple's fire will rekindle, as it was one of the earliest solutions to real-world financial problems. Moreover, the crypto ecosystem as a whole has largely followed the trend towards increased decentralisation. In any event, Ripple's success will depend on its technology and ecosystem, over which it now has significantly more control.