Blockchain works best when nobody knows they’re using it

Ripple’s XRP fuels RippleWorks.
Ripple’s XRP fuels RippleWorks.
Image: Reuters/Chris Helgren
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On the record: Doug Galen

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Image: RippleWorks

Doug Galen is CEO and cofounder of RippleWorks, a private foundation based in Redwood City, California that connects technology experts with growing companies that need guidance. Created in 2015, RippleWorks was funded through large donations of XRP by Ripple, a cryptocurrency company focused on international settlement, and Chris Larsen, ex-CEO of Ripple and cofounder of RippleWorks. In addition to his role at RippleWorks, Galen is a lecturer in management at Stanford’s Graduate School of Business where he teaches Startup Garage. He spoke with Quartz’s Matthew De Silva.

Quartz: What exactly is RippleWorks?

Galen: RippleWorks was created four years ago out of the hope that cryptocurrency could fuel opportunities to do good in the world. It’s an independent foundation, Chris Larsen and I are the founders, and Ripple and Chris Larsen were the donors to the foundation. Chris and I have been in fintech for a long time. We built a company together called E-Loan, a disruptive mortgage company.

Four years ago, blockchain was very theoretical. So, RippleWorks worked to identify what are the most important challenges going on in the world and how could innovation help solve those problems. RippleWorks wasn’t focused on blockchain initiatives, but it was inspired by blockchain initiatives to work on innovative solutions.

How would you explain the differences between a conventional database and a blockchain database to a layperson?

A blockchain database reduces the probability of changing the data that is in it and provides a better ability to track any changes that are made. Then, there’s all the benefits of being able to do that.

The challenge for blockchain, like in any database, is the quality of the data that goes in. That’s the great challenge to solve in the coming years. Once your data is in the blocks and chained, it’s of value. Now, we have to make sure that what goes in it is accurate.

How do you view complaints that blockchain is difficult for the average person to use?

People come before algorithms and technology. It goes back to what are the problems that are being addressed and that’s the part that interests me.

We all know the four basic use cases that blockchain best addresses: transparency, immutability, lower payment costs to move money, and digital identity. Those four problems aren’t going away. They’re massive. Any technology that can address those has meaningful near-term and long-term hope, and blockchain does have that possibility.

What do you think of blockchain solutions which make users responsible for managing their own assets and information?

Many companies have a solution called “blockchain” in search of a problem, and they’re not taking the user or consumer into account. The promise of helping the two billion unbanked with blockchain is only interesting if they never see blockchain. It has to be in the background. Like the early days of other technologies, the technology is leading many of the use cases.

To me, this is about failure of potential systems because they’re not taking the users into account. I’m hoping that in the coming years we’ll get back to good old-fashioned,  human-centered design.

For instance, is a money remittance organization—Philippines based—and they’re using blockchain and cryptocurrency in the background. But you as a consumer have no idea what’s going on [under the hood]. It’s leveraging blockchain for its lower cost to move money. It’s not forcing a new coin on a farmer in Rwanda.

Although RippleWorks doesn’t work directly with blockchain technology, it has significant exposure to the cryptocurrency markets because of your XRP funding. How are you managing your treasury of XRP?

Something we’ve probably all learned in the stock market is if you have a good position, you should be selling a little bit off every day. We avoid market timing by converting a little bit of XRP every day to help fund operations. It’s not an elegant treasury solution, but it’s converting [XRP] so we can do good in the world. We obviously have the greatest technology from a security standpoint, but treasury is not a material issue for us other than diversifying our position over time.

Will RippleWorks be impacted by the lawsuits Ripple is facing about whether XRP is a security?

We would only be a downstream byproduct of whatever decisions are made because it would impact the value of the XRP.

We do have other issues though. If you recall, we’re a non-profit, we’re a foundation—and foundations are required to spend at least five percent of the value of their assets annually, which is a good thing. The purpose of that is if you’re going to put money into a foundation, it’s to do good in the world. So, you should be spending a minimum amount to do good and the IRS has deemed that [amount is] five percent.

Now this gets a little technical, but for something like cryptocurrency [which is] very volatile, how do you determine the five percent? As a next-generation foundation, like RippleWorks, based on cryptocurrency, the current regulations are that one day each year, the value of your crypto assets is appraised and based off of that one day you set the five percent.

Galen’s recommendations:


Market chatter

Coinbase to offer XRP

XRP, which is sometimes used for international settlement, will soon be available through Coinbase’s professional trading platform, Coinbase Pro (formerly called GDAX). The price of XRP spiked more than 10 percent, reaching $0.33 per token, after the San Francisco-based exchange announced the listing on Monday.

For Ripple, which owns a majority of the outstanding, fixed supply of 100 billion XRP, the Coinbase listing is an absolute coup and gives the company a strong case to attract new investors and users, both retail and institutional. Additionally, it raises the possibility that Gemini, another major US cryptocurrency exchange, could also list XRP, a potential boon to the short-term price.

In April 2018, Bloomberg reported that Ripple, which maintains the XRP Ledger, tried to pay Coinbase and Gemini to list XRP, and even offered Coinbase an XRP loan worth $100 million, to no avail. The exchanges, it seemed, were concerned that XRP might be deemed an unregistered security, as Ripple faces class action lawsuits related to the matter. However, as crypto prices remain depressed, it’s possible Coinbase faced pressures to maintain its explosive growth, causing the exchange to relax its listing standards.


Regulatory watch

An Australian financial intelligence agency tries blockchain.

The Australian Transaction Reports and Analysis Centre (AUSTRAC), in conjunction with the Swinburne University of Technology in Melbourne, is testing a proof-of-concept to examine whether blockchain and other systems can help automate financial reporting for international transactions. Tests, which are expected to last 12 months, began in Dec. 2018.