Recently there has been a lot of buzz surrounding Ripple. On 2014-05-22 Jed, one of the creators of the Ripple system, announced he will be selling the XRPs (ripples) he received for developing the system. This wouldn't be newsworthy, if it wasn't for the sheer amount of currency being liquidated. At the inception of the system, Jed owned 9 billion XRPs, or 9% of the total available supply. Some of the currency was allegedly given away to various charities, but one can expect a good number of them to still be owned by Jed. The announcement has caused XRPs to drop in price dramatically, and Jed is still to sell his share (which he is planning to do two weeks from the announcement).
Another announcement was made today, on 2014-05-23 by Jesse from Kraken. He is one of the first investors to Ripple Labs, the company that took over the development of Ripple from Jed and other creators. Jesse resigned from the Board of Ripple Labs, stating that "I’m no longer confident in the management nor the company’s ability to recover from the founders’ perplexing allocation to themselves of 20% of the XRP".
Quick note - what are XRPs?
What this means for Ripple
A lot of people in the Bitcoin space appear to confuse two things - Ripple and ripples / XRPs. This situation is very similar to how people outside of the Bitcoin and Crypto space confuse Bitcoin with bitcoins. The former in both cases is the technology and the protocol running the system, while the latter is the currency and unit of account inside of that system. Just like Bitcoin is not just bitcoins, so Ripple is not just ripples. When the price of a single bitcoin has fallen from $30 in June 2011 by 68%, from $15 in August 2012 by 51%, from $266 in April 2013 by 61% and so on, people that thought Bitcoin==bitcoins declared Bitcoin to be dead. The protocol was unaffected, Bitcoin survived.
The story is similar right now with Ripple and XRPs. XRPs are falling in value, while the Ripple protocol is still strong. Just like the price of a bitcoin is the least interesting part of Bitcoin, so is the price of XRP when talking about Ripple.
At the same time, this incident creates a lot more bad press for Ripple and Ripple Labs. People holding XRPs and expecting a growth of value will be disappointed and may be bitter towards the system. A lot more people will once again start to call Ripple a scam. This could hinder adoption of the system further.
At the same time, once the XRPs are sold by Jed the market will become more decentralized. Someone estimated that in November 2013 there were about 7 billion XRPs in circulation. With Jed's stash, that number would increase that number to 16% of the total supply.
Quick note - do you need XRPs?
Since XRPs are a DoS prevention in the Ripple system, everyone needs some XRPs to use Ripple. However, the amount needed is very small. About 50 XRPs, roughly worth 15 cents at the current exchange rate, should be enough for almost everyone for a lifetime of use (assuming transaction fees remain the same). There are a few places that give one XRPs for free when they sign up for their Gateway, meaning that once doesn't need to buy any ripples to use the Ripple system.
XRPs are an "app coin", like WoW gold or EVE Online's ISK, and don't make for a good currency otherwise.
What about Ripple Labs?
While Jed's declaration shook the market up, it's Jesse's insight that might be more worrying. XRP price be damned, but the Ripple system is mainly in the hands of Ripple Labs. I am wondering how the current situation is affecting the company and what will happen to them in the future.
To sum all up
XRP price is going down, but XRP != Ripple. Ripple is like Bitcoin in June 2011 - price is falling down, but the protocol and software is still strong. Unless Ripple Labs ditches the development of the software, Ripple is not dead. Don't put more money in XRP than you can afford to lose, it's an app coin.