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San Francisco-based Ripple works to increase cryptocurrency use

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Chris Larsen, a co-founder of the virtual currency Ripple, in San Francisco in 2013.

SAN FRANCISCO >> You may have seen the actor and part-time tech investor Ashton Kutcher present $4 million worth of digital coins called XRP to Ellen DeGeneres’ favorite charity on her talk show. Or maybe you saw Stephen Colbert announce a $29 million donation of XRP to schoolteachers on his late-night show.

Ripple, a San Francisco company that is rolling in money thanks to last year’s runup in the value of cryptocurrencies, was behind the giveaways. And it has quietly become one of the most valuable startups of the last decade thanks to the value of XRP, the digital token its founders created six years ago.

Now comes the hard part: persuading people to use XRP for something other than speculative trading. It is an issue facing most of the still-young cryptocurrency industry. Digital tokens like bitcoin and its many imitators (like XRP) were designed to make electronic transactions of all sorts easier. But today almost no transactions are happening, other than on virtual currency exchanges where people bet on their price.

Despite a dramatic drop in the value of cryptocurrencies this year, Ripple still owns $30 billion worth of XRP, and the company wants to get some of those digital tokens into the hands of potential users.

In addition to the on-air gifts, and a private concert by the rapper Snoop Dogg for the currency’s fans, Ripple has created a $300 million fund that will pay companies to begin using XRP for its intended purpose — easing the transfer of money across international borders. Ripple recently announced another program, called Xpring, that will pay developers to build XRP-focused software.

“It’s still really, really early days, but we are seeing the vision come to life,” said Asheesh Birla, the head of product at Ripple. “I need to make sure it’s in the hands of the right folks.”

But few cryptocurrency projects have evolved to the point where anyone is using the tokens as anything other than an investment.

One industry investor, Spencer Bogart, coined a term for these businesses: Cash-Flush Business-Light.

Many people who bought the digital tokens created by these projects did so in the belief they will one day be useful for real transactions of some sort. If the projects want to keep those investors from selling, the projects have to convince them the tokens will have some long-term value.

A company known as Block.One, for example, raised $4 billion from investors before it even had functioning software. Now it is using some of the billions it has raised to create investment funds that will encourage developers to work on making its cryptocurrency, EOS, useful.

But no project is sitting on more money than Ripple, because of the unusual structure of the XRP cryptocurrency.

Bitcoin and most other well-known cryptocurrencies are slowly created over time and given away to computers on the network, with no company or authority in charge. In contrast, most XRP tokens — about 60 percent — are held by Ripple.

In January, the value of an XRP token briefly rose above $3, making a founder of the company, Chris Larsen, wealthier than Facebook’s Mark Zuckerberg for a short time, and Ripple worth more than most banks in the world.

Since then, the value of an XRP has dropped about 80 percent. But investors have kept the price around 50 cents and the value of the company’s holdings of XRP around $30 billion — more than the valuation of WeWork or SpaceX.

The company’s business model has drawn in big-name investors, including Kutcher’s venture capital firm, Sound Ventures, which helps explain his appearance on “The Ellen DeGeneres Show” in May.

But Ripple’s enormous holdings come with significant risks. The biggest legal concern facing many cryptocurrency projects is regulators in the United States categorizing their tokens as investment contracts, or securities.

If projects like XRP and EOS get the security label, they will be subject to restrictions on trading and movement, making it even less likely that people will use the tokens for their intended purposes.

A top official with the Securities and Exchange Commission said in a speech this month that one of the biggest factors in determining whether a token is a security is the role a central organizer plays in promoting the coin and increasing its value, especially if the central organizer holds a significant amount of the tokens.

Ripple’s executives have said they are confident XRP is not a security because XRP could still be used even if the company disappeared. The company hired Mary Jo White, who was chairwoman of the SEC from 2013 to 2017, to defend it against lawsuits from disgruntled XRP investors who claim the company misled them.

But the situation is something of a Catch-22 for Ripple: Its efforts to promote XRP could demonstrate how reliant XRP is on Ripple.

“Centralized control of a cryptocurrency is the central element to the SEC’s test of whether these tokens are securities,” said Lawson Baker, a lawyer and venture capitalist in the cryptocurrency industry. “Any time you are putting XRP to work to defend it or buy goodwill, you are going to hurt your case that you aren’t a security.”

If regulators don’t label XRP a security, the focus will return to what kind of traction the cryptocurrency can get in the real world.

Ripple has advertised the success it has had with software called xCurrent, which helps banks move money between international accounts more quickly than existing alternatives. But xCurrent doesn’t rely on the XRP token.

So who would take a risk on using XRP?

Birla, Ripple’s head of product, is betting the first companies to use XRP will be remittance and money-transfer companies that have to pay banks to move money for them. XRP comes with few of the fees that banks charge and, while bank systems close on nights and weekends, the digital tokens can be moved any time.

Ripple announced this year that several big money-transfer companies, including Western Union and MoneyGram, were doing pilot programs with XRP.

The chief executive of Western Union said last month that its first few transactions with XRP had not shown any noticeable benefits over the company’s existing systems, but the company would continue trying it out, according to Fortune.

Currencies Direct is among a handful of smaller companies that have also tried out XRP. The British outfit moved money between the United States and Mexico, and found XRP “on par or slightly cheaper” than its existing method, said Brian Harris, the company’s chief product officer.

But Currencies Direct is not planning to integrate XRP into its business right now, Harris said, because Ripple does not yet serve most of the countries where his company works.

“They aren’t in any of the markets where we need them to be yet,” Harris said. “It’s a wait-and-see game as to how they are able to build out that network.”

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