Will New Reddit Cryptocurrency Shares Give Users Any Real Power?

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Reddit is playing a long game when it comes to growth as a social network. After the recent announcement of $ 50 million in funding, users and pundits are wondering how Reddit will develop in the future. One of the main topics of interest is what shape the proposed Reddit shareholders cryptocurrency will take.

The current round of funding came from a variety of sources. The interesting thing is that 10 percent of the shares it generates will be given to the Reddit community in the form of cryptocurrency, a vision being championed by Reddit CEO Yishan Wong.

Sam Altman, a venture capitalist and one of the recent investors, is a big proponent of the distribution of shares. He says, “It’s always bothered me that users create so much of the value of sites like Reddit but don’t own any of it.” He added later that the move could “be really cool and hopefully a new way to think about community ownership.”

As for the mechanics of this currency, details are sparse, but Reddit is working towards implementation. Reddit recently hired BitPay’s Ryan Charles, a cryptocurrency engineer that “understood cryptocurrency and blockchain technology at a fundamental level.”

Users discussing a possible new currency in the r/Bitcoin subreddit believe that this move could turn out a few different ways. u/ImkoImko speculates the the currency could be built on top of Bitcoin, with a system known as “colored bitcoins.”

“I think it’d be a vastly more sensible idea to build it on top of colored bitcoin satoshis, which would be a huge, biggest-ever, test case for bitcoin as an asset ledger.”

This approach would tie the Reddit cryptocurrency to a proven cryptocurrency, and negate the need for a separate exchange-wallet-mining infrastructure. If this were the case, the Reddit currency could become immediately useful, but other users point out that by exchanging the shares, they could be removed from circulation.

The other option is to create a new currency, and with Charles joining the Reddit team, that’s a very real option. How users will receive shares is still unclear, but if every Reddit account comes with a free wallet for these shares, there would be no problem.

Despite Reddit’s sizable user base, it’s unlikely their shares will result in any real power. But it looks like there’s a movement toward giving users their due on social networks, with Reddit, LinkedIn and Ello leading the way.

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Mt. Gox founder helps (briefly) tank another crypto-currency

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jed-mccaleb-rippleGuess who’s making headlines again around plummeting crypto-currency values? The founder of Mt. Gox.

No, not Mark Karpeles, the eventual acquirer who, as CEO, ran the bitcoin exchange into the ground and lost hundreds of millions in client funds. I’m talking about Jed McCaleb, the man who launched the original Magic the Gathering Exchange that eventually (albeit briefly) became the world’s largest bitcoin exchange.

Yesterday, McCaleb announced plans to sell the remainder of his 9 billion XRP, the native currency of the Ripple transaction settlement platform. This sum representing 9 percent of all XRP in existence (100 billion total), but 115 percent of the XRP in circulation, with the remainder held by Ripple Labs. Thus, the announcement resulted in a swift and altogether unsurprising 47 percent decline in the value of XRP.

The 9 billion XRP held a notional value of just over $ 24 million at the time of McCaleb’s announcement, although it would be difficult to sell such a large block at market prices.

It wasn’t just the large “sell-side” pressure that dropped the price, but the fact that McCaleb is a co-founder of Ripple, and as such, his surprising decision to sell what amounts to his entire holdings in the currency was viewed as a vote of no-confidence in its long-term value.

After selling majority interest in Gox to Karpeles, McCaleb co-founded OpenCoin, which eventually became Ripple Labs, and was briefly its Chief Technical Officer. McCaleb, however, left the company a year ago to pursue other venture and recently has been working with a group of co-investors in an attempt to resurrect Mt. Gox.

With XRP message boards flooded by concerned Ripple enthusiasts, Ripple Labs co-founder Arthur Britton chimed in last evening, writing:

Many of you are concerned about what impact these sales will have on the market. What affects XRP price long-term is adoption of the protocol and growth of the ecosystem. As the value of the protocol (i.e. utility) increases, so does the value of XRP. The price of XRP doesn’t impair the functionality of the Ripple protocol or network.

Similarly, the short-term price of XRP does not hinder our ability to execute on the vision. Our company is well-funded. We’re not dependent on XRP.

Britton further reassured current and prospective investors not to fear over future founder sell-offs:

We’ve heard and shared your concern about the founders’ XRP allotment. Prior to today, we’ve been working on a founders’ XRP lock up plan, which Chris and I are participating in. You can rest assured that a dumping event like this won’t happen from other co-founders…

Some of you have asked what Jed’s intentions are with his sale, you’ll have to ask him. He hasn’t been on the operating team for about a year, and hasn’t been on the board since April.

In the hours following Britton’s message, the XRP price climbed back to its pre-McCalebgate levels, suggesting that this was a short-term detour for the currency.

For a brief primer, XRP is not meant as a transactional currency that consumers will use to buy groceries and gas. Rather it’s used within the Ripple platform as an intermediary currency enabling quick and low-cost exchange between other currencies. (It also has anti-spam applications, but that’s another discussion entirely)

For (an admittedly simplistic) example, imagine I have Euros and you live in a country that uses Rubles. If I want to pay you for something in Euros, the Ripple platform finds someone willing to trade Euros for XRP and then another person I trade my XRP for Rubles, which can then be paid to you. All this happens for free (or close to free), as compared to the costly and slow money transfer and exchange platforms used by today’s legacy banking system.

Put simply there’s value in owning this XRP currency as a universal currency, even if (in most circumstances) it won’t allow you to purchase goods and services directly. It’s like a universal currency.

The total value of the XRP system, with 7.8 billion coins in circulation, is currently $ 24.7 million, making it 0.36 percent the value of the bitcoin system, but then again it’s much younger. XRP has a long way to go in terms of awareness and adoption, and early hiccups like this won’t help much. Then again, if the swift rebound is any indication, this event may not hurt much either.

[illustration by Brad Jonas for Pando]

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