PDF《NOTE》

45 (2014) [hereinafter The Ripple Protocol]. 2. Id. at 4. Ripple Labs has since dropped Labs from its name. Alec Liu, A New Chapter for Ripple, Ripple (Oct. 6, 2015), https://ripple.com/blog/a-new-chapter-for-ripple/ [http://perma.cc/4R8A-9CT6]. To help distinguish between the protocol and the company largely behind it, this Note refers to the company as Ripple Labs. 3. See The Ripple Protocol, supra note

1 at 4C5, 13. February 2016] The Ripple Case Study

651 Today'

s international-payments system is broken, and Ripple could pro- vide its cure. The international-payments system lacks transparency and re- mains antiquated, slow, inconvenient, [and] costly.

4 Thus the Federal Reserve, in proposing reforms to the U.S. payment system, listed the ability of [United States] consumers and businesses to send and receive conve- nient, cost-effective and timely cross-border payments as one of five desired outcomes to improve the modern payment system infrastructure.5 And while the Federal Reserve has identified the problem, private banks believe that distributed ledger technology could provide the solution. Santander Bank estimates that distributed ledger technologies could save banks up to $20 billion a year in infrastructure costs related to cross-border payments, securities trading, and compliance.6 This Note argues that Ripple provides the solution that the Federal Reserve calls for by offering a more efficient and secure way to send money across borders than traditional systems. This Note suggests that Ripple should and will become widely adopted, serving as at least one major international-payments protocol. But if Ripple is widely adopted in the global-payments ecosystem, regulators must figure out the best way to oversee its use. This poses challenges because, unlike traditional payment systems, Ripple is an open-source Internet protocol: it is not owned or operated by any entity, but it facilitates operational processes between its members.7 And although it governs how the users'

computers interact with each other, the protocol does not affect the users'

legal rights and obligations.8 Ripple does not propose to replace the current financial infrastructure, but instead intends to become a part of it, much like an app on an iPhone.9 Ripple provides the rail on which payments move;

it does not define any other aspect of the relationships of its users or their legal respon- sibilities to one another.10 Because of its decentralized nature and unclear legal status, Ripple―like other distributed ledger-based protocols―does not fit into existing frameworks for regulating payment systems or service providers. This Note first helps regulators and other market participants under- stand how Ripple operates. It then suggests principles that regulators might use to monitor these increasingly important decentralized and globalized value transmitters. Part I explains how traditional payment systems work 4. Fed. Reserve Sys., Strategies for Improving the U.S. Payment System

25 n.35 (2015), https://fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us- payment-system.pdf [http://perma.cc/42U7-EVVS]. 5. Id. at 2. The other improvements focus on speed, efficiency, and security improve- ments. Id. 6. Santander InnoVentures et al., The Fintech 2.0 Paper: Rebooting Financial Services

15 (2015). 7. See The Ripple Protocol, supra note 1, at 4. 8. See id. 9. See id. at 4C5. 10. Telephone Interview with Ryan Zagone, Dir. of Regulatory Relations, Ripple Labs, Inc. (Apr. 20, 2015).

652 Michigan Law Review [Vol. 114:649 and the particularly significant problems and costs that attend people'