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114 Mich. L. Rev. 649 (2015-2016)
Understanding and Regulating Twenty-First Century Payment Systems: The Ripple Case Study

handle is hein.journals/mlr114 and id is 687 raw text is: 






                                 NOTE

      UNDERSTANDING AND REGULATING TWENTY-FIRST
   CENTURY PAYMENT SYSTEMS: THE RIPPLE CASE STUDY

                   Marcel T. Rosner* & Andrew Kang**
    Ripple is an open-source Internet software that enables users to conduct pay-
    ments across national boundaries in multiple currencies as seamlessly as send-
    ing an email. This decentralized Internet payment protocol could provide a
    cure to an inefficient cross-border payments system. Although Ripple's tech-
    nology can reduce significant risks and costs that exist in the international-
    payments system, regulators should adopt a new regulatory framework that
    responds to how this technology works. This Note performs two functions to
    help regulators realize this goal. It first helps regulators and other market par-
    ticipants understand how Ripple operates by explaining what Ripple is and
    comparing it to current payments systems. Second, it suggests a series of prin-
    ciples that regulators should use to monitor decentralized Internet payment
    protocols like Ripple. It does this by drawing from and tailoring existing regu-
    latory principles to account for the risks reduced and presented by Ripple.

                           TABLE OF CONTENTS

INTRODUCTION    ..................................................... 650
     I. NONCASH PAYMENTS: MOVING MONEY THROUGH
        SETTLEM ENT  ................................................ 652
        A. Moving Money in the United States ....................... 652
        B. The Complexity, Risk, and Expense of the Current
            Cross-Border Payments System ............................ 656
    II. RIPPLE: POWERING THE MOVEMENT OF MONEY THROUGH
        DISTRIBUTED   SETTLEMENT ................................... 657
        A. Ripple Balances and Distributed Settlement ................ 658
        B. Changing the International-Payments System: Atomic and
            Straight Through Settlement .............................. 660
        C.  Decentralized Governance  ................................ 663
        D. Current Regulatory Status of Ripple ....................... 664
   III. A PRINCIPLES-BASED APPROACH TO REGULATING RIPPLE ...... 666
        A. Principle I: Comprehensive Legal Frameworks for the
            Institutions That Use Ripple .............................. 667

    * Law Clerk to Vice Chancellor Laster, Delaware Court of Chancery.
    ** University of Michigan Law School, December 2016. We would like to thank
Professor Michael Barr in particular for his care, guidance, and support throughout the
development of this Note. We would also like to thank Ryan Zagone, Karen Gifford, and Jess
Cheng from Ripple for their comments on earlier drafts, as well as Chance Hill and Danielle
Kalil-McLane and the rest of the Notes office for their helpful comments.

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