Who Is Jed McCaleb?
If you check Jed McCaleb’s Wikipedia page what emerges on the surface level is the quiet career of a genius entrepreneur philanthropist. All the classic signs of tech savant are there: attended prestigious college, dropped out, founded peer-to-peer file sharing service, sued out of existence, right place-right time for Bitcoin.
But while the quiet part is true (Jed rarely does interviews and doesn’t have much of a social media prescence), the murkier waters of Jed’s past aren’t to be glossed over.
eDonkey2000
Many people in the cryptocurrency space aren’t old enough to remember eDonkey2000, a peer-to-peer file sharing service, developed by Jed McCaleb and Sam Yagan, and released in September of 2000. Though similar to Napster in many ways, it improves upon the freeware by offering swarming downloads and the use of hashes for file searches.
But eDonkey2000 doesn’t last more than five years before it goes the way of Napster, Limewire, and Kazaa. They put up notice on their site and settle with the RIAA for $30 million:
Though the protocol is still around and was briefly the most widely used p2p protocol in existence, BitTorrent takes over in 2007 and hasn’t looked back since.
The Mt. Gox Affair
Mt. Gox will likely go down in history as the company closest to bringing Bitcoin to its knees. What’s remembered about Mt. Gox, the world’s first Bitcoin exchange, is its ultimate demise and the loss of millions (billions now?) of dollars worth of Bitcoin, affecting thousands of individuals. Mark Karpelès is who most hold responsible for what occurrs at Mt. Gox — and it’s fair to say that Mark is a lousy and negligent CEO, who is found criminally liable and does jail time in Japan.
But what’s lost to the sands of time is that Mark is sold a bunk product by Jed, who is aware of the gaping security problems, which becomes clear when you read the bill of goods and caveats that is agreed to:
the Seller is uncertain if mtgox.com is compliant or not with any applicable US code or state, or law of any country… Buyer agrees to indemnify Seller against any legal action that is taken against Buyer or Seller with regards to mtgox.com or anything acquired under this agreement.
Basically, Jed McCaleb takes the tried and true approach of a used-car salesman selling to a first-time buyer: sell a lemon to an unsuspecting victim, who drives off only to, months later, realize the engine block and transmission are shot, with zero recourse.
Of course, in America, Lemon Laws exist to stop this kind of behavior from becoming the standard, but in Japan, Jed isn’t held liable for any ownership he retains (12% of Mt. Gox) or the buggy codebase he sells to Mark that helps lead to hacks and major losses within months of the takeover. What I believe — and this is just, like, my opinion, man — is that Jed knows exactly what he is selling to Mark and is washing his hands of any criminal negligence that can be applied to him.
Listen to him talk about creating Mt. Gox on his own and letting go of it (except that 12%!) because of the fear of US legal complications in this video (bear with the terrible audio if you can):
And while there’s plenty of reason to believe the lawsuit will amount to nothing, it’s important to note that Jed is being taken to court in America for his Mt. Gox antics:
The Move to Unregistered Securities
After selling Mt. Gox, Jed begins his tumultuous relationship with the company he founds — initially OpenCoin Inc., but then called Ripple Labs.
This falls apart. In what becomes an open secret, Jed and his partner, Joyce Kim, begin to butt heads with executives at Ripple. Not only that, but soon an acquisition of Ripple Labs by Stripe (the payment processor) disintegrates, seemingly because the board of directors at Ripple Labs — a group including Jesse Powell and Roger Ver — think that the offer “sucks.”
This leads to McCaleb calling for the resignation of Chris Larsen, the CEO, in an infamous boardroom meeting that, predictably, doesn’t go his way:
“The Stripe deal sucks; employees don’t trust you as a leader/manager; you hiring your girlfriend indicates you have poor judgment.” — Jesse Powell in an email to Jed McCaleb
And that’s enough for Jed. He meanders off to the wilds of Costa Rica and Brazil on an extended vacation, not keeping in touch with board members at Ripple and not fulfilling his role as CTO.
Back with a Bang
But that isn’t the last that Ripple Labs hears of Jed McCaleb. A few months after his departure, he returns with a foreboding post on XRP Talk:
Now, in any traditional financial market a post like this would probably fall under the guise of “insider trading” or at the bare minimum “fraud.”
“Huh? He’s warning people he’s going to sell! How is this insider trading or fraud??”
Remember this?
This, what was essentially a terrible weed joke, forced Elon and Tesla to settle with the SEC:
Amplify this and pretend Elon had tweeted, “Going to be selling all my Tesla stock, just a head’s up because I have so much respect for all the shareholders.”
He’d be in jail.
But Jed doesn’t go to jail and, unsurprisingly, doesn’t sell his XRP, instead reaching a deal with the executives and board that he will, under a specific schedule and with limitations on volume, sell his XRP over the course of a seven-year period.
Meanwhile, In F*ckYouVille
Before Jed posts about selling his XRP, he’s already begun work on his new project, called Stellar, that will utilize the open source code from Ripple, but tweak it slightly. He also pushes to work intimately with Stripe — the same Stripe that Ripple execs and board members refused to do business with.
In a surprisingly elegant “F*ck you!” to Ripple, Stripe allows Stellar to essentially function in its HQ in San Francisco, free of charge, with on-demand massages and classy catered lunches.
Ripple and Stellar instantly become direct competitors in the unregistered security business.
A Few Years Later…
The bull run of ‘17/’18 briefly makes Jed McCaleb the 54th richest person in the world. The current bull run puts him around 40th.
Unfortunately, the only cryptocurrency that’s been hammered during this immense run up throughout the space is XRP (or as they were once known, Ripples — the cryptocurrency issued by Ripple Labs), and for good reason.
In a stunning turn of events, Ripple is brought to court by the Securities and Exchange Commission.
It does not bode well for the unregistered security, which plummets and hasn’t recovered.
However, noticeably absent from the complaint is Jed McCaleb, the founder, former CTO, and consistent market maker (lol, “market maker” just through his sales alone). It’s hard to imagine why.
What’s Next?
The question on everyone’s mind isn’t whether or not Ripple is likely to win the lawsuit — as far as most are concerned, that likelihood is small — but rather, “Which cryptocurrency will be the next Ripple?” ie; who is the SEC going to file suit against next?
If your first guess was Stellar, the cryptocurrency started by the same guy who founded Ripple, with many of the same exact concepts implemented, with its business arm headquartered in the US, I would say there’s some good odds you could be right.
But hey, I’m only speaking hypothetically, reviewing a founder’s incredibly checkered past. I’m more apt to wonder if Jed will exit Stellar before any bad circumstances present themselves, much like he has in nearly every other business he’s started.
Stay skeptical, friends.