What is XRP, and is it a good investment?
XRP is the native token of Ripple, a digital payment protocol. It was launched in 2012 as an alternative to SWIFT with the goal of making cross-border transactions faster and more efficient.
What is Ripple?
Ripple Labs, the San Francisco-based company behind the XRP token, describes its mission as building “crypto solutions for a world without economic borders.” The company primarily focuses on facilitating cross-border cryptocurrency payments and cryptocurrency liquidity. Ripple also created a platform for issuing and managing a central bank digital currency (CBDC).
The company operates RippleNet, a network that financial institutions for international payments using Ripple’s blockchain technology.
What is XRP?
XRP is Ripple’s cryptocurrency token designed for low-cost, trustless, and instant cross-border fund transfers. Its primary objective is to serve as a bridge currency, providing financial institutions with a more cost-effective way to exchange both crypto and traditional currencies.
According to the Ripple website, XRP transactions are completed in 3-5 seconds and cost, on average, $0.0002 per transaction.
How does Ripple work?
Ripple uses XRP Ledger, a public blockchain led by a global community of developers.
Unlike other blockchains, it operates using validators to confirm transactions. With over 150 validators (around 35 on the default Unique Node List), including two run by Ripple, the network validates all XRP transactions every three to five seconds using the Ripple Protocol Consensus Algorithm. According to the XRP Ledger website, the system is capable of processing over 1500 transactions per second.
XRP growth
XRP has been one of the top-performing digital assets since 2017. XRP hit its all-time high, peaking at around $3.84 in January 2018.
The coin is widely available in the market and is listed on the top crypto exchanges worldwide, including Binance, KuCoin, and BitStamp.
This success is partly due to Ripple’s strong ties with traditional financial systems. Ripple has partnered with financial institutions in at least 55 countries.
In December 2018, the National Bank of Kuwait (NBK) launched a Ripple-based cross-border payment system called NBK Direct Remit. The goal was to allow for instant and cost-effective transactions and expand the payment solutions into previously challenging or costly markets.
In 2019, Ripple announced a strategic partnership with MoneyGram to utilize XRP to facilitate money transfers. The partnership aimed to reduce fees for MoneyGram users allowing them to send funds from USD to other currencies 24/7 instantly.
MoneyGram and NBK were not the only big names to collaborate with Ripple. The company also partnered with American Express, Santander and other banks including the collaboration with the Central Bank of Montenegro (CBCG) to develop the country’s first CBDC.
U.S. SEC files lawsuit against Ripple Labs
Ripple encountered legal challenges from the U.S. Securities and Exchange Commission (SEC) in December 2020 when the agency filed a lawsuit against the company and its executives.
The SEC accused Ripple of selling unregistered securities totaling $1.3 billion through XRP tokens. The agency alleged that the company and its executives violated federal securities laws by marketing XRP to retail investors without proper disclosures and registration.
Ripple refused these allegations, asserting that XRP is not a security but a digital asset facilitating cross-border payments. It contested the SEC’s jurisdiction and authority over XRP, questioning the selective enforcement against Ripple while seemingly overlooking similar cryptocurrencies like ethereum (ETH).
The payments platform also emphasized the detrimental impact of the SEC’s lawsuit on numerous innocent XRP holders, who witnessed the devaluation of their tokens after major U.S. exchanges delisted or suspended XRP trading.
The lawsuit remains unresolved, with numerous motions, requests, and objections from both sides.
Ripple and the bitcoin community
Ripple has emerged as one of the most popular digital assets in the market. However, not all bitcoin community members share a favorable view of XRP.
Bitcoin was initially designed to empower individuals with financial sovereignty, allowing them to become their own bank. Given the libertarian roots of many bitcoin enthusiasts, some argue that Ripple deviates from the fundamental principles on which cryptocurrencies were built.
Critics of Ripple also draw attention to its lack of decentralization. Ripple Labs initially created all the coins through pre-mining and still retains ownership of around half of the total supply of XRP.
The community also questioned the decentralization of XRP Ledger. David Schwartz, XRPL architect and current Ripple CTO, responded to these claims highlighting that XRPLF does not have the authority to dictate the validators on the ledger.
Ripple’s supply
Understanding the supply structure of a cryptocurrency is crucial in evaluating its price. When it comes to XRP, its creation and mining process diverge significantly from other cryptocurrencies.
All XRP tokens were generated in 2012 during the platform’s launch, resulting in a total supply of 100 billion.
Approximately 51.98 billion XRP coins are in circulation, while Ripple Labs retains ownership of the remaining tokens. This unique distribution contributes to the XRP price dynamics.
XRP escrow
In May 2017, Ripple Labs announced its plan to lock up more than half of the XRP supply. It intended to release one billion XRP each month for 55 months gradually. This strategy was meant to eliminate uncertainties surrounding XRP’s future supply. Since January 2018, Ripple has been withdrawing from the escrow a billion XRP each month. This usually has no impact on the XRP price.
Where to buy and store XRP tokens
If you’re looking to buy and store XRP, you have several options. You can purchase it on crypto exchanges like Binance, KuCoin and Bitstamp. On these platforms, you can trade your desired amount of XRP for other cryptocurrencies or fiat currencies.
For those who prefer a straightforward buying process, crypto brokerage platforms like eToro, offer an easier way to purchase XRP directly without complex trading interfaces.
Another popular option for storing your Ripple is GateHub, which has a user-friendly interface where you can hold and manage your XRP tokens. Ripple works seamlessly within the GateHub ecosystem, making it a preferred choice for many XRP holders, individuals, and companies.
If you prioritize maximum security, consider using a hardware wallet like Ledger Nano S. Hardware wallets are designed to keep your cryptocurrencies safe by storing them offline, away from potential cyber risks.
Remember, activating your Ripple wallet by depositing a minimum of 20 XRP is essential. This ensures the proper functioning of your wallet and allows you to utilize the Ripple network fully.
Stellar lumen vs Ripple
What is the difference between Stellar lumen (XLM) and XRP? Both have low fees and high transaction speed. Jed McCaleb, the founder of Stellar was the CTO of Ripple before he left the project.
Their main distinctions lie in their business approaches. Ripple caters to big banks, while Steller’s is targeting the unbanked.
Ripple is more centralized, meaning mostly banks and other financial institutions can use the blockchain. Stellar is open to the public as an open-source platform. After the release, more than 90% of the XLM tokens were distributed to the public, and around half of the XRP tokens are owned by Ripple’s founders.
XRP pros
XRP has garnered popularity and adoption in the financial world due to its numerous advantages. Here are some of its key benefits:
- Swift and efficient transactions: Ripple’s consensus protocol enables near-instant transaction confirmations. According to the company, XRP transactions are processed in 3-5 seconds.
- Scalability: Ripple says the system can handle more than 1500 transactions per second. This means the network can accommodate an increased transactional activity, potentially making it suitable for broad adoption and future growth.
- Cost-effective transactions: Ripple’s transaction fees are significantly lower than many traditional financial systems and other cryptocurrencies. This affordability appeals to individuals and businesses seeking reduced transaction costs, especially for frequent or high-value transfers.
- Widely accepted and liquid: Ripple has gained broad acceptance among financial institutions, banks, and payment providers. This widespread integration enhances XRP’s liquidity, simplifying buying, selling, and exchanging cryptocurrency across various platforms and markets.
- Robust security: Ripple claims it uses advanced cryptographic techniques to ensure transaction security and integrity. This technology aims to safeguard against fraud, tampering, and unauthorized access, bolstering overall trust in the Ripple network.
XRP cons
While Ripple offers several advantages, it’s also important to consider its potential drawbacks. Here are some of the disadvantages associated with Ripple:
- Centralization concerns: Unlike decentralized cryptocurrencies like bitcoin, Ripple’s network operates more centrally, relying on a selected group of trusted validators to confirm transactions. It has raised concerns about potential control, censorship, and power concentration within the Ripple network.
- Dependency on Ripple Labs: Ripple’s ecosystem heavily depends on the actions and decisions of Ripple Labs, the company behind the technology. It holds a significant portion of XRP tokens, which has raised concerns about its influence on the market and the potential for price manipulation. Additionally, some argue that Ripple’s success is closely tied to the success of Ripple Labs, creating a level of dependency that can be perceived as a risk.
- Regulatory uncertainty: Ripple has faced regulatory challenges and legal disputes, particularly in the United States. The U.S. SEC has sued Ripple Labs, alleging that XRP is an unregistered security. It has raised investor concerns and may impact XRP’s future market viability.
- Volatility and lack of control: Like many cryptocurrencies, XRP has exhibited significant price volatility, making it challenging for users and businesses to predict its value accurately. Moreover, because Ripple operates with a more centralized structure, users have limited control over the network and decision-making processes, which may not align with the principles of decentralization that some individuals and organizations seek.
- Limited adoption: While Ripple has gained traction in the financial industry, its adoption outside traditional financial institutions remains somewhat limited. Its utility and acceptance in day-to-day transactions and among retail users are less widespread than other cryptocurrencies.
Should you buy XRP as an investment?
Is investing in XRP a good idea? The answer depends on whether Ripple Labs can successfully establish itself as the leading payment solution for the financial industry.
If they succeed, there will be high demand for XRP, justifying a high price. This possibility becomes more plausible as the company continues to forge relationships with key players.
On the flip side, if Ripple Labs fails in its endeavors or loses the SEC case against it, the value of XRP could diminish significantly.
The supply of coins yet to enter the market poses another risk for XRP’s price development. The inflow of money into the system must surpass the number of new coins introduced. If the demand for XRP doesn’t exceed the original supply, its value will decline.
While Ripple may not be favored within the bitcoin community, it can attract investors and financial institutions. Despite debates over its authenticity as a cryptocurrency, it still holds real value and offers a much-needed upgrade to an outdated system.
However, remember that it is best to do your own research before deciding to invest in any digital asset.
FAQs
What is Ripple’s XRP used for?
Ripple facilitates fast and low-cost transactions across the globe. It serves as a bridge currency to enable seamless transfers of value between different fiat currencies and cryptocurrencies. Ripple’s primary goal is to provide efficient, secure, and nearly instant cross-border payments, making it particularly useful for financial institutions and remittance services.
Is XRP better than bitcoin?
Comparing XRP and bitcoin is not a matter of objectively being better than the other. They are fundamentally different in their purpose and design.
Bitcoin operates on blockchain technology that prioritizes decentralization and security. Its primary focus is to enable peer-to-peer transactions, store value, and act as a store of digital wealth.
On the other hand, Ripple’s XRP is a digital currency designed for facilitating fast and low-cost cross-border transactions. It aims to improve the efficiency of international money transfers, particularly for financial institutions and remittance services.
While bitcoin and Ripple are prominent players in the crypto space, they have distinct purposes. Bitcoin is more suitable for individuals seeking a decentralized digital currency and investment opportunity. At the same time, XRP is targeted toward financial institutions and enterprises seeking to enhance their cross-border payment systems.
Ultimately, the choice between bitcoin and XRP depends on individual needs, preferences, and the specific use case.
What is the difference between Ripple and XRP?
Ripple and XRP are often mentioned together, but they serve different purposes within the broader context of digital payments.
Ripple refers to a technology company based in San Francisco that operates RippleNet, a network of financial institutions aimed to enable fast and secure cross-border transactions. It utilizes a consensus protocol to facilitate transaction settlement.
XRP, on the other hand, is the native cryptocurrency of the XRP Ledger. It is the digital asset used within the RippleNet ecosystem to provide liquidity and bridge different currencies. XRP can be used as a tool to facilitate efficient and low-cost transfers between various fiat currencies and cryptocurrencies.
