The following review is not financial advice. Coin Grades’ ratings and letter assignments reflect the technical and practical viability of these cryptocurrencies in the eyes of the Coin Grades team. As always, we encourage you to do your own thorough research from multiple sources before choosing to invest in any cryptocurrency. The Coin Grades team was not compensated for this review. Some members of the Coin Grades team do hold Ripple (XRP) in their personal investment portfolios.
The terms “Ripple” and “XRP”, while often used interchangeably, actually refer to different things. The term Ripple is used to refer to the technology, and XRP is used to refer to the actual cryptocurrency.
Unbeknownst to many in the cryptocurrency space, the technology that XRP uses is actually several years older than Bitcoin. The project was originally called OpenCoin and founded by creator Ryan Fugger in 2004. The project evolved into what we know it as today when a man named Jed McCaleb and two developers (David Schwartz and Arthur Britto) approached Fugger and formed Ripple Labs. Their vision was to improve the efficiency of cross-border financial transactions by supplying banks with their new, exciting, and unique technology.
Even though the XRP coin has early roots, Ripple wasn’t officially formed until 2012, and didn’t achieve industry adoption until 2014. XRP has consistently been in the top 5 in terms of market capitalization since then.
Ripple’s initial purpose was to eliminate the need for centralized exchanges to facilitate real-time gross settlements across borders. The company offers several different services to clients, including xRapid, xCurrent, and Xpring.
xRapid uses XRP as a source of liquidity for assets being transferred, which ultimately lowers the cost for the banks or financial institutions using it. Using XRP allows banks to lower the capital requirements for liquidity, since normally banks would need to set up pre-funded accounts with local currencies around the world. With this in mind, XRP serves as a middleman currency to efficiently aid in the transfer of assets throughout different global economies, shortening the times from days to minutes and costs from dollars to cents. RippleNet, a source for open liquidity, is also available to anyone.
xCurrent on the other hand, does not utilize XRP. It is instead a separate technology created by Ripple and used to settle cross-border payments instantly with real-time tracking. xCurrent allows financial institutions to securely and instantaneously verify transactions before and after they occur.
Xpring is a startup incubator program, whereby developers can use XRP to work on their own projects. Xpring is a way for Ripple to both promote the use of XRP and encourage innovation within the blockchain space. Unfortunately for XRP investors, it is possible that the gifting of XRP through Xpring has caused receiving entities to sell XRP on the open market, perhaps contributing to some downward selling pressure on the price movement.
Related to XPring, a Ripple project worth mentioning is Coil, which was founded by their former CTO, Stefan Thomas. Coil is a streaming payment service that allows artists, writers, and developers on any compatible website to get paid in real time to stream their exclusive or public content. Creators can also receive payments in real time through Coil whenever someone consumes their content. They only get this service if they pay $5 a month as a membership fee to the Coil community. Coil is meant to help jumpstart a worldwide creative ecosystem. XPring has played a substantial role in funding Coil. Just recently, Ripple pledged 1 Billion XRP to help the ambitious project.
XRP has a large total supply––roughly 100 Billion coins. Only around 44 Billion of those are currently in circulation. The remaining majority is locked in escrow to be released on the open market at a fixed rate over time, so as to minimize the impact on the token’s valuation. Most concerns around XRP’s price revolves around the consistent “dumping” of coins on exchanges, as well as Ripple’s apparent distancing from the native cryptocurrency. Ripple does indeed give away coins at a significant rate - and those individuals are free to do whatever they choose with those coins, which includes selling them for Bitcoin or other currencies. Perhaps Ripple’s “distancing” from XRP also has to do with trying to avoid the SEC’s scrutiny. Many have made the argument that XRP is actually a security and not a commodity, which would present numerous legal and tax issues. Another issue that frequently arises is the large concentration of wealth in the top XRP wallets.
There is a lot of argument over whether or not XRP is actually decentralized or not. The fact is that the keys required to move the ledger forward are all controlled by Ripple Labs. This combined with the fact that they still own a majority of coins leads to harsh criticisms over it being centralized. However, this isn’t inherently a fault. In fact, the stability and centralization can actually make Ripple a more appealing prospect to traditional financial firms, which is exactly Ripple’s target demographic.
Ripple is also a distributed ledger which keeps permanent records of how much debt each party owes. One can make payments with any currency on the Ripple network, so there has been a lingering debate over whether or not the XRP coin is even necessary. However, XRP plays a significant role in securing the Ripple network, which could be one of the reasons behind its relatively high market share, and as mentioned in the overview, XRP is used for both xRapid and Xpring.
XRP helps secure the network because in each transaction, a tiny amount of XRP is destroyed. Although negligible, even for larger transfers, this tiny amount actually deters people from spamming or overcrowding the network, as the bad actors will eventually run out of XRP to spend. Another way XRP helps Ripple avoid network overload is by requiring a minimum amount to open an account. While this slows down the wallet creation process, it adds a layer of security by barring spammers from creating multiple accounts quickly.
Speed & Scalability
The Ripple network is open to anyone and is highly energy efficient. By eliminating exchanges, the Ripple settlement system operates at great speed with near-zero transaction fees. As such, Ripple’s use-case is seen as most advantageous to banks and other money remittance services. Unsurprisingly, this is the sector where Ripple has seen the most adoption.
In all, Ripple has over 200 customers from around the world using their services, including banks, payment providers, and of course, digital asset exchanges. With Coil, they hope to even tiptoe into the online entertainment industry. XRP is currently able to scale at great lengths and maintains quick and efficient transactions for all of these users.
The XRP network needs to be both fast and secure in order to process high volume financial transactions. For an everyday user, it may be a bit clunky to send funds with XRP. It requires both a “tag” and an address in order to complete a transaction. A “tag” is a separate code unique to the user’s address. Even though the transaction itself is near-instant, this extra step slows down the process significantly. This is not an issue for large financial institutions, which is Ripple’s primary market.
Mining isn’t necessary with the Ripple network, as confirmations are made through a consensus mechanism controlled by different responsible servers. This effectively makes XRP a secure database for recorded financial debt. That debt is simply a record by which each party involved in a transaction can trust each other and ensure that the correct amount of funds are delivered. Since mining isn’t necessary, it makes XRP one of the most energy efficient cryptocurrencies out there.
The community surrounding Ripple and XRP is naturally one of the longest lasting and has continued to grow with the market. Ripple supporters are incredibly enthusiastic, but unfortunately this is marred by the fact that there is an overwhelming focus on the price of XRP –– so much so that within a single day, you’ll see XRP community members on social media touting ridiculously high price targets. Many of these people have consistently been wrong, which leads to a negative impression on many. Not only does this frustrate XRP holders, but it may ward off potential investors. Disgruntled investors have even threatened to sue Ripple for their losses, with the claim that XRP is an unregistered security. Although the community is quite large and vibrant, they certainly could make a more positive impression.
The team behind Ripple is also one of its greatest strengths, consisting of former banking executives and regulatory officials. As mentioned in the overview, Ripple has several products that aren’t just meant for financial institutions––but for content creators as well. Ripple has some of the most experienced and credible personnel in the entire space. Most have decades of experience in the technology and finance sectors. What’s also encouraging is that much of Ripple’s team has been with them for quite a while. This shows some stability, which is often seen as lacking in the crypto sphere.
Ripple’s near-term aim is for XRP to be used as a bridge currency or settlement protocol. As of today, XRP is still not recognized as an unregistered security. It can even be traded on Coinbase in New York, having bypassed the state’s stringent cryptocurrency exchange regulations.
Ripple’s own technology is a competitor to SWIFT, a widely used cross-border settlement gateway. Eventually, Ripple hopes to hold its own and overtake SWIFT as the go-to platform for international settlements, particularly between banks. The company has taken aggressive steps to achieve those ends. Recently, they have partnered with Moneygram and have committed to buying out a portion of their stock at a higher price.
XRP trades in most international cryptocurrency markets, as well as on Coinbase in all 50 U.S. States. Due to its valuation and volume, XRP is one of the most liquid crypto assets, along with Bitcoin and Ethereum. At times, XRP volume has exceeded that of both. On some exchanges, XRP is used as a base trading pair.
Ripple’s eventual goals may be difficult to ascertain, but it can be speculated that if they become friendly enough with banks, they could receive some special treatment that would help promote XRP. There is already evidence of XRP being exempt from securities regulations, despite recent class-action lawsuits. If Ripple has powerful banks behind them, they can cause a massive amount of disruption––perhaps more so than many investors realize. Whether or not XRP itself is needed for this to happen...that is still up for debate.
As mentioned above, XRP helps secure the network and ensures that users are positive contributors. It also provides a financial incentive for Ripple to work harder on adoption, as they do hold a fair share of tokens. The market for remittances and cross-border payments is larger than most people think, with over $680 billion in remittances occuring in 2018. If XRP is used as a bridge currency for even a minute portion of big money transfers across the globe, its value is likely to increase, given that people will be incentivized to hold it as a way of minimizing transaction count and cost.
With all that said, Ripple and XRP still have many obstacles in front of them. Continuing debate as to the legal and regulatory nature of cryptocurrencies is still up in the air, and the added complication of integrating with the banking system could be even more challenging.
The long term hope is that with substantive adoption, and long term deflation due to the burning of XRP with every transaction, that XRP will prove to be a profitable ultra-long term investment. And as with all investments of that time frame, it may prove to be too big a risk for many people to take.
Much of Ripple’s criticisms come from the more revolutionary side of the crypto world. While many will decry it as a centralized coin that goes against the spirit of cryptocurrency, others see it as a fantastic bridge between the new world of blockchain and the old world of traditional finance, and the long list of adoption seems to support the latter claim. Yes, XRP is mostly centralized, it has a massive supply left out of circulation, and there are legitimate questions surrounding the use case, application, and regulatory class of the XRP currency itself. These are perfectly valid criticisms of XRP that raise questions over its security and viability long term.
That being said, Ripple is one of the longest existing cryptocurrencies out there and has maintained its status at the top for a very long time. It has a fantastic team backing it and significant real world adoption pushing it forward. Transactions are incredibly fast and incredibly cheap. The network has been able to scale and has maintained its efficiency in executing transactions while minimizing its impact on the environment. While XRP is one of the most contentious cryptocurrencies currently in the market, the positives outweigh the negatives by a fair margin by any objective measure.
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