Few cryptocurrency projects have had such tremendous traction as Ripple. The open payment network protocol, launched in 2012, is today the world’s third largest cryptocurrency. As of January 20, 2020, it commands a market cap of $10,097,582,151, trading at a price of $0.23.
Fuelling this large network of cheap and fast cross border transactions is the XRP coin. Yes, Ripple is both a platform and a cryptocurrency. XRP is a token used to expedite cross border payments by financial institutions. Institutions that operate Ripple’s global payments network can use XRP to avoid notoriously slow transaction speeds like those of Bitcoin. While Bitcoin can enable 7 transactions per second, XRP can do 1,500!
Together, they form one of the most flourishing success stories of the blockchain world. In 2019, the company confirmed that it has over 200 financial institutions using its payments system. This includes prominent names like Santander, American Express, EuroExim Bank, UBS, Westpac, Mitsubishi UFG and MoneyGram.
Did you know? XRP is a cryptocurrency; but in many ways not a cryptocurrency. Critics think that it lacks the fundamental aspects of being labelled as an alt coin, since it is not truly decentralised, doesn’t have a public ledger, doesn’t have a limited supply and there is no mining involved.
What is Ripple? Where Does XRP Fit in?
Despite the developments in online payment systems and networks to facilitate seamless cross border transactions, the process still remains time consuming and expensive. For globalisation to progress at a faster pace, free and quick exchange of money is essential.
Moreover, when every payment provider launches their own systems, customers don’t really have the option to interact with other systems.
In 2012, Jed McCaleb and Chris Larsen launched Ripple Labs. The aim was to create a unique blockchain ecosystem that would transform the global payments network. Ripple is a real-time currency settlement and exchange platform that can facilitate:
- Fast and cheap currency exchange. Banks have to use the US Dollar as a mediator to convert one currency into another (for currencies that can’t be directly converted). This can lead to double commissions or exchange fees. Ripple allows the seamless transfer of any currency, Dollar, Euro, Yen or Bitcoin.
- Swift transactions in a matter of 4 seconds.
- Creation of a payment ecosystem. Ripple can connect different payment systems, including banks, digital asset exchanges, companies, payments providers and others. Through the network, these entities can accept both fiat money and cryptocurrencies.
Ripple is the parent company, which operates 3 products: xCurrent, xRapid and xVia. These are all payment processing systems, with xCurrent being the flagship product, which uses RippleNet to allow banks to move money quickly across borders.
XRP is the native token of the RippleNet system. It effectively acts as a bridge between any two currencies being transferred, working as a source of liquidity, wherever necessary.
To achieve fast transactions, RippleNet has been designed differently. It is not decentralised, unlike Bitcoin or the Ethereum blockchain. The network has only 25 independent nodes, managed by various banks, financial institutions, tech companies and Ripple itself, which validate transactions. So, XRP needs only 25 nodes to validate transactions, which is what makes it a swifter alternative to cryptos like Bitcoin.
Did you know? Ripple, the parent company, holds more than 60% of the total XRP coins in supply. The company has a plan to release 1 billion of these coins (100 billion XRP tokens released initially) every month, for the 55 months since its inception. This makes the system more exposed to economic fundamentals and regulatory pressures. Also, XRP is a non-mineable currency.
XRP’s Trading Graph – Why Did it Decline in 2019?
It wasn’t until April 2017 that XRP’S price started to rise. By May 16, 2017, the digital currency was trading at $0.2217. Like the other cryptocurrencies, XRP too gained significant momentum in Q1 2018. On January 4, 2018, it was trading at $3.84, gaining 55,203% since January 2017.
As its adoption by various banks and financial institutions continued, XRP gained market momentum and capitalisation. However, 2019 was not that great for the coin. Unlike BTC, which surged 48% in the year, XRP actually declined 44%. Experts have pointed out some reasons for this:
- Although Ripple has an impressive list of partnerships with major financial institutions, it does not reflect positively on the adoption of XRP token. This is because banks can use the RippleNet platform, without using XRP.
- Ripple still owns a large percentage of XRP tokens, which it supposedly sells to drive rallies.However, the company has maintained that its sales are too small to impact the price. For Q3 2019, the company’s sales of XRP totalled at $66.24 million, compared to $251.51 million in Q2 2019.
Ripple is also counting on its rising XRP usage volumes via its enterprise payment product ODL, which will have a positive impact on the coin in the long term.
Did you know? BitPay plans to integrate XRP into its ecosystem. The system will allow XRP users to purchase gift cards on Amazon and other major retailers with XRP. Industry experts believe that XRP might be poised for a bull run in 2020, with such developments. BitPay’s co-founder, Tony Gallippi, recently re-tweeted this news.
The technology used by Ripple definitely has all the qualities to disrupt the global financial industry. It is a valuable alternative to systems like PayPal and SWIFT, which are expensive but slower. RippleNet could act as an enabler for the vast unbanked population globally, to seamlessly transfer money overseas. It can effectively bridge the gap between traditional finance and the digital asset industry.
However, its centralised nature continues to attract detractors. On the other hand, some argue that a centralised system isn’t necessarily bad. In case of a market crisis, the company can implement stabilisation measures and bring in accountability.
As of January 2020, XRP remains a valuable trading asset and investment source. Traders should consider researching market news and other technical indicators before they consider adding it to their portfolio.