12 years on from the launch of Bitcoin, we’ve seen a host of other crypto currencies come and go. Bitcoin, obviously has established itself as the godfather of all crypto’s, focused on its core use case, a store of value. Ethereum, the second biggest crypto currency by Market Cap, looked to capitalise on Bitcoins revolutionary approach, and added smart contracts, with the ability to ‘program’ the money on its blockchain. However, as both of the cryptos grew rapidly in popularity, issues arose, namely the cost of the transaction, and the ‘throughput’ or transactions per second that the network was able to handle.
To resolve this issue, XRP introduced a reorganized system that works on the basis of a decentralized, open-source blockchain technology where a user can make transactions within 3–5 seconds. Not only this, but it also offers more than 1500 transactions per second. However, it’s not truly decentralised. And it’s also not a public ledger in the traditional sense.
I look at the fundamentals of XRP, and why I think its a buy, or a sell.
Introduction to XRP
XRP was designed solely for payments. It’s often referred to as “Ripple”, but technically Ripple is the name of the network behind the cryptocurrency, while XRP is the coin. It’s partly managed by Ripple Inc. and the company started selling XRP in 2012 to compete with the other bigger giants in the market. Officially it was created and co-founded by Jed McCaleb, Arthur Britto, Chris Larsen, and David Schwartz. According to Ripple Inc., the XRP ledger is used to facilitate all kinds of XRP payments irrespective of worldwide borders. People can send and receive XRP all across the world via a digital wallet. It’s primary target though is to help banks facilitate transactions between currencies.
When it was created in 2012, Ripple marketed it as a cheaper, faster alternative to Bitcoin because it didn’t follow the proof of work strategy consensus algorithm. Instead of using the blockchain mining concept, the Ripple network uses a unique distributed consensus mechanism through a network of servers to validate transactions. Some consider this not to be a real crypto currency, as the nodes are not totally decentralised, and actually hand picked by Ripple. Of course, there are a number of obvious upsides, and downsides to this approach.
Bitcoin vs. XRP
Many of you will ask, so whats the difference between Bitcoin and XRP, on a technical level? Well, Bitcoin operates on blockchain technology that enables trustless transactions between two or more parties. It’s essentially a public ledger of approved transactions and record keeping. The system works on Proof of Work technology and is dependent on miners who verify all the transactions and put them to the bitcoin blockchain. These miners are rewarded with BTC for their efforts. Bitcoins main use case has evolved to become a Store of Value.
XRP differs in that it is a technology that is primarily known for its digital network and protocol used for fast and effective payments. XRP is the cryptocurrency that enables Ripple the Company to facilitate payments for asset exchanges, and remittance systems aiding international businesses and forums.
In terms of mining methodology, XRP coins are not mined at all. At the time of launch, Ripple issued the complete supply and now uses an escrow to release portions of the supply to sell them in the open market. Today, there are almost 46 billion XRP in circulation out of their total supply of 100 billion.
Decentralization vs Speed
XRP’s design penances decentralization for speed. Since Ripple rejected Bitcoin’s proof-of-work agreement system, the organization is seemingly less secure, however, it can instead handle transactions more rapidly than Bitcoin because of its unique node list of validators. Each server in the XRP Ledger protocol has its own UNL (Unique Node List), a list of validators it trusts, and each server independently decides when a ledger version is validated based on the consensus when enough of its trusted validators agree on a new ledger version.
Whilst XRP remains decentralised in the sense that not one company maintains control of the ledger, the key difference is that In Bitcoin, anybody can run the node and participate in a network agreement while in the XRP agreement; only preapproved nodes can participate. Additionally, XRP validators can effectively plan to censor any transaction, while Bitcoin’s proof-of-work technique makes it unfeasible for a miner to censor anything.
Because of these differences, Ripple & XRP attract a different type of user. Whilst Bitcoin is a coin of the people, XRP is focused on Banks. In fact, Ripplenet has become a cluster of more than 200 financial institutions in more than 40 countries around the World.
If you are already familiar with XRP, then you will know of its current outstanding legal case with the SEC. In December 2020, the SEC sued Ripple over alleged violations of federal securities laws. It said the company, CEO Brad Garlinghouse and Chairman Chris Larsen sold over $1 billion in XRP to retail investors without registering the cryptocurrency as a security or seeking an exemption.
Ripple argue that XRP is not a security, and that it in no way represents ownership of the company. It’s hard to tell what will happen, as the legalities of it are extremely grey. My personal opinion is that the SEC does not have enough evidence to enforce its case, but there are darker forces at work here, and I don’t really trust the legal system in the US when national security is involved. And I say that, because anything to do with loss of control of monetary supplies, is a case of National Security.
Its been a turbulent journey for XRP. In the last bull run in 2017, XRP’s price spiked up to over $3, surpassing Ethereum to become the worlds 2nd largest crypto currency by market cap, as its almost cult like following drove a rush to buy the coins. I feel this was driven primarily by greed, and not really it’s true value as a crypto currency.
Like all other cryptos, it crashed hard in 2018, but unlike Bitcoin, XRP has struggled to recover to its previously dizzying heights. With the added complications of the SEC lawsuit, it seems that the price will not be moving much until that is cleared. However, if you are a gambling man, it does represent a large potential win if the lawsuit is to be settled. XRP is undoubtedly going to jump in price if that happens.
Just like Bitcoin, Ripple wallets also work in the same way with secure keys that consent for transactions. But for ripple, wallets need a minimum of 20 XRP for the initial deposit. Although there are many types of crypto wallets available in the market like mobile wallets and software wallets for Android & iOS, the company recommends having hardware wallets because they can store the content offline. Personally, I use Exodus to store my XRP.
Is it worth investing in ripple?
Well, Ripple isn’t your average cryptocurrency as it offers something entirely different from any other digital currency. There are many reasons to invest in ripple i.e. it’s secure, solves problems, and creates opportunities, it’s affordable, and has a market cap of more than $21 billion. A settlement for the SEC case would cause a huge spike in its price, but similarly, if the SEC ultimately win, it could spell disaster for XRP holders.
Due to its apparently low price compared to Ethereum and Bitcoin, XRP is becoming more popular among small investors who are just entering the digital currency world, thus there are higher chances that its value will increase by the end of 2021 and some analysts are saying that it will reach between $26–100. This is especially true for those investors who are looking for those big 100 bagger wins.
Until the next time, thanks you so much