Ripple (XRP) – essence and investment potential
By Ripple’s XRP is a tangible cryptocurrency that can be purchased and traded within the network infrastructure of Ripple. Unlike Bitcoin, which was designed primarily as a medium of exchange, XRP’s purpose is to simplify cross-currency transactions through the RippleNet platform.
XRP in context of Ripple
The company previously known as Ripple Labs created XRP, a digital currency intended to streamline and reduce the cost of global money transfers. Since its inception in 2012, this cryptocurrency has held a position among the most established alternative coins.
What distinguishes XRP from others?
Unlike Bitcoin, which allows for the continuous generation of new coins, the supply of XRP is fixed at 100 billion tokens, all of which were issued when it first appeared in 2012. There will be no further issue of additional XRP.
To manage the availability of XRP, Ripple systematically releases one billion XRP from its escrow holdings each month.
Despite various controversies, including a significant lawsuit filed by the SEC in 2020, this cryptocurrency has maintained its position as a leading player in the market, consistently ranking in the top ten by market value.
Genesis and development of XRP’s existence
Driven by a desire to address the shortcomings of Bitcoin, Jed McCaleb, David Schwartz, and Arthur Britto embarked on the creation of the XRP Ledger in 2011. When the ledger debuted in 2012, it introduced a native cryptocurrency called XRP to facilitate its functionality.
In 2012, the creation of XRP and its accompanying ledger was led by a trio of developers, with Chris Larsen subsequently joining their ranks to establish Opencoin.
Just like Satoshi Nakamoto, XRP developers aimed to create more efficient, faster and secure global transaction system. It was also designed to be used by businesses, not individual users.
The XRP package included the cryptocurrency, originally known as «ripples», along with Ripple’s system for verifying transactions, its underlying network architecture, and a registry for maintaining network consensus.
Initially, Opencoin led the development of the XRP ledger, but later management was transferred to Ripple Labs, which is now simply called Ripple. Despite this change, Opencoin remained involved in the project, adhering to its long-standing commitment to open-source principles.
The XRP Ledger Foundation, founded in 2020, is supported by Ripple and a network of partners, focused on continuously improving and maintaining the XRP Ledger.
What are the practical applications of XRP?
International money transfers often come with high fees and complex procedures. These costs include charges from intermediary banks and currency conversion fees, and the entire transaction can take from three to five days. Ripple offers fast and cost-effective solutions to facilitate international payments.
XRP offers fast transaction speeds, completing transfers in just 3 to 5 seconds, while keeping costs very low at just 0.0002 dollars per transaction. To prevent spam, a transaction fee is charged, which is not transferred to any recipient but permanently deleted using a method called incineration.
According to Ripple’s official website, RippleNet processes up to 1,500 transactions per second, compared to Bitcoin’s 3 to 7 transactions per second, Ethereum’s 15 to 25 transactions per second and Visa’s impressive rate of 1,700 transactions per second.
Instead of exchanging traditional currencies like USD for GBP, Bank A can send US dollars stored in XRP directly to Bank B’s designated Ripple account. The value of XRP in British pounds for Bank B has not changed. If Bank B keeps XRP at its original value, such as 2 US dollars of XRP worth about 1.8 euros at the current exchange rate, then the receiving bank can keep the XRP without converting it until it needs to use it. This way there is no need to pay currency conversion fees. XRP can easily be exchanged for US dollars, euros, British pounds or any other currency in the world.
Fundamentally, XRP technology
XRP is classified as a major cryptocurrency, meaning it has its own network infrastructure. However, unlike Bitcoin, which uses the Proof-of-Work consensus, XRP works differently. Ripple Transaction Protocol: The backbone of efficient payment systems
The Ripple Transaction Protocol (RTXP) is the backbone of the RippleNet ecosystem, providing a unified framework for data communication between payment processors and international banks. It allows them to transmit and receive payments quickly and securely.
XRP’s primary goal is to achieve high transaction volumes at a low cost, making it an attractive alternative to traditional SWIFT transactions for banks. Additionally, XRP adheres to ISO 20022 standards, which could lead to its global adoption by financial institutions.
Moreover, XRP goes beyond just facilitating payments. Its smart contract functionality and support for decentralized finance (DeFi) ecosystems make it a versatile tool for modern banking.
SEC vs. Ripple: A regulatory showdown
In 2018, Ripple found itself in legal trouble when it was accused of generating a significant amount of cryptocurrency without proper backing and marketing it to individual investors. As a result, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple’s executives in late 2020, claiming that XRP functioned as an unauthorized security.
According to the SEC, Ripple’s reliance on centralized infrastructure and its majority ownership stake in XRP (over 50% of the circulating supply) classify XRP as a security rather than a decentralized asset like Bitcoin or Ethereum. Following the initial announcement, XRP was delisted from all major centralized trading platforms. However, after the first court hearings suggested a potential ruling in favor of XRP, with a judge noting that XRP has «utility» — a characteristic distinguishing it from cryptocurrencies like Bitcoin and Ethereum — it was re-listed on these exchanges.
Last year, the SEC decided to drop its legal action against Chris Larsen, co-founder of the XRP digital asset, accusing him of violating securities regulations.
Is investing in Ripple’s XRP worth it?
Before Ethereum and many other alternative cryptocurrencies, XRP demonstrated remarkable longevity, securing a spot in the top ten cryptocurrencies based on market value. However, there are concerns about investing in XRP. One of the biggest concerns is the large number of tokens initially generated in 2012 — 100 billion — with more than half still unreleased. Ripple, the company behind XRP, maintains control over these tokens and gradually releases them into the market.
Even if XRP reaches its previous peak value, maintaining that level may be difficult due to the possibility of the development team selling a large portion of their holdings, which could subsequently lower the price. Despite this, XRP has gained recognition from reputable organizations, including a notable partnership with the World Economic Forum.
Ripple is working with the International Organization for Standardization (ISO) to seamlessly integrate blockchain into the existing infrastructure of global financial institutions. This effort has already gained significant traction, with major players such as Santander, Fidor, Commonwealth Bank of Australia, and over 60 Japanese banks experimenting with RippleNet.
