What is XRP?

What’s XRP?

Compared to Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB) and other currencies, Ripple (XRP) seems to be special. First of all, although Ripple is well-known and its total market capitalization is always in the top ten, there seem to be no multiple DeFi applications on the blockchain, nor are there any well-known NFT projects (though creator fund is provided). Secondly, there is no thriving external developer community contributing to the ecosystem development. Finally, different from Bitcoin BTC, and Litecoin LTC, which are community-controlled cryptocurrencies, XRP is almost solely controlled by its founding company, Ripple.

Being so unique, why does Ripple (XRP) have such a high market cap, and why does it perform well in the market?

About Ripple (XRP)

“XRP Ledger” was created by Jed McCaleb, Arthur Britto and David Schwartz in 2011 to process “payment”. It is an open source, permissionless and decentralized blockchain, while Ripple (XRP) is the native token on the XRP Ledger.

Jed McCaleb proposed the initial idea in 2011 and founded a company called NewCoin in 2012. NewCoin was soon rebranded to OpenCoin and now to Ripple. Ripple is a financial technology company. It aims to establish a fast, secure, low-cost, cross-border transaction system based on blockchain. The system mainly serves as a payment settlement and remittance system for global transactions, similar to the SWIFT system, being used to transfer currencies and securities in international business and making cross-currency transactions among banks and financial intermediaries possible.

As the native token on the blockchain, XRP can be used for cross-border payment and cross-currency transactions, and it can also be freely traded in the market.

As of September 2022, XRP is the seventh largest cryptocurrency by market cap (source: Coinmarketcap).

What’s the value of Ripple？

Although almost all cryptocurrencies support global cross-border payment, Ripple, which can be traded in the market, has more advantages.

License-free cross-border payment

Financial institutions can use XRP as a bridge between different currencies and conduct payments worldwide in a faster and lower-cost way. Individuals can also take advantage of XRP and enjoy faster, cheaper, and permissionless transactions around the world.

Fast settlement and low-cost

Traditional financial remittances are time-consuming and labor-intensive, and it often takes days for funds to reach the recipient’s bank account. In addition, due to the need to change hands through many intermediaries, the remittance fees are very high. Ripple’s XRP allows users to enjoy a safe and fast way to transfer funds at a very low cost.

Favored by large financial institutions

Ripple has successfully reduced the cost and time of remittance, which has attracted not only ordinary individuals but also large multinational financial institutions. In 2019, Ripple announced that more than 300 financial institutions in more than 45 countries are using its payment network, including American Express, HSBC, Barclays, Western Union, Bank of America, Royal Bank of Scotland, Japan’s SBI Holdings, etc.

Ultra-low-cost, environmental friendly and energy-saving

Comparison of XPR and Bitcoin:

(Source: https://xrpl.org/xrp-overview.html)

Controversies of Ripple (XRP)

Pre-minted large amounts of XRP

XRP is pre-mined, and all coins are minted before they’re launched. The maximum supply of XRP is 100 billion, of which the company controls about 60% and holds most of it in a secure escrow account. Since Ripple will release some XRP in custody from time to time into the market, the supply of XRP may suddenly increase, causing the price to fall. Of course, this move has been criticized by many investors.

Excessive centralization

Although Ripple is based on blockchain, it is not as decentralized as Bitcoin or Ethereum. In order to protect the system from malicious operators, the official, an absolute power center, can technically control which nodes can be accepted by the network. After all, Ripple is a private company that can independently make any decisions about the service and execute them directly, with little or no consent from other participants on the network. As a result, some people even say that XRP is not a cryptocurrency.

In addition, from the perspective of currency distribution, the top ten holders control 73.28% of the XRP circulation, in a completely dominant position. Therefore, they have the ability to control the price, which also leads the community to have concerns about investing in XRP.

（Source: CoinCarp）

The legal battle with the SEC

In December 2020, the SEC (US Securities and Exchange Commission) filed a lawsuit against Ripple. The SEC believes that since the company can release XRP at any time, XRP should be registered as a “security”, and therefore accused the company and co-founders Chris Larsen and CEO Brad Garlinghouse of violating U.S. law by selling XRP as an unregistered security.

The focus of Ripple in the future

Litigation and Regulation

The SEC lawsuit has had a huge impact on Ripple as well as XRP. In addition to the ongoing litigation, Ripple is also working with the U.S. Congress on cryptocurrency regulation, hoping to ease the current bad image of cryptocurrencies and establish a way to protect consumers while taking into account market innovation.

As of September 13, 2022, both the SEC and Ripple have filed motions with the court for a swift summary judgment by a judge, showing that neither side wants the legal action to proceed, and that if Ripple succeeds, the conclusion of the lawsuit could bring XRP to be relisted on most of U.S. exchanges. If Ripple loses the case, it means that most of the cryptocurrencies in the United States will be considered securities, so these exchanges will need to register with the SEC as a broker. Hence, this lawsuit is not only crucial for Ripple, but also for the future of the entire cryptocurrency industry.

Financial role

Former Goldman Sachs analyst Andrew Lokenauth is very bullish on the future of XRP and believes that XRP may be the successor to SWIFT, the current global interbank transfer standard. But it remains to be seen whether Ripple can redefine online payments in the end. Once the SEC lawsuit can be satisfactorily resolved, Ripple protocol, despite having less speed and risk, may also be more legally compliant, and then XRP will likely become a better alternative to SWIFT.

As a centralized payment system using blockchain, XRP combines the advantages, such as security, processing speed and efficiency. There may still be imperfections, but it is believed that it will be a common financial tool when blockchain technology is popularized in the future. It is worthy of our continuous observation and expectation.