The Best Ripple and XRP Guide for Investors
There are many real-world problems cryptoassets are trying to solve. Issues that affect each one of us differently.
Some digital assets create a way for us to establish trust with one another and transact without a third-party; others are lowering the barrier for the unbanked to get included in the world's financial system; and a few are reducing the time and cost to transfer money from one place to the other.
XRP, developed by Ripple, is one of those cryptoassets enabling one of the solutions above.
This post provides insight on how you can benefit from the value the Ripple company is creating with XRP.
The remittance problem
Every year, people in emerging markets like Nigeria, Brazil and India drive the global remittance market worth over 600 billion dollars last year. In 2018, global remittances are expected to reach $642 billion.
According to the World Bank, Nigeria topped other African recipients with $22.3 billion in 2017. The total remittance to Africa was $37.8 billion that same year.
However, how do these monies get to the beneficiaries?
It has to go through a vast network of banks and other money transfer institutions or family members visiting the country to get to the recipients.
What's wrong with this?
Banks are generally secure, and humans can be, um, trusted. Right?
Not so. The computer breach of JPMorgan Chase, one of the largest bank in the United States, in 2014 quickly comes to mind. Also, banks and money transfer services are quite expensive and slow.
What about sending money through family members? You can decide on that.
Below is the cost of sending remittances to Africa through banks.
For the past six years, Ripple, a tech company in San Francisco, has resolved to solve these challenges with the use of the blockchain.
An integral part of that solution is XRP, a cryptoasset (or more accurately - cryptocurrency). XRP helps banks move cash from point A to point B faster and cheaply across borders.
The minimum transaction cost required by the ripple network for a standard transaction is 0.00001 XRP (equivalent to $0.0000106 per transaction at the time of writing this post). However, it often increases due to higher transaction load on the platform. Also, XRP ledger can complete a transaction in just 4 seconds.
What is Ripple?
A technology company in the United States with offices around the world. Ripple’s vision is to create a global Internet of Value by enabling a worldwide network of financial institutions to use their solutions.
Also, the goal of the company is to reduce the cost of international payments to a point where it can move as smoothly as information.
XRP is pivotal to achieving the goal of the company.
So, as the ripple network grows and adoption of Ripple’s products increases, the value of XRP should rise as well. The demand for XRP will increase also, and would reflect in the price.
Ripple team and investors
The team comprises of stalwarts like CEO Brad Garlinghouse, who was President of Consumer Applications at AOL and held various executive positions at Yahoo! from 2003 to 2009, including Senior Vice President. There's also David Schwartz, the Chief Technology Officer. He developed encrypted cloud storage and enterprise messaging systems for organisations like CNN and the National Security Agency (NSA).
Some of the investors include Accenture, a Fortune 500 company that provides management consulting, Google Ventures, Andreessen Horowitz and the British multinational banking and financial services company, Standard Chartered bank.
The Ripple team developed certain products that could help them achieve their vision. They include XRP coin, XRP ledger, xCurrent, xRapid, xVia and the entire network called the RippleNet.
XRP coin is one of the integral parts of the RippleNet, which means adoption of the network adds significant value to XRP as you'll later see in this article.
What is XRP?
A digital asset that was created to help banks and other financial institutions transfer cash from one place to the other fast and inexpensively. It exists on XRP ledger, one of the open-source products created by Ripple.
XRP serves as a bridge currency between fiat currencies, avoiding the time and cost of pre-funding accounts or managing fiat-to-fiat exchanges.
It is similar to the bitcoin in some ways - they are both on a distributed ledger - but the use case is entirely different. (Note: bitcoin is the native cryptoasset on the Bitcoin blockchain).
Bitcoin is a peer-to-peer electronic cash system. It provisions a better alternative to the current centralised supply system of fiat currencies; while XRP is designed for institutional use, even though you and every other person can still buy XRP for investment purposes.
Who owns XRP?
Most people often use the word "ripple" in place of "xrp"; the two aren't the same. It's important to know the difference between the two because it often leads to confusion about the ownership of this cryptocurrency.
Ripple company doesn't own XRP. It created the asset but continues to hold the majority of the token supply. Anyone can buy and own XRP.
Moreover, many people have been buying and making returns from it. For example, in 2017, people who bought XRP at the beginning of the year were rewarded with over 36, 000 per cent in returns.
That was driven mostly by Fear-Of-Missing-Out (FOMO); while some others believed Ripple would use this asset to solve cross-border money transfer issues.
Ripple has already created a maximum supply of 100 billion XRP. As of July 2018, the total supply in public sits at less than 40 billion.
Ripple owns some 60 per cent of the total supply of XRP. Most of Ripple’s holdings (around 55 billion XRP) are locked in an escrow account. It is to release up to 1 billion XRP every month over a period of 55 months.
Some people in the cryptocurrency community have, however, expressed concerns with Ripple owning a whopping 60 per cent of the total supply of XRP. That makes it not genuinely decentralised, they argue.
The demand for this digital asset has increased, propelled mainly by ordinary people who believe in the value of the asset. Also, institutions utilising it to solve cross-border payment issues.
Around the world, the safest way to buy XRP has been through centralised exchanges. Also, many cryptocurrency exchanges are steadily offering ordinary users the opportunity to buy XRP in their local currency.
Ripple solutions enabling the adoption of XRP
xCurrent for payment processing
xCurrent is Ripple’s enterprise software solution that allows banks to process payments across the globe for their customers with end-to-end tracking. Banks can message each other in real-time to confirm payment details before a transaction initiates, and to verify on settlement.
The solution is specifically designed to meet the needs of banks. Some of the banks Ripple supports include Banco Santander, SBI, American Express and PNC Bank, the ninth-largest bank in the U.S. by assets.
xRapid for liquidity
xRapid provides on-demand liquidity to financial institutions for cross-border payments using the digital asset XRP. This solution eliminates the need for a pre-funded account when executing a cross-border payment. It provides a way to source liquidity from XRP on exchanges around the world.
Because of this, cross-border transactions occur in minutes and cheap compared to traditional methods that could take up to days.
Ripple has multiple customers, including MercuryFX, Cuallix and Catalyst Corporate Federal Credit Union, using this product.
xVia for sending international payments
xVia is for payment providers, merchants and other corporates who want to send payments faster and cheaper anywhere in the world. It allows businesses to send payments to and from emerging markets by leveraging the RippleNet - Ripple’s decentralised global payments network.
They can even attach rich information, such as invoices.
xVia is a standard payment interface with a simple API. It also allows for tracking as well as delivery confirmation, including in wallets and other nontraditional networks.
Earlier in 2018, Ripple announced five new customers: FairFX, Exchange4Free, RationalFX, UniPAY and MoneyMatch.
Understanding the RippleNet
RippleNet is a network of payment providers, banks, corporations, and digital asset exchanges. Those on the RippleNet can send and receive payments around the world cheap and fast employing Ripple’s solutions and standards.
It provides connectivity across various payment networks with instant settlement on demand. There is always a certainty, as you can trace the funds in real-time.
Recent Ripple partnerships driving the adoption of XRP
Ripple's website confirms the company recently signed on InstaReM and RationalFX. These are two major digital cross-border payments companies. InstaReM could open up cheaper and faster alternatives to transfer money from the United Kingdom to Malaysia, Vietnam, Indonesia, Sri Lanka and Bangladesh.
Also, it established partnerships with Remitr and the Nigerian Fintech start-up, FlutterWave, to enable payments to Nigeria from Canada - the first connection on RippleNet in Africa.
The RippleNet is active in over 40 countries and predominantly targeting payment institutions in emerging economies now.
Threats to the adoption of XRP
There's a possibility that payment institutions who see Ripple as a threat can ditch XRP and create a digital asset of their own. In the long-term, it's possible for banks who don't want to be on the RippleNet to form a coalition with some of their peers to develop a distributed ledger with a cryptoasset.
That would have its limitations as well.
An institution-issued digital asset might only be useful between the institution who created it and those who support the initiative. For instance, if 3 banks created a digital asset, they would still need to convince other banks to use that asset.
An independent digital asset like XRP could remain the best and efficient method to solve the global remittance problems.
Ripple’s principal rival is widely considered to be Stellar. Stellar also offers a distributed payments network to provide fast and affordable cross-border transactions relying on its native asset, Lumens (XLM).
There are many similarities between their use cases partly because Ripple's co-founder Jed McCaleb created Stellar.
However, the vision for both company differs: Ripple, a strict for-profit business, is focused on providing solutions to banks and financial institutions; Stellar’s goal is to give access to low-cost financial services to fight poverty and maximise individual potential in developing countries.
XRP token has one narrowly defined but useful purpose, which is to solve cross-border transfer issues; and it seems to be addressing those problems. The evidence is the number of traditional financial institutions that are in partnerships with the Ripple company to use it.
If it were worthless, these institutions wouldn't associate with it in the first place.
So for you, should you invest too?
We can't answer that.
The best investment decisions are made after you've done a careful assessment of your financial position, whether alone or with a financial advisor. You should also check out the investment checklist put in this post about bitcoin investments.