Although it hasn’t gained mainstream recognition in the way that Bitcoin and more recently Libra have, XRP is one of the most traded Altcoins. However, it is perhaps the most divisive cryptocurrency of them all. Why is this the case? Why, despite its popularity, do so many, particularly in the crypto community have such an intense dislike for the currency? On the other hand, why does it also have its fans, and is it a good investment? Let’s take a look.

What is XRP?

Just as with its fellow Altcoin, Ether, many people get the name of the currency mixed up with its platform. In XRP’s case, its platform is Ripple (and this is also the name of the company behind the project). Although it can now be spent in over 180 countries worldwide, this is not why it was created, the primary reason it was created is it for to be used as a token to facilitate cross-border currency transfers through the Ripple platform.

How does XRP work?

With current settlement systems for transactions such as SWIFT and Paypal generally using US dollars as a common currency to convert currencies, incurring money and time as a result, the aim of XRP is to act as a mediator, that settles almost instantly, and with a fraction of the cost. It does this through an open-source blockchain, created by Ripple.

To demonstrate how it does this, let’s use an example — Tom in the USA wants to send $1,000 to Rachel in the UK. Traditionally, this would have involved going to the bank and filling out various forms. After having done that, it would have taken up to three days for the transfer to go through and cost up to around maybe $10-$20. This is because of the liquidity costs for the financial institutions administrating the exchange. Pre-funded nostro accounts would be needed on either side of the transaction in order to exchange the currency (in Tom and Rachel’s case from USD to GBP). Holding these accounts would entail liquidity costs for the bank, which would ultimately be passed on to poor Tom.

xRapid, developed by Ripple, is a liquidity solution using XRP that has been developed to make these lengthy and expensive transactions a thing of the past. As Ripple put it themselves:

A payment journey with xRapid looks like this: a financial institution connects directly to digital asset exchanges in both the originating and destination corridors. The originating currency is exchanged into XRP which provides the necessary liquidity to power the final payment, and then in seconds that XRP is exchanged into the destination currency in the second digital asset exchange. Once this transaction takes place, the funds are sent out on the local rails of the destination country for payout. The transaction is tracked end-to-end, and the result is a cross-border payment that is cheaper and faster than ever before.

What’s there to like about XRP?

The advantages of XRP then are clear. It allows for almost instantaneous and negligibly cheap financial transactions (less than $0.01). It has tremendous scalability, being able to process 1,500 TPS, over a thousand times faster than Bitcoin. To demonstrate this, TechCrunch founder Michael Arrington in October 2018 allegedly sent $50million in XRP and “took like 2 seconds and it cost 30 cents.” Impressive, whichever way you look at it!

Additionally, Ripple’s public ledger on their own blockchain adds an extra element to security to the transactions, bringing an element of safety which has come a hallmark of cryptocurrency. For these reasons, it has gained the backing of many financial institutions, such as JP Morgan, Santander, and the Bank of America, and notably in June 2019, a strategic agreement was signed between Ripple and global money transfer giant MoneyGram. So, what’s there not to like?

The Issues People Have With XRP

A lot of the beef that people in the crypto community have with XRP is for exactly the above reasons, it is seen by some as a centralized, banker’s currency. The very fact that Ripple co-operate with financial institutions has been said to go against the reason why Satoshi Nakamoto created Bitcoin in the first place — a decentralized currency away from the control of the banks.

Another criticism it has attracted is the fact that it can’t be mined like Bitcoin and many other cryptocurrencies. The advantage of having a mining-based cryptocurrency is that market conditions can at least partially help to determine how much exertion is made in creating new blocks on the blockchain, which can in turn affect the price. If the price of a cryptocurrency is low, generally less mining takes place, because it is not cost-effective to do so, and vice versa when the opposite scenario is the case. Ripple however have in fact already created all 100 billion XRP coins, having done so upon the currency’s genesis in 2013, and currently own around 60 billion of those coins themselves in ledger escrows.

Although there are accusations that Ripple could have some sort of malicious intention by holding these coins, the company insist they have justifiable reasons for this. They release a certain amount of coins every month from the ledger escrows, up to a maximum of one billion, but in reality significantly less are released than that, with the unused amount being rolled over to the next month. This is done, it is said, so there isn’t a sudden rocket in the supply of XRP, and the price doesn’t crash. This can be definitely seen as a positive, as investors are less likely to see themselves liquidated due to a sudden market move.

In response to the concerns about centralization, Ripple announced their decentralization strategy in May 2017, with the aim of making Ripple’s blockchain, the Ripple Consensus Ledger, more decentralized than Bitcoin. What was noted at the time was the potential vulnerability of “Bitcoin, which at the time of writing is 51% controlled by just five mining pools. This means the largest five pools working together could achieve a 51% attack.” An update was released by Ripple in October 2018, which stated:

Ripple remains committed to decentralizing the XRP Ledger and divesting itself of operational control. This multi-phase approach does that, but is intentionally conservative and has been devised with a single goal in mind: to ensure the reliability and stability of the network during the transition period to a fully decentralized and distributed architecture.

Is XRP worth investing in?

One thing that XRP does have in its favor (depending on how you look at it) is its lack of volatility. Like many other cryptocurrencies, it increased at a crazy rate during the legendary late 2017 bull run and subsequently crashed, but since early 2018 it has remained remarkably stable in price. It is currently hovering around the $0.40 mark, and has ‘only’ deviated in price around 40% in the last year. Compare this to Bitcoin, which has seen massive fluctuations of more than ten times that, and there is a clear contrast. XRP isn’t everyone’s cup of tea for this reason, too. It’s certainly not a cryptocurrency to invest in if you’re looking for short-term gains.

But if you’re prepared to hodl and play the long game, then XRP could well be a worthy investment. It is also still cheap, so perfect for first-time investors. It certainly looks like a bright future could be on the horizon for the cryptocurrency, with financial institutions needing more and more liquidity to complete financial transactions — and as explored in the article, XRP could well provide some of the solutions to the problems associated with that. Interestingly, Ripple CTO David Schwartz recently said at the Future of Fintech Conference in New York that financial institutions are “extremely conservative” and “slow-moving”, which could go some way to explaining that while there has been much interest in XRP, actual adoption has been a slow process — and, as such the price has remained rather stagnant for some time.

However, its price increased in value massively during the last significant bull run in crypto, and if the currency continues to gain traction in the way it is doing, its adoption becomes more and more widespread, and confidence grows in the currency further, there’s no reason to think that it won’t significantly rise in value once again — eventually.

Written by Rick O’Neill