Ripple provides a virtual currency that enables instant cross-boarder, international money transfers for banks and individuals. It serves as a replacement of SWIFT, which takes longer and costs more to transfer money across international borders.
From Japan to Africa, From America to England, Ripple is being used by approximately 200 financial institutions to cut billions in remittance costs globally. Sending $2000 across the globe can cost as little as a few cents with Ripple. For banks, using Ripple can save 46% per transaction. There is a clear use case for the virtual currency which could increase demand for it. Yet, demand alone isn’t the only defining factor of XRP’s long-term value.
Centralized Technology
XRP is not based on fully decentralized blockchain technology. The company owns most of the virtual coins, which means the value of the coins are subject to centralized decision-making of the entity. It gets away with this flaw partly because of the benefits it gives over true blockchain technologies like bitcoin- greater cost savings and faster payments.
An Edge Over Bitcoin
Bitcoin, despite its many advantages, can take longer and cost more to settle payments than Ripple’s technology. This isn’t always the case but nevertheless remains a reason for continued adoption of XRP by financial institutions and individuals who don’t understand the dangers inherent in the long-term efficacy of the system.
The fact Ripple has no mining is already a red flag. Its network infrastructure is highly centralized which presents a system that could be, in the long-run no different from the existing faults of traditional banking systems. Bitcoin derived its value from providing a solution to faults in the banking system. Ripple has not addressed the faults in banking which cryptocurrencies have. It is as susceptible to manipulation as the traditional banking system.
Investing In XRP, A New Choice for Market Makers
After hitting a high of $3.84, Ripple’s co-founder became richer than Google co-founders on paper, with $59.9 billion dollars. The cryptocurrency has outpaced top cryptocurrencies bitcoin and ethereum in the past. As the bear market clawed into the hopes of the markets, the paper weight of the co-founder and many XRP holders reduced as XRP price dropped to $0.315754.
For prices to rise to all-time-highs again, liquidity and volume will be critical. Ripple’s xRapid technology could play a big role in determining liquidity and volume. xRapid allows an entity to transfer monetary value in several steps: buy XRP virtual currency with local fiat, send the XRP to another country, and sell the XRP in another country.
Where XRP is sold in another country, the purchaser of the XRP (if they are a market maker) could have an incentive to sell the XRP they bought at a higher price. This means that they would not, in theory, want to sell below the price they bought the XRP for. This could contribute to the price increase of XRP as more XRP is used for settlements and market makers continue trying to sell XRP at higher prices than what they buy them at.
Day Trader Demand
xRapid technology could give rise to a new kind of day trader that profits from the underlying digital asset. xRapid technology and XRP could inspire new business models which raise demand for XRP and its price.
Users of Ripple’s settlement technology do not have to hold XRP to settle their payments. There is still an inflationary pressure, which coupled with its high supply of 99,991,689,289 XRP suggest long-term uncertainties in XRP price.
Conclusion
Other virtual currencies exist which carry out fast transactions and settlements. There is Litecoin and many other virtual currencies. XRP is not a cryptocurrency by technical definition. It is as good as a digital token or voucher. Cryptocurrencies are more secure forms of money. XRP is not.
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Calvin Ebun-Amu is passionate about finance and technology. While studying his bachelor’s degree, he found himself using his spare time to research and write about finance. Calvin is particularly fascinated by economics and risk management. When he’s not writing, he’s reading a book or article on risk and uncertainty by his favourite non-fiction author, Nassim Nicholas Taleb. Calvin has a bachelors degree in law and a post-graduate diploma in business.