A Non Bias Look Into Ripple
The difference between XRP and Ripple
Ripple has had its fair share of controversy over the years. If you’re on #cryptotwitter then you know either the XRP Army is in full fledge promotion mode or the detractors are calling it a #shitcoin.
One of the key distinctions that needs to be made is Ripple and XRP are different. Ripple is the business behind all the initiatives of the organization. To invest in Ripple would mean to have an equity stake. XRP is a token that Ripple has created for one of its products called xRapid.
Nothing in this article is investment advice. It is just my observations. Full disclosure I have a small investment into XRP which makes up about 3% of my portfolio. I initially made it as a hedge against full decentralization not being adopted but instead the hybrid approach being the winner. Now, I look at this as a short term buy that I will likely sell during its next uptrend.
Ripple is the creator of RippleNet. RippleNet allows banks to process cross border payments in real-time with end to end tracking, lower costs, and the ability to transact with any other bank on the network.
Ripple has 3 products that use RippleNet; xCurrent, xRapid, xVia. xCurrent is Ripple’s enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end tracking. It is meant to replace SWIFT. The total cost for a bank to send a global payment is cut by 54% however it doesn’t require XRP to use it.
xRapid offers on-demand liquidity for more efficient cross border payments. Basically, this allows cross border payments to be done with XRP instead of having to pre-purchase the other countries currency before making the transaction. This allows payments to be made in minutes as opposed to 2-3 days with the legacy system. Banks don’t need to pre-fund accounts in illiquid currencies to perform transactions because settlements occur in one currency, XRP.
xVia is for corporates, payment providers and banks who want to send payments across various networks using a standard interface.
This all sounds amazing and frankly Ripple is one of the few projects that has an actual use case and is being used. However, when you have the XRP Army claiming XRP will go to $10,000 and people taking out loans to buy, we have to stop and observe the other side to this company and token.
Ripple is not really decentralized.
Ripple controls the unique node list giving them full control of who can make changes to the network. Also, the actual keys to run Ripple software are controlled by Ripple with expiration dates which causes a node to go back to the Ripple server to get new keys.
In January 2018, the BitMEX Research team installed and ran a copy of Rippled for the purpose of this report. The node operated by downloading a list of five public keys from the server v1.ripple.com, as the screenshot below shows. All five keys are assigned to Ripple.com. The software indicates that four of the five keys are required to support a proposal in order for it to be accepted. Since the keys were all downloaded from the Ripple.com server, Ripple is essentially in complete control of moving the ledger forward, so one could say that the system is centralised. Indeed, our node indicates that the keys expire on 1 February 2018 (just a few days after the screenshot), implying the software will need to visit Ripple.com’s server again to download a new set of keys. Full report here.
Ripple is missing 32,570 blocks from the start of the ledger so the whole chain cannot be audited. Miners do not have any financial incentive to run XRP nodes except for Ripple themselves who naturally want their network to run efficiently. Two entities control over 50% of the voting power.
The small number of nodes makes it seem centralized however it does make the network much faster and cheaper. The network has 4 second payment settlement time, $0.0008 network transaction fee, 1500 scalability (TPS). Security vs speed is a common dilemma in blockchain.
XRP is for banks not retail investors.
60% of the total XRP available is owned by Ripple. The circulating supply is about 43 billion tokens and the max supply is 100 billion tokens. From an investment stand point this opens the token up for dilution. That combined with Ripple owning majority of the tokens creates a lot of extra risk for investors.
Majority of the funding that has come to the company is from XRP token sales and not from its actual product sales. They have had many announcements about different partnerships but it’s not clear whether there pilot projects or actual agreements to use RippleNet.
The main thing for investors to realize is that holding XRP has no actual use case. XRP is merely meant for settlements for cross border transactions between banks.
The project definitely has some great aspects when it comes to speed and cost of cross border transactions and will probably see a price increase during the next big market uptrend however in my view investors should be cautious holding XRP long-term.
Check out my latest interview with my good friend Seth Lim. Seth is an early Ripple and XRP investor. He is considered an XRP whale and gives us his insight into some of these points I mentioned above. Seth is an awesome guy and knows this industry well.
Listen to the audio here: https://pod.link/1470192532