The cryptocurrency known as Ripple was a major star among traditional financial analysts last year. In terms of coin pricing, Ripple jumped up an amazing 35,000% over the course of 2017 before dropping off sharply at the beginning of this year. But what is Ripple really, and why are people so excited about it? Ripple is supposed to be for banks, but are any banks actually using XRP? Is Ripple even really a cryptocurrency by any definition? We are going to dive into all this and more in this article, which is all about Ripple.
What is Ripple?
Surprisingly, Ripple is somewhat of an older cryptocurrency project, with its roots stretching back to 2004 – before bitcoin was created. The goal of the project has always been to target banks, and more specifically, bank to bank transfers. Especially those that are cross-border. The plan was to create what would eventually become the “Ripple payment protocol”. It wasn’t until 2012, however, that Ripple got involved in cryptocurrency specifically.
Today, if you want to send funds from bank A in country 1 to bank B in country 2, there are a dizzying multitude of steps that must be completed. And at each point, fees are incurred and errors can arise. Typically, international bank to bank transfers make use of various networks such as Swift or ACH to name just a few. These systems are not inter-operable and require what is effectively translation at every step. Worse, many of these transactions require an intermediary bank that banks 1 and 2 of our previous example equally trust. This, of course, introduces more delays and fees.
The end result? International bank transfers take many days if not weeks, don’t process on weekends, and are incredibly expensive and error-prone.
This is where Ripple supposedly comes in. While not all details are available, the intended goal of the Ripple token and network was to act as a means of improving international bank transfers so that they could happen in seconds instead of weeks, and with significantly lower fees. It should also be noted that this concept is different than what other cryptocurrencies do. Those systems are peer-to-peer cryptocurrency exchanges, such as sending bitcoin from one person to another. The Ripple system would be largely invisible to the common user, and instead would be used to help move fiat value around the world nearly instantly.
That’s the dream, anyway, but what is the real situation? Are any banks today using Ripple and its XRP cryptocurrency?
Ripple in the real world
The answer to the above question, sadly, is a simple one. And that answer, is no. No bank today is making any use of XRP or any other cryptocurrency for widespread international bank to bank transfers. If any banks are using cryptocurrency today, they are doing so in secret or only as a internal test.
This does not mean that Ripple, as a company, is doing nothing. On the contrary, Ripple has a few different technologies related to financial exchanges that do not include cryptocurrency. For example, Ripple makes use of a technology they call xCurrent. News broke back in February that Santander Bank would be making use of the tech for “personal payments”.
While this is certainly interesting, and was good news for Ripple as a company, it again has nothing to do with cryptocurrency. Standander is not, and currently will not have any connections with XRP. xCurrent is a wholly separate system.
Ripple Price & Hype
Ripple was mentioned on several major news programs, and there was even a segment on CNBC back in Janurary explaining how to buy it using Bitsane and Coinbase. For an altcoin that isn’t in the top three to get this sort of attention is truly remarkable. This suggests that Ripple was facing significant hype influence and is likely responsible in part for price hikes.
To add more hype on top of what’s already there, there were rumors online suggesting that Coinbase would soon begin to offer Ripple. When an asset is listed on Coinbase, it has historically seen a large boost in price because of the sudden liquidity and easy access it now has. For an example of this, just look at bitcoin cash.
Finally, the major run-up in ripple prices was also tied to the major jump that the entire market saw in December of last year. Basically all assets increased noticeably in price due to their typically being pegged to bitcoin on many exchanges.
At its highest point, each ripple coin was worth around $4.50. This amount of growth is staggering to say the least. At one point, it made Ripple CEO guys name one of the richest people on earth. That is, of course, until the prices dropped through the floor.
Today, units of Ripple are trading for about $0.65, which is significantly below the all-time high. It is still, however, highly above where it was in 2014 or it typically remained less than one cent.
Under the hood
Ripple is somewhat of an odd cryptocurrency. It has a number of traits and design philosophy points that are greatly different from other popular projects. Ripple is not mined, there is no proof-of-stake, and there was no ICO. Ripple is not a token on another network, either. Today, the vast majority of Ripple coins are held by the Ripple company itself. Indeed, a staggering amount of Ripple is being held off the market and is completely under the control of the Ripple company and several of it’s leaders.
Ripple transaction fees are burnt, as there are no miners to collect any fees. This was also done to be a deflationary measure as the total amount of Ripple coins is quite staggering at nearly 100 billion. Currently, over 60% of the supply is held off the market.
In terms of transaction processing, there is only a few validation nodes that are able to participate in the network. Some sources state that only banks and “market makers” are eligible to run nodes. This has led to arguments that Ripple is not decentralized. Therefore it is hypothetically much more prone to attack if these core nodes go down or are corrupted by nefarious party.
Do banks care about Ripple?
The original idea behind Ripple is indeed quite interesting. However, in the intervening decade in which the company has existed, still not a single bank is interested in making use of the XRP currency.
As far as it being a means of transaction for peer-to-peer exchanges, it is not an ideal one as it offers no privacy features, and is largely centralized in its transaction processing.
As a means of storing wealth or as a long-term investment, it is also difficult to say whether or not Ripple is a wise choice. With over 60% of the coins still being held off market, investors are forced to simply trust those that hold the majority of them to not simply dump them and destroy the price.
If banks begin to use the XRP coin, then this will be a real-life use case for them. However, we do not know if this will lead to long-term, sustained, and organic price growth. It may lead to a sudden burst in price due to hype, but again we do not know to what degree banks will really make use of XRP coins, if at all. Even if most of the world’s major banks all purchased 10 million XRP each, this would still hardly make a dent in the total supply of just what’s on the market today.
Banks will be banks
Finally, it’s entirely possible that banks could choose to avoid Ripple altogether and instead used a more trusted and decentralized asset like bitcoin or Ethereum to do their transactions. Or, they could quite likely just do what banks do and keep everything private and proprietary by launching their own private blockchains that the public has no ability to interact with.
Ripple today is currently the number three currency by market cap. This is no accident, and it clearly indicates that there is interest in the platform. However, these kinds of movements can change quickly, and until XRP finds a real use case among it’s target audience, we should continue to be suspicious of them and not simply blindly invest. Remember, no one is using XRP for anything. It’s probably wiser to wait and see if banks are even interested in XRP before diving in deep.
Disclosure: The author of this article does not have any investments in XRP, and does not intend to open any position in XRP for the next three months.