The Bitcoin split may have completely taken over the news lately, but the reality is, Ripple is still the third largest cryptocurrency in terms of market capitalization, still ahead of Bitcoin Cash and Litecoin. The currency (shortened as XRP) has shown an astounding value appreciation over the past year by as much as 4000%. That is $40K for every $1000 that was invested.
XRP’s original promise (fast block mining) is exciting and make it a potential alternative to fiat-currencies for daily transactions, but I wouldn’t be so optimistic about its future. Here’s why:
1. Ripple is better off with no volatility
As Brad Garlinghouse states in this interview, the goal of Ripple, the company, is to become a professional alternative to SWIFT and other traditional money-transfer services. He believes Bitcoin is not the way banks would go, because, for starters, it can split, plus, it was not created with such professionalism in mind, it is the wild west of cryptocurrencies. So, a cryptocurrency with high volatility is not in Ripple’s best interests. Because if people have expectations that it will go so much up in value, they will not spend, they will hoard, making it impossible to replace fiat-currencies. Hence Ripple decided to lock up $14B in XRP cryptocurrency, rendering itself as a relatively stable resort.
2. But the primary XRP exchange is no longer associated with Ripple!
Here comes the second piece you should be aware of before buying into XRP. Ripple, the company, and Ripple, the currency are now two different things. While Ripple still develops and maintains the Ripple source code, its primary exchange (where you can actually buy XRP directly with cash or its equivalents) is now part of a smaller company called Gatehub. This decision makes sense for the business. Operating an exchange should be messy. Ripple, still a small operation, needs to focus its limited resources on one thing; and that is, as of today, is to sell its solutions to banks. However, this also means that there is not a single reliable exchange that supports direct fiat-currency to XRP trade as of today.
3. XRP is NOT as decentralized
Thirdly, XRP, by design, is not as decentralized as Bitcoin. It is very much under the wings of a single company. My experience entertaining it, if you install a node, it will not hold a wallet, but it will just serve to prove transactions. The official wallet clients of Ripple rely on third party full nodes to transact. And as Ripple Chief Technologist David Schwartz explains in the video above, Ripple -the company- has the power to identify each node on the system and can shut them down if they ever feel threatened.
4. Goldman Sachs is going with its own.
Last but not least, a patent awarded to Goldman Sachs suggests that the company is already considering or working on its own cryptocurrency to facilitate intercontinental transactions. While this is certainly great news for the blockchain industry as a whole as it validates its potential, it may not be the best for Ripple, as it also validates that they will not be able to partner with one of the world’s biggest banks.
5. Fast mining? Ethereum already has that!
If what makes Ripple a sexy alternative to Bitcoin is its fast mining, then it faces stiff competition. Ethereum, which is already more popular, positioned as the de-facto currency of ICOs, already has quick transactions as short as 15 seconds. Moreover, Ethereum’s liquidity levels are higher, as it is available for direct trade in most popular exchanges.
All in all, Ripple as a company may have a future, but would that have any impact to XRP as a currency is another unanswered question one should consider. If one day a credible exchange like Coinbase decides to support Ripple, its value may jump like it did with Ethereum just recently. But we don’t know if it’s going to happen, or whether that’s what the company wants or would let happen; so it’s full of question marks.