A closer look at Ripple, the third largest cryptocurrency

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.

7 comments

  1. Ripple, is going to become a professional alternative to SWIFT and other traditional money-transfer services. Bitcoin is a really good investment

  2. Oh my I’ve never read such uniformed drivel in my life
    1. Volatility – Yes using ripple alone saves banks 30% on cross border payments – already a lot – but with volatility and xrp they only save 40% – only 10% more to banks a 1%
    saving is mana from the heavens. Without volatilty xrp will save 60% – yep 60%. Now for ripple to succeed the higher the price xrp is the better, less volatility, but also
    less xrp needed to be used as bridging currency. Xrapid soon to be introduced will provide more liquidity, and allow the banks to save closer to the 60% despite any volatility
    as ripple not the banks will take the risk.
    2. This decision was purely regulatory – you see to work with banks you have to fit it with banks strict code of practice, ripple operating an exchange does not fit
    in with these requirements hence the move.
    3. Ripple is adding independent validators as we speak, each week a new one is added including the likes of microsoft. By the end of year it will be more decentralised than
    bitcoin.
    4. Ripple with other 150 employees dedicated to just ripple/xrp is already 4 years ahead of goldman sachs. All big companies will try there one version of blockchain
    as they see $ signs for them, this competition will go to all cryptos eventually. Goldman Sachs is big, but the cross border area is huge, you only need a small slice
    of the pie to make a lot of money and therefore for xrp to appreciate. And lets remember Ripple is ahead – which other banks will use another banks coin – none. They
    are not going to give another bank competetive advantage.
    5. What the hell does FAST MINING mean – ripple is not mined its POS which ethereum realises is better so switching from mined to POS later this year. As to speed
    Ethereum can process payments in 2min +, ripple is less than 4 seconds. As to scaling XRP can do 1500 TPS (transactions a second) but with payment rails it can go upto
    50000+ tps – ethereum can do 15, bitcoin on a good day 3-5 TPS.
    So please read up before you post a blog like this again, research is everything!

  3. Even Goldman sach’s coin will need to settle. the only instant settlement technology is XRP Ledger, And its Native Coin XRP.

    Anyone can come up with a faster payment, FASTER SETTLEMENT is XRP’s domain.

  4. So you think XRP has a problem because it’s decentralized but you think that Goldman Sachs could introduce an asset that’s a threat to Ripple. I don’t see how you can simultaneously believe both of these things.

    Ethereum is 15 seconds per block on average, but the average time from forming a transaction to trusting that it will happen is much larger than this. From a technical standpoint, XRP has bitcoin and ethereum beat on transaction throughput, confirmation latency, and transaction fees. It’s certainly debatable how important this is.

    Ripple, by design, is more decentralized than bitcoin. Because bitcoin uses PoW, whoever has the cheapest electric rates or best ASICs must be trusted, and that’s inherently centralizing. Ripple’s design lets the users trust who orders transactions for them and doesn’t permit anyone to change the past.

    The vast majority of wallets point, directly or indirectly, at other people’s full nodes. You can download rippled and be running your own full node in five minutes. You can use several wallets (such as jatchili’s minimal client) and point them at your own server. Ripple has no way to shut down servers. The code is open source, if you think there’s a way, show it.

    1. Hi Joel,

      Thanks for your comments. Let me clarify a couple of points where I may have been misunderstood.

      GS’s move is purely private, pragmatic, self-concerned, we know it, and that’s why we don’t even bring it up. As for Ripple, it’s a multi-faceted solution that (a) serves banks as clients (2) may benefit public cryptocurrency holders. That’s why I don’t care GS being centralized, and I do care Ripple “not being decentralized enough”. GS may be a threat, because it could be one of your clients, and it may be signaling a growing trend among bigger banks. Though, I must say the list of banks you publicize on your web site is still impressive.

      As for the “shutdown” — it’s based on something you mention in the video above where you say you know the public key of each node, and you can shut it down “if it’s a bad agent” — meaning it’s your security model. I understand you’d only do that for bad agents but it still implies that you can shut down any node anytime you want. Am I wrong?

Leave a Reply