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The crypto series part II: XRP

The crypto series part II: XRP

With all the buzz around meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB), it’s easy to forget that cryptocurrencies can be more than just speculative, volatile, and downright risky investments with no real-world application or value beyond what teenage TikTokers are claiming on any given day. While thousands of cryptos have been minted by creators with the sole purpose of pumping them up just enough to cash in, others have been created with noble goals of changing the world of finance, banking, and currency.

Last week, we kicked off our second crypto deep dive series with a discussion on Shiba Inu and how it went from meme coin obscurity to one of the top ten cryptocurrencies by market cap. We saw how the coin’s mysterious creators succeeded in their goal to “create something out of nothing” and build a strong decentralized community for the simple sake of proving it can be done.

Today, we’ll be continuing the conversation with the one and only XRP coin (XRP). If Shiba Inu is a young Zoomer desperately doing anything it can to get its 15 minutes of fame, XRP is its older, mature, and responsible millennial brother who’s been working hard to make the world a better place since well before Shiba Inu even decided to become a cryptocurrency.

What is XRP?

XRP is the currency that fuels the digital open payments network known as Ripple. Launched in 2012 by a private company known as Ripple Labs, the Ripple ecosystem utilizes blockchain technology to facilitate real-time, cross-border digital payments between financial institutions like banks and payment processors. Ripple also serves as a platform for fiat currency exchange.

Payments and currency exchanges are made using the XRP coin (issued by Ripple) and are tracked on the XRP Ledger. Unlike other blockchain networks like the Bitcoin (BTC) ecosystem, the XRP Ledger is secured by validating servers that are overseen by Ripple. In other words, transactions on the XRP Ledger are internally validated and guaranteed by Ripple Labs (a private company). While this makes Ripple “centralized” and less secure than the Bitcoin ecosystem, it comes with the added benefit of quicker and cheaper payment transactions.

Looking at XRP as a cryptocurrency is missing the bigger picture, as the Ripple ecosystem itself is what offers the real value. Unlike traditional banks and financial institutions where transactions can take days or even weeks, transactions on the Ripple network are settled in a matter of seconds. Additionally, transactions on the Ripple network avoid expensive wire transfer and cross-border payment fees, with the minimum transaction cost set at 0.00001 XRP.

XRP’s tokenomics

XRP’s centralized nature is what makes it distinct from other cryptocurrencies like Bitcoin and Ethereum (ETH). While this draws criticism from some in the crypto world, it’s also what contributes to XRP’s utility.

The Ripple network was launched with 100 billion XRP coins. Unlike the Bitcoin and Ethereum networks where coins are mined, all 100 billion XRP coins were “pre-mined”. While the entire supply of XRP is technically available, less than half of it is in circulation. The majority of XRP’s supply is controlled by Ripple. On one hand, this makes the Ripple ecosystem a steady and trusted network for transactions, but the fact that Ripple can control the supply and demand of XRP raises concerns among crypto purists.

Because transactions on the XRP Ledger are verified and recorded by Ripple’s internal validators, users of the network must rely on the trustworthiness of Ripple. This trust is what prevents Ripple from allowing users to cheat the system by pledging a singular amount of XRP for more than one transaction, otherwise known as “double-spending”.

Price history of XRP

Looking at a price chart of XRP since its inception back in 2012, you’ll notice a couple of dramatic (yet short-lived) price movements. From 2012 until 2016, XRP was worth just fractions of a penny, with its price just briefly rising above the 2-cent mark around the end of 2014. Then, in the last few months of 2017 and the first few days of 2018, XRP went parabolic.

From its December 10th price of $0.2352, XRP rallied more than 1,500%, hitting an all-time high of $3.84 on January 3rd. The rally mirrored that of the wider cryptocurrency market during that time period. XRP’s all-time high came two weeks after Bitcoin hit a record high of $20,089. The remainder of 2018 kicked off what would become a “crypto winter” for both XRP and Bitcoin.

While Bitcoin has since more than tripled its 2017 record high, XRP hasn’t been so lucky. The coin has again mirrored Bitcoin’s various rallies this year but has so far been unable to eclipse its 2018 all-time high. Earlier this year, Ripple was targeted by the Securities and Exchange Commission when it decided to classify XRP as a security. It then accused Ripple’s executives of selling $1.3b worth of XRP as an unregistered securities offering. Ripple and the SEC have since been locked in a legal battle that is expected to reach a conclusion sometime next year.

why it matters

While not as glamorized and talked about as some other cryptos, XRP is currently the seventh largest coin by market cap with a total value of $43.5m. Unlike some of these other coins though, XRP’s value is derived from the real-world utility of the Ripple network and its ability to offer instantaneous and inexpensive cross-border payment transactions as well as foreign currency exchanges. The future success of XRP and the Ripple network hinges on its ability to navigate the regulatory obstacles it faces.