XRP is truly one of the OG (Original Gangster) Cryptos.
XRP launched, 14 freaking years ago.
Some even say that XRP is a sleeping giant ready to wake up and prove all the haters wrong.
Others say that XRP is in a coma and someone just needs to pull the damn plug already and end the misery of bag holders who’ve been underwater for years.
What’s interesting, however, is that other than Bitcoin, XRP is the oldest crypto to be in the top 10 by market cap.
So what exactly is going on here?
Well, today we’re going to peel back the onion, dive into the layers of what XRP actually is, and try to explain it so simply that anyone would understand what the heck XRP is by the end of this article.
Now, before we get started, you do need to know no one has paid us to make this article.
The information that you will find contained within this article is provided to you for free for educational purposes.
This is not a recommendation for you to go out to buy, sell, or hold XRP.
Furthermore, you can see my full risk statement on crypto because crypto is risky.
You can lose all your money.
Also, portfolio disclosures about all the coins that I own, all my venture investments don’t own XRP, by the way.
Now that all being said, when looking at XRP, there are four major buckets that we need to explore:
- Ripple Labs
- The XRP Ledger
- XRP token
- RippleNet.
A lot of stuff going on here.
What we’ll discover is that these buckets are all quite interconnected and work together to form the XRP ecosystem.
So back in 2012, Ripple Labs was launched in San Francisco as a technology company looking to revolutionize cross-border payments for banks and institutions.
Cool idea, especially all the way back then.
That was the company’s mission then and it remains their mission to this day.
The problem Ripple is trying to solve is the fact that crossborder payments between all those big financial players, the big banks, all that kind of stuff, they operate on something called the Swift system that was developed in 1973.
It’s the future of finance, guys.
Swift, hey, did the heavy lifting back in the day, but Swift is a global telecommunications network that facilitates payments and related transaction data between all the world’s banks.
About 11,000 institutions in 200 countries are part of the Swift networks.
Basically, everyone, everywhere.
But it’s a well-known fact that Swift is a pretty damn antiquated telecommunications network for finance.
So most payments, especially those that involve multiple currencies, often take several days to settle and are fairly expensive when compared to crypto transactions.
So Ripple Labs came along and conceived of XRP in an attempt to build a new foundation for the 21st century payment network, a crypto payment network.
Fundamentally, the XRP Ledger works similar to any other blockchain out there.
It operates as a single ledger, but it’s distributed and decentralized across a global network of computers.
Anytime that someone makes a transaction with the XRP token, the transaction is then recorded and becomes permanent across the global ledger.
Now, just to get a little bit technical here for a moment, don’t worry, we’re not going to go too crazy.
The computers that operate XRP’s ledger do not use a proof of work system like Bitcoin or a proof of stake consensus mechanism like we see with Ethereum and others.
Instead, they use the Ripple Protocol Consensus Algorithm, something unique in the market.
Essentially, all the computers independently propose a list of transactions that they think should be included in the ledger’s next block.
The computers share and compare their proposals with each other, and the proposals are then revised based on the shared information.
Then, the computers vote on the proposal that they believe to be the most correct.
Now, this is all done with advanced algorithms, obviously, and it results in a global consensus for the state of the XRP ledger and all the transaction settlements occurring every 3 to 5 seconds on the XRP ledger.
Additionally, XRP’s consensus mechanism is not energy intensive, so this is something that you’ll hear criticized Bitcoin for, criticized for.
So transaction fees are extremely low, at a tiny fraction of a penny on average.
So, all that stuff’s great.
Now we’ve got the XRP token.
Let’s talk about this.
The native crypto for the XRP ledger is XRP.
XRP has a max supply of 100 billion tokens.
All of these were created when the ledger launched in 2012.
Currently, out of the 100 billion tokens, 55 billion are in circulating supply, 39 billion are in escrow contracts held by Ripple Labs, and these tokens are periodically sold into the market or used to fund network operations and to promote liquidity across different exchanges offering XRP.
Finally, it’s thought that the remaining 6 billion tokens are held by Ripple outside of these escrow contracts.
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So, that being said, now we started this RippleNet discussion by saying that Ripple Labs’ mission is to create a 21st-century cross-border payments network.
So you might be wondering, well, how the heck do they do this?
Well, that brings us to RippleNet.
And once you understand how RippleNet works, you’ll see how each piece of XRP fits together.
RippleNet is a software program that connects together banks, financial institutions, and companies right across the globe for payment services.
Therefore, RippleNet is a direct competitor to Swift.
This way, RippleNet works in a very simple way, actually.
Whenever an institution wants to send a cross-border payment, RippleNet uses the XRP currency as a bridge currency in order to facilitate a transaction between any two parties with their own preferred currencies.
For example, suppose that the Bank of America and the Bank of Japan are RippleNet members.
If BOA needs to send a $10 million payment to BOJ, once BOA initiates the payment, RippleNet then swaps $10 million in US to $10 million worth of XRP in BOA’s RippleNet account.
Then, that XRP is transferred to BOJ’s RippleNet account, happening in, of course, a couple of seconds.
And at that point, the XRP is swapped again into $10 million worth of Japanese yen and the transaction is complete.
It’s a pretty quick and seamless process, and the entire process can happen in under 20 seconds from start to finish and for a very, very low fee.
And in our example, you’ll notice that there were a total of, count it, one, two, three transactions involved in XRP, so USD to XRP transfer between the two accounts, then XRP to yen.
Therefore, these three transactions would all be recorded, you guessed it, back on the XRP ledger.
Now, apparently, over a hundred different financial institutions are actually members of RippleNet, including some really, really big banks in the USA, Canada, UK, Singapore, Japan, Thailand, and other places.
As of April 2023, it’s thought that RippleNet has processed a total of $30 billion in transactions since its inception, which sounds like a big number, but then you realize that XRP’s been around, XRP’s been around since forever.
For comparison, Swift processes about $150 trillion in value annually.
Okay, so ladies and gentlemen, if you got all that, then you understand XRP and what it’s all about.
Now let’s discuss risks and opportunities.
This is a juicy one, so stay tuned.
The most serious risk I see is XRP’s tokenomics.
See, here’s the deal.
Close to half of the hundred billion tokens are controlled by Ripple Labs.
That of itself is problematic, right?
And we’ve seen Ripple Labs selling huge amounts of XRP over time.
Then there’s the fact that the computers that run the XRP ledger do not earn XRP as a reward.
So if you combine that with the fact that XRP’s primary use case is as a bridge currency, then it seems like we’re a bit stuck in some kind of almost purgatory-like situation where billions and billions of XRP are serving as this digital intermediary, but there’s no real mechanism that really works to add value or scarcity to the token itself.
It just goes back and forth, changing hands, no burn mechanism, there’s no great incentives to hold onto it.
Now, to be fair, there’s actually an XRP burn mechanism, so I want to be clear about that.
But such a tiny fraction of one XRP is burned with every single transaction that it’s basically an irrelevant mechanism, right?
So it’s not really meaningful at all.
So I’m just not persuaded that there’s this really long-term strong value case here for the XRP token.
Case in point, look at XRP’s price action.
This chart pattern is what we like to call pain and suffering.
Ouch.
Look, maybe it’s going to get some giant catalyst that sends us just absolutely ripping higher.
I wouldn’t be surprised.
But what if it doesn’t?
Then there’s the competition.
I get the idea of XRP being used as a bridge currency on RippleNet.
It’s a compelling idea.
It was especially compelling when they brought it out all the way back in the day.
It’s a cool idea.
But the same can now be done with tons of other cryptocurrencies and stablecoins on other protocols that are just as cheap and have better token mechanisms.
The use case used to be super compelling, but I honestly don’t think it is so much anymore.
Jack M’s Strike, for example, doing something similar with the Bitcoin protocol.
Why wouldn’t you want to use the Bitcoin protocol’s strongest computer network in the world?
So when I look at XRP’s tokenomics and then add it all up, looking at all the other competition looking to disrupt cross-border payments, it gives me pause, right?
A bit of concern about XRP’s future fate.
Finally, there’s the ongoing litigation between Ripple and the SEC.
And again, my hats off to the Ripple team for fighting the good fight here.
These two have been battling it out in the courts since 2020.
The SEC sued Ripple, arguing that the company was selling XRP as an unregistered security.
Now, Ripple did receive a partial legal victory in 2023 from a federal judge, and my congratulations to them.
That judge ruled that the XRP token in of itself is not a security.
Great victory for the whole crypto industry.
Thanks, Ripple Labs.
However, the case is still ongoing, and an unfavorable outcome could hurt the protocol and the token.
We shall see, of course, how that plays out.
Now, what about the opportunities?
There are opportunities.
I know we’ve been kind of trashing off their opportunities, so it’s possible XRP wins its case against the SEC and for one reason or another achieves really just massive success in onboarding tons of institutions, many, many more than they currently have onto RippleNet, and that they thereby become a real serious competitor to Swift, all while beating out all the other crypto competition and banks themselves, because central banks are now rolling out central bank digital currencies, which are, again, competition to what they’re doing here.
Then, one way or another, the value of the XRP token breaks out of its pain and suffering pattern and starts to moon.
This is all possible.
But guys, you know, I want to shoot you straight here.
I’m not placing any bets on XRP.
It was one of the first altcoins I ever bought, actually, but I’m not going to buy any more.
There’s just too many things I don’t like about the way XRP has been going.
And I hope that they have mass success.
And to the XRP army reading this article, losing your minds at this point, guys, I got love for you.
I want you guys to make money.
I want XRP to moon so freaking hard that you guys all go retire on yachts with your kids in the Caribbean and all that stuff, okay?
But feel free to let me know about what I’ve got wrong about XRP in the comments down below.
Always keen, of course, to hear your opinions and your thoughts on that.
Thanks for reading.