The open-source nature of blockchain technology has allowed developers to create a wide range of new cryptocurrencies after bitcoin’s inception in 2009. Many of these new altcoins experienced large-scale user adoption and, therefore, grew substantially in market value. One of these altcoins is ripple.
What is Ripple?
Ripple is a payments protocol and a cryptocurrency that were created by San Francisco-based Ripple Labs in 2012. Ripple Labs is a venture capital-backed startup that has develops global payments solutions for financial institutions. In the past five years, Ripple Labs has created a real-time gross settlement system (RTGS), a currency exchange, and a payment network called RippleNet.
According to Ripple Labs, “Ripple connects banks, payment providers, digital asset exchanges and corporates via RippleNet to provide one frictionless experience to send money globally,” and all of its transactions are recorded on the decentralized XRP Ledger.
Ripple is also a digital currency and is native to the RippleNet payment network. Ripple carries the ticker XRP, is currently the fourth largest cryptocurrency in the market with a market capitalization of over $6.5 billion. Ripple is used in the Ripple payment network to make transitions, pay for transaction fees and is necessary to be kept as a reserve in wallet addresses that uses the network. Ripple transactions take less than four seconds and over 1000 transactions per second can be processed on the network.
If a company in the U.S. wants to pay a supplier in Mexico, it would normally need to pre-fund an account in Mexico or use an expensive money transfer operator that will take several days to complete the payment. Using ripple, however, the U.S.-based company, upon agreeing with the Mexican supplier to accept this form of transaction, can make the payment instantly and at a very low cost. The supplier then receives the ripples that can be turned into Mexican pesos using a ripple gateway.
At the time of writing this article, the price of one ripple stood at $0.168040. Ripple has been one of the best performing digital assets in 2017. Year-to-date, the return on investment for ripple holders has been over 2,500 percent. In May, ripple hit its all-time high when it peaked at around $0.40.
Ripple Labs has managed to become the leading blockchain technology provider for payments and settlement solutions for financial services companies and currently, has over 75 global banks and other financial institutions as clients.
Ripple’s Unpopularity in the Bitcoin Community
While ripple has grown into one of the most valuable digital assets in the market and has been around for much longer than most of its counterparts in the top ten cryptocurrencies, not everyone in the bitcoin community is a fan of ripple.
Bitcoin started out to provide financial sovereignty to individuals and to allow anyone to “be your own bank” as bitcoin’s popular slogan says. Hence, many bitcoin community members feel that ripple is going against the very foundation that cryptocurrencies were built on, which is decentralization and the disintermediation of financial institutions.
Ripple, instead, is “colluding” with the banks as it is helping banks drastically reduce costs on payments and remittances. This does not bode well with the die-hard “be your own bank” community members.
Furthermore, critics of ripple also highlight the cryptocurrency’s lack of decentralization. While the XRP Ledger is decentralized, Ripple Labs has created all coins before the launch and still owns over half the total supply of ripple, which does not resonate well with the community’s affection with true decentralization.
A cryptocurrency’s supply structure has a big influence on its price. Hence, it is important to understand how the supply for a specific currency is managed before investing in it.
All ripples have been created, and the total supply of coins is 100 billion. Currently, around 38.3 billion ripples are in circulation. The rest are still held by Ripple Labs.
According to an announcement by the company in May 2017, Ripple Labs plans to lock up over half of the supply of ripple (55 billion XRPs) and will release one billion ripples into the market each month for 55 months. This move is intended on releasing any uncertainty surrounding ripple’s future supply. In the statement, it also states that Ripple Labs has sold on average 300 million XRP each month for the past one and a half years.
The high number of ripples still held by the company was a major point of concern for ripple holders and potential investors. These concerns have now been addressed, but it is not yet clear how the price of ripple will perform once the new tokens start to hit the market and if there will be enough demand to meet the incoming supply.
Where to Buy And Store Ripple?
Ripple be bought and sold on most major cryptocurrency exchanges, including Kraken, Bitfinex, Poloniex, and BitStamp. The digital currency can also be bought cryptocurrency brokerage platforms such as Changelly or through the wallet provider and exchange GateHub.
GateHub is probably the most popular wallet for ripple holders as it not only allows you to store your coins but also provides an exchange where users can buy and sell ripples against a range of fiat and digital currencies. GateHub is used by both companies and individuals.
Other ripple wallets include Rippex, which is a desktop wallet for Linux, Windows, and iOS and the hardware wallet Ledger Nano S, which has been supporting ripple since May 2017. The latter is the most secure option for private individuals looking to buy and hold ripple as an investment as it allows for cold storage.
It is important to note that if users want to activate a ripple wallet, at least 20 XRP need to be deposited in the wallet for that to happen.
Should You Buy Ripple (XRP) as an Investment?
Whether you should invest in ripple or not comes down to whether you believe that Ripple Labs will be able to succeed in providing the go-to payment solution for the financial industry or not.
Currently, it looks like they are succeeding, which explains why the value of ripple has increased so much. Should RippleNet become an integral part of the financial industry or even the standard for interbank payments, then the value of the cryptocurrency will most likely skyrocket in the coming years to reflect this development. However, should Ripple Labs fail at this endeavor, then the value of ripple will most likely wither away in the coming years.
Another factor to take into consideration when looking at altcoin investment options is the fact that more and more digital currency-focused hedge funds as well as traditional institutional investors are popping up that will be buying digital assets in size. Due to the higher liquidity requirements that institutional investors need, it is very likely that most funds will purchase holdings in the largest and most liquidity cryptocurrencies on the market, i.e. the top ten cryptocurrencies. Therefore, ripple will likely benefit from institutional investor money flowing into digital assets.
Aside from the potential failure of Ripple Labs to complete its ambitious mission, the other key risk for ripple’s price development is the ample supply of the coins that is yet to hit the market. Should the demand for the digital currency not outstrip the new supply entering the market, then the currency will lose value in the coming four years. Having said that, ripple’ future supply management plan is now well-known, so you would expect this to be already priced into the value of ripple.
While ripple is not a crowd favorite in the bitcoin community, the cryptocurrency definitely has the potential to become a favorite among investors.