Ripple was probably the first crypto after Bitcoin I had ever heard of back in 2013 while I was in Cape Town, South Africa.
I was helping my friend and fellow Zimbabwean, Rob Burrell with his amazing money transfer business, called Mukuru. Mukuru had a lock on money transfers between South Africa and Zimbabwe and out of the blue Ripple called us and pitched us very aggressively.
I remember reading the white paper but, at the time it just made us more confused. The one thing that stuck with us was the number of tokens the Ripple company were keeping for themselves. Unfortunately, it somewhat put me off this crazy new industry, that I’ve now come to love.
Anyway, I digress. First some history. The predecessor to the Ripple payment protocol, Ripplepay, was first developed way back in 2004 by Ryan Fugger a developer in Vancouver.
Some time later and completely independently, Jed McCaleb was working on a similar idea that used a blockchain consensus mechanism. The two eventually connected and teamed up with Chris Larsen, founder of lending businesses E-Loan and Prosper, to found Ripple in September 2012.
The Ripple network basically aims to replace the existing inter-bank exchange network with a blockchain– eliminating friction, speeding up settlement times, and greatly reducing costs.
In many ways, this is a perfect use case for blockchain technology. The legacy system is slow, expensive, and error-prone; banks must coordinate transfers of value across different internal databases, making it extremely difficult to settle transactions quickly.
Not only is this process slow, it adversely impacts a bank’s working capital.Banks often have to open accounts with other foreign banks and fund them with local currency. Banks that can’t do this end up relying on third-party liquidity providers further driving up costs and increasing counterparty risk.
Ripple allows banks to move from a system of disjointed databases to a single distributed global database, the Ripple ledger.Banks can trade IOUs for “any asset” with other banks that they trust, and all of these transactions are contained on the shared ledger.
This gives transactions a fluidity and speed that cannot be achieved in the legacy system, and it greatly frees up working capital. This solves a huge problem for financial institutions.
The native token of the network is called the XRP. Transaction fees must be paid in XRP, and then they’re burned, making XRP a deflationary currency.
XRP can also be used as a “bridge currency” for instant transactions on the Ripple network. Here, XRP functions much like any other blockchain-based crypto. However very important – Banks don’t have to use XRP for anything except for paying fees, which are tiny compared to the gross amounts transacted.
To settle IOU’s they can just as easily use any other cryptocurrency. In the future, they’ll might even use blockchain-based fiats. The point is they don’t need to use XRP.
Currently there are 39 billion XRP tokens in circulation with another 61 billion to come online before they max out at their 100 billion cap. This has caused much nervousness in the community, so last year they created 55 x 1 billion XRP contracts and place them in escrow with each one unlocking in consecutive months for months 0 to 54. Anything not used goes into a new escrow lockup from month 55 and so on. The result is a more predictable emission curve. That said that’s still a high level of dilution coming on line in 4 or 5 years.
Right now, XRP currently has a network value of about $30 billion, excluding the escrowed tokens.
Ripple Inc. is providing is one of the best use cases for blockchain technology. However, let’s separate the protocol from the token.
We will ultimately have 100 billion XRP in circulation and potentially the only utility these tokens have is for the payment of negligible fees. I really don’t see good fundamentals for the token.
It’s way over-valued and it could easily still achieve its purpose perfectly well at 1c or 0.1c instead of the current 78c.
Now in fairness to the Ripple team, the Ripple ledger was built for speed and liquidity.
In fact the price of Ripple is insignificant for it to still perform its role really well.
While many blockchain teams seem to not care about the money, this team, for me clearly likes money so their motivation might be on your side as an investor in the token.
That said, my conclusion is Ripple is an awesome project, XRP is a terrible investment.