When many people check the market, they often find that XRP ranks among the best. So, what is XRP? As a “classical cryptocurrency”, why has the market value of XRP been so high?
XRP: for cross-border remittances
Ripple, or XRP, is used for cross-border payments.
As we all know, the Swift system is generally used for cross-border remittance, which not only has a cumbersome approval process, but also a high commission fee. It often takes 3–5 workdays to finish the process.
According to the World Bank, low-and-middle-income countries globally sent $466 billion overseas in 2017, generating billions of dollars in fees.
It is no exaggeration to say that international remittances are the most expensive form of payment in the world.
The World Bank has commented that “remittance costs are so high mainly because the operation is not transparent, which reduces competition among peers.”
Remittance agencies cannot be fair to the world’s millions of weak lenders. As a result, high costs are incurred. This can also be called a financial barrier.
Ripple protocol was applied.
OpenCoin (now Ripple Labs), the company behind the Ripple protocol, was founded in 2012. Since then, the company has launched the project of Ripple, which hopes that XRP will become an “bridging currency” for financial institutions to solve global cross-border payments, in order to build a more convenient global payment network with cheaper transfer costs.
The cost of sending money via Ripple is 0.00001 XRP per transaction, nearly zero at XRP’s current price of $0.25. In addition, the confirmation time for an XRP transfer is only four seconds, which is very fast.
Ripple has adopted a new Consensus Algorithm, Ripple Consensus Algorithm, which can process more than 1,500 transactions per second, which is 75 times that of the Ethereum network and 220 times that of Bitcoin.
Payment system
Many people think of XRP as an important product for Ripple, but it’s actually a very small part of the company.
Ripple has three major products: xCurrent, xRapid and xVia.
X-current is transacted by the intermediate bank, X-Via is transacted by the gateway, and X-rapid is by XRP.
x-Current
It mainly provides cross-border transactions between banks. The Ripple network sets up distributed ledgers between banks so that whenever Bank A transfers money to Bank B, it can be cleared by an intermediate bank C. In essence, the distributed ledger changes the amount of A’s bank account in C and B’s bank account in C. This model has the advantage of being faster and cheaper, but the disadvantage is that all three banks need to join the Ripple network and use the same set of distributed ledgers.
x-Via
X-Via ntroduced the concept of gateway. The gateway is an intermediary institution (like banks) of the Ripple system. The payer can first transfer any currency to the gateway, and then the gateway will convert the currency into other currencies and pay the payee. This model is the most flexible as neither payers nor recipients need to join the Ripple network. Only they need to do is to trust the gateway.
x-Rapid
In this way, the payer will convert the payment amount into XRP and send it to the recipient’s bank. The bank will convert the received XRP into the corresponding fiat currency and then pay to the recipient. This model is more flexible than X-Current, as long as the recipient’s bank can accept XRP and exchange it for the corresponding fiat currency. Of course, the process of converting XRP coins into local currency can also be done by the recipients themselves.
XRP is only a small part of XRapid’s three products. Neither xCurrent nor XVia is used. Through xCurrent, banks in two different countries can also exchange and clear the two fiat currencies directly, without the need to go through xRapid and XRP, the two intermediaries. Currently, most Ripple’s users (banks, financial institutions) also use the xCurrent product rather than xRapid and do not need to use XRP.
XRP is an in-network tool that serves two purposes:
One is to prevent spam request attacks. Due to the open-source nature of the Ripple protocol, malicious attackers can create so many “junk accounts” that the network can break down. To avoid this situation, Ripple Labs requires that each Ripple account has at least 20 Ripple coins and destroys 1/100,000th of Ripple coins with each transaction. The cost to a normal trader would be negligible, but for malicious attackers, who create a flood of fake accounts and transactions, the cost of destroying XRP coins would grow exponentially and be huge.
Second, play a role as a bridging currency. XRP serves as an intermediary between various currency exchanges. Transaction using the Ripple network requires a fee (minimum 0.00001XRP per transaction), which is not rewarded to the node verifying the transaction or returned to the system account, but is destroyed. So, the more people who trade on Ripple’s network, the more XRP is destroyed, and through this deflationary model of destruction, XRP can appreciate.
Controversial centralization
Unlike Bitcoin’s PoW reward system, Ripple’s network has no miners, only verification nodes, and all verification nodes need to be approved by the company. So it’s essentially a centralized approval.
In addition, XRP has a total issuance of $100 billion, 20 billion of which is kept by the founders, and the remaining 80 billion is sold by the company. The company says it is keeping so many XRP coins both to maintain price stability and to allow it to be sold depending on market conditions. Most of the circulating volume in the market comes from the selling of founders and companies. Selling XRP is a way for companies to make money.
As a result, many people see XRP as highly controlled and centralised.
However, some believe that as a global payment system, XRP competes with traditional payment institutions such as Swift, aiming at lower cost and faster speed. Centralization does not matter much.
By sacrificing decentralisation, Ripple’s system has gained approval from banks.
In 2016, Ripple Labs set up the Global Payments Steering Group (GPSG) with major global banks. In November 2017, Ripple Labs cooperated with American Express (AXP) and British bank Santander to facilitate cross-border transactions between the two sides. Japan’s three largest Credit card issuers, JCB, Sumitomo Mitsui and Credit Saison, recently announced that they will use Ripple technology provided by SBI Ripple Asia to make cross-border payments with South Korean banks.
Because of this, the price of XRP skyrocketed in 2017, becoming a famous hundredfold coin.
Ripple price: https://www.bixiaobao.com/cn/coinlist/ripple
Today, the Ripple network has grown into a payment system covering 55 countries and 120 trading pairs around the world.
Another point of contention for XRP is valuation.
With a market capitalization of $290 billion, Bitcoin is not only safe, but is also supported by the consensus of millions of miners and of fans around the world. Ethereum’s $53 billion market cap is driven by a strong Ethereum ecosystem. What about XRP? Even now, with a market capitalization of $11.7 billion, XRP’s usage scenarios are limited to payments, far from competing with BTC and ETH.
Moreover, XRP payments are rather rare, and even for international transfers between banks within Ripple’s system, XRP is not used, limiting its value.
Ripple also mentioned that selling XRP in the secondary market is one of the ways for the company to make profits. Therefore, every time XRP skyrockets, it is the time for the company to ship. As a highly controlled project, we suggest cautious participation.
To sum up, Ripple has improved the efficiency of cross-border payment, gained the support of more financial institutions around the world, and can better integrate with the existing financial system, which is a good application scenario of blockchain technology. However, Ripple Labs is still a software service provider with mainly technical solutions, and its own tokens are only suitable for certain scenarios. There is great uncertainty about whether tokens will be accepted in the future.
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