What is Ripple?
Ripple is a payment protocol, but the term is also used as the name for the native digital currency of the Ripple network. XRP is used to distinguish the asset from the network and as a specific name just for the cryptocurrency.
As a payment network, Ripple enables transactions within seconds and almost free of transaction costs, it functions as a currency market and supports both fiat money and other cryptocurrencies. Ripple products are particularly interesting for banks and other financial service providers.
Who is Ripple Labs?
Ripple Labs is the San Francisco-based company that develops the Ripple protocol on which the payment network is based. The products offered by Ripple Labs provide their users with payment solutions based on Ripple technology. Many banks and other companies already use these products.
Applications of Ripple technology
An example of the use of Ripple technology by a financial services provider is the One Pay FX bank transfer tool offered by the Spanish bank Santander, which enables customers to make international transfers happen -mostly- on the same day (previously, a few days were usual for the process to take place). In addition, the exact amount received by the recipient in the target currency can be viewed before the transfer is executed. One Pay FX is the first mobile application for international payments based on blockchain technology. The Ripple product the application is based on is xCurrent.
The cryptocurrency Ripple/XRP
XRP works much faster as a means of payment than, for example, Bitcoin and also has significantly lower transaction costs (at least 0.00001 XRP are used per transaction, this also serves as an anti-spam measure to protect the network). Of the 100 billion XRP originally created -additional XRP won’t be created – only the smaller part is in free circulation as of yet, while the majority is still in escrow, from where the ongoing release or sale takes place. Within the network, Ripple/XRP can be used as a bridge currency, for example for pairs of currencies between which there is only a limited exchange.
Ripple technology without cryptocurrency XRP?
The most commonly used Ripple technology today is xCurrent, and you can already see from the example of the One Pay FX application mentioned above that for using xCurrent XRP (or crypto currencies in general) is not required. XRP transactions can actually be processed in the xCurrent system, but its general use does not need Ripple/XRP as currency.
Much more closely linked to the use of XRP is xRapid – another Ripple product – where Ripple/XRP is used for offering on-demand liquidity. However, the use of xRapid is currently not nearly as widespread as that of xCurrent. The increasing use of the cryptocurrency Ripple/XRP therefore depends on the extent to which xRapid can gain further ground.
Finally, as to the Ripple product xVia, XRP is not used necessarily there either.
Increase in value of Ripple/XRP through destruction rate?
The initially created amount of 100 billion XRP won’t be increased. In view of the destruction of 0.00001 XRP in each transaction, the total amount of the cryptocurrency is reduced. However, no investment strategy should be based on this fact as the amount of Ripple/XRP in free circulation will continue to increase for a very long time -even if the number of transactions should rise rapidly- due to the ongoing release from escrow, where the XRP are only blocked for a certain period of time.
Is now the time to buy Ripple/XRP?
We are currently far below the level from when the Ripple price peaked at the beginning of 2018. Even relative to the other cryptocurrencies, Ripple’s position has weakened in terms of XRP currently having “only” the third largest market capitalization of all digital currencies, while it was only Bitcoin that was ahead of Ripple at the turn of the year (Ethereum has once again clearly overtaken Ripple in market cap). So you might think that there is actually potential for an increase in the share price and therefore the right time to invest in Ripple/XRP.
However, there has been an increasing realisation that the widespread use of Ripple technology – and it will certainly continue to increase – does not necessarily entail the same success story for the currency Ripple/XRP. Using the Ripple network does not require XRP as a store of value or a medium for transactions.
From the point of view of Ripple Labs, there is of course an interest and hope that its in-house cryptocurrency will prevail along with the payment solutions the company offers, and strategies will certainly be devised that are aimed precisely at achieving this. However, there are factors such as the acceptance of cryptocurrencies as a means of payment in general and how customers use Ripple technology (see “Ripple technology without cryptocurrency XRP?” above) that cannot, or only to a limited extent, be influenced by those who have an interest in the success or increasing value of the cryptocurrency Ripple. Therefore, any consideration of buying Ripple needs to inclose the above-mentioned risk factors and uncertainties.