What is Ripple?
Ripple was founded in 2012 in order to fill a need in the international business market for a fast and efficient way to transfer funds from one country to another. The goal of Ripple is to establish a blockchain that will be used to verify financial transactions. This strategy has the potential to remake the entire global financial system, and the Ripple cryptocurrency – also called Ripple but technically named XRP – is an integral part of this goal.
It seems incredible that when Amazon can promise same-day delivery that it can still take 3 to 5 business days to transfer money between countries. Globalization has remade supply chains and the manufacturing process, but the financial system remains stuck at an earlier time.
That system is known as SWIFT – the Society for Worldwide Interbank Financial Telecommunications. According to their website, SWIFT is a cooperative founded in the 1970’s and did a tremendous amount of work in standardizing the format and communication of international monetary transfers. It’s easy to forget how difficult their task was in the era before fax machines.
Unfortunately, as a cooperative SWIFT has responded slowly to changes in technology. Large corporations react more slowly than small companies, and cooperatives of large corporations move even slower. The result is an out-of-date international financial network that does not adequately utilize technology or meet the needs of the modern, global economy.
How to Buy XRP?
Buying ripple can be done by two main options. The first option being via cryptocurrency exchanges such as CEX.IO (Ripple will be available soon) and Kraken.
How to Buy XRP in 4 Easy Steps
Step 1 – Get XRP Wallet
In order to buy Ripple via exchanges, you will have to open a digital wallet prior to the purchase. You can use websites such Gatehub.net to open a digital wallet.
Step 2 – Open an Account with an Exchange
The next step will be to open an account in one of the exchanges that support Ripple (XRP). Currently, not many exchanges support Ripple and the demand for the crypto are increasing constantly. Two major cryptocurrencies exchanges that support Ripple (XRP ) are CEX.IO and Changelly.
Note that if you wish to speculate the price of Ripple and do not own the coin, you can turn to Plus500 *(72% of retail CFD accounts lose money, Availability subject to regulation) which provides you CFD’s trading on various cryptocurrencies as well as Ripple.
Step 3 – Verify your Account
Cryptocurrencies exchanges require new users to verify their account prior any trading activity. Therefore, Following your account registration, you must verify your details in order to continue the process.
Step 4 – Buy XRP with Fiat Currency
That’s it, now you can log in to your exchange account, search for XRP/USD or XRP/BTC, XRP/XBT and buy the coin. Following the purchase, withdraw your Ripple (XRP) to the digital wallet you opened at the beginning of the process.
The other method being via brokers that provide a contract for differences (CFD’s). Currently, not all exchanges provide the opportunity to trade Ripple, however, Plus500 allows traders and investors to buy and sell Ripple easily. Sign in to Plus500 *(72% of retail CFD accounts lose money), deposit funds via bank transfer or credit card and you can trade Ripple either from your desktop or mobile app.
Ripple only sells XRP to banks and institutions, but individual investors can find it on a variety of cryptocurrency exchanges. It can be purchased with other cryptocurrencies or with US dollars. The exchanges have different cost structures and pricing policies, so comparison shopping is highly recommended. There is also a useful website that compile lists of exchanges with user ratings.
Keep in mind that the acceptance of XRP by the cryptocurrency community at large is going through significant change as 2017 comes to a close. Exchanges are adding XRP as demand increases, and pricing policies are also changing quickly. Buyers and sellers should check the status of XRP frequently to keep up to date on the situation.
XRP is at the vanguard of the new era of cryptocurrency. Ripple has applied new blockchain technology to an existing structural bottleneck in a way that has the potential to remake the global financial system. They have proceeded slowly and methodically with little fanfare for most of the process. That has ended, and now individual investors are joining in.
Ripple – A Company and a Blockchain
Ripple was founded to develop a cost-effective, secure solution to this problem. Of course, as a private business, they hope to profit from that solution. This is one of the important distinctions between Ripple and the promoters of many other cryptocurrencies. Ripple is in the money business to make money.
This means that the idea of decentralized control that is at the heart of Bitcoin is not part of the Ripple infrastructure. The company raised the seed capital through traditional channels and not through an Initial Coin Offering (ICO). This standard business structure gives Ripple greater creditability with its primary user base and strongly suggests that it has a real competitive advantage over Bitcoin.
Ripple created RippleNet, the world’s first commercially operational blockchain network. This decentralized network is also commonly referred to as Ripple. Members use the network to validate important information and transfer money around the world. It is much more efficient than the SWIFT system and is growing quickly.
XRP – The Cryptocurrency
XRP is the cryptocurrency that Ripple (the company) created to operate on Ripple (the blockchain). The basic idea is that using a common unit of currency makes the transactions easier to record. Anyone transferring money converts their native currency to XRP and transfers that. The recipient then converts XRP into their native currency. XRP simply functions as a common accounting entry.
This approach has several benefits. First, it disconnects the transfer itself from the currency markets. It treats the movement of value as a distinct event. Ripple and others refer to this as the creation of an “Internet of Value”. The use of an independent medium of exchange also separates the transfer from the market for US dollars, which are still the most commonly used currency in international trade.
In addition, the use of a cryptocurrency makes it possible to compensate the blockchain members for recording the transactions and maintaining the blockchain. This, in turn, attracts other members to the network. So long as the transaction fees are lower than the alternative forms of transferring money, compensating network members through XRP is a financial “win-win”.
The Benefits of XRP
The potential benefits of the Ripple network to financial institutions go beyond the ability to earn additional revenue by maintaining the blockchain. In fact, that is a very small part of the overall equation. The primary benefits are the speed at which transactions can be settled, the lower cost and the absolute certainty of the transfer.
The benefit of reducing the time it takes to securely transfer money from days to seconds is obvious. Banks make money by lending it out, and capital tied up in transfers is a lost opportunity. Similarly, the benefit of lowering the cost of doing business is easy to understand. However, the certainty provided by the Ripple network is at least as significant to banks and financial institutions.
Banks and institutions “bounce checks”, just like people. Banks lose significant amounts of money on these failed transactions. In addition, banks lose their money on deposit with another bank in another country when that bank fails. This is known as counter-party risk, and it is completely eliminated by the Ripple blockchain and the XRP cryptocurrency.
These benefits have fueled acceptance of XRP and growth of RippleNet. The company has carefully nurtured this growth both by working with the banking establishment and by slowly expanding the blockchain. This nuanced approach by Ripple shows an intimate understanding of the industry that they are trying to remake. Banking is a staid, traditional business that does not respond well to be being pushed.
Banks and financial institutions are responding positively to the thoughtful approach. The Mitsubishi UFJ Financial Group (MUFG), the fifth-largest bank in the world by total assets has signed on, as has American Express and the Royal Bank of Canada (RBC), Canada’s second-largest bank. The list is growing longer every day as Ripple gains credibility in a very conservative industry.
Ripple has also been able to attract top leaders from the financial and digital worlds. These experienced professionals have a diverse set of backgrounds but a common goal of creating a stable accepted and robust blockchain for the banking industry. Perhaps the best measure of success in this area is the hiring of former SWIFT Directors. These individuals see a changing of the guard and want to be on the winning team.
These facts are vitally important not only to the success of Ripple but also to the value of XRP. It is too easy to forget that it is the community of users that create market value for a cryptocurrency. Bitcoin skyrocketed in price because more investors became willing to use the coin as an investment. In exactly the same way a growing community of XRP users will determine the value of this coin.
However, this fundamental progress toward the ultimate goal of remaking international financial transactions is not responsible for the price spikes XRP has experienced in 2017. The price chart through mid-December shows the impact of cryptocurrency investors beginning to accept the core value proposition of XRP, or perhaps only trying to diversify their portfolios.
It is absolutely critical to understand that these new investors in XRP are not the primary focus of Ripple. Of course, any company likes to see their stock – or cryptocurrency go up in price, but these price charts which are a critical component of the analysis done by cryptocurrency traders are far less important to Ripple than the continued growth and acceptance of XRP in the banking industry.
These two markets, the institutional user and the individual investor, have very different definitions of “value”. The institutional market sees value in how XRP can be used in their business operations while the individual investors see the price appreciation described in the previous section as the primary source of value. Currently, this group has no other use for XRP.
Ripple itself has another perspective that reflects both of these viewpoints. Because the primary focus of the company is on the institutional market, Ripple wants a value that is best suited to this user. In this sense what is most important is not the current market price of the cryptocurrency, but rather its price stability. More than anything and unlike other cryptos, Ripple wants an orderly market that is devoid of large spikes.
This is because the institutional user of XRP is indifferent to the actual market price of the coin. They are using it solely as a medium of exchange to transfer national fiat currency. Simply put, they do not care how many units of XRP they transfer, but they do care if the value of the XRP changes suddenly while they own the coin.
Ripple boasts that each transfer on RippleNet takes only 4 seconds to complete, but of course, the entire transaction from the purchase by the bank sending XRP to the liquidation by the receiving bank to their native fiat currency takes longer than that. This exposes the banks and financial institutions to unexpected gains or losses due to changes in the market price of XRP. Unacceptable losses will damage the use of the coin and RippleNet as a payment transfer system.
Fortunately for Ripple and the institutions, there are mitigating circumstances that make these large losses unlikely. First of all, each party to the transfer holds the risk for only a portion of the time. The risk of loss is transferred along with the cryptocurrency. If each party to the transfer is equally adept at buying or selling XRP, this fact evenly shares the risk between the two.
In addition, banks and financial institutions are accustomed to the risks of changes in currency values and have developed sophisticated methods of reducing it. As RippleNet grows, the ability of these institutions to quickly move into and out of XRP will also grow. Furthermore, there are separate companies that see an opportunity to profit from this volatility and who will ensure the bank against losses stemming from it.
A large segment of individual investors also takes a buy and hold approach to XRP and is basically indifferent to volatility, other than the occasional sleepless night it can cause. Those investors who trade cryptocurrencies on an active basis actually see volatility as an opportunity to profit from the market. However, what all individual investors care about is the long-term increase in the market price of XRP.
These investors often rely very heavily on the basic law of supply and demand. The “fixed supply” of Bitcoin is almost legendary in the cryptocurrency world as a driver of market price. Those who think supply is the main component of price view XRP as a problematic investment because Ripple, the company, has a monopoly on the production of XRP.
Keep in mind that Ripple is a private company and that XRP is a private cryptocurrency. There is no mining of XRP. Ripple has placed most of the supply of XRP in time lock contracts on RippleNet. 1 billion coins will be available for issue on the first of each month for the next 55 months. Ripple can choose to issue some or all of the coins with any unissued coins returned to a new time lock contract opened in 55 months.
XRP is a Centralized Coin
This active management of the supply of XRP is despised by cryptocurrency purists. Decentralized control of the currency is a very important philosophical part of Bitcoin, which allows individuals to create new coins. Centralized control by Ripple of the supply of XRP stands in complete opposition to this principle. This is a fundamental difference that cannot be reconciled.
Many individual investors who are indifferent to these philosophical differences are also concerned about the time lock feature. They are concerned that Ripple will “dump” 1 billion XRP on to the market the first of every month, inundating the supply and driving down the price. From this very limited perspective, XRP looks like a bad investment, but it ignores the reality of the situation.
Ripple is committed to a stable price of XRP because it is focused on the institutional market. The last thing that Ripple wants is those institutional customers to suffer a price drop while using XRP on RippleNet. They also do not want their institutional users to avoid using the network around the first of each month. In addition, the company profits from the sale of XRP and can use the proceeds to finance growth.