Ripple Review – Ripple is a cryptocurrency aiming to work with the banks, allowing them to send money across borders with ease.
In this extensive review, we’ll be discussing whether Ripple is the great investment that many people consider it to be and how you can buy & store your XRP coins.
YOU WILL LEARN:
What Is The Ripple Project?
Will The Ripple Token Increase In Price?
How To Buy And Store Your Ripple Tokens
- What Is Ripple
- How Does Ripple Work?
- Are Ripple Solving Real Problems?
- Will The Ripple Token Price Increase?
- Team & Roadmap
- Selling Points
- Barriers To Success
- Extra Points
- Where To Buy & Store Ripple Tokens
- Ripple Price Spike
- Follow Future Posts
1. WHAT IS RIPPLE?
In Their Words
Ripple is a Cryptocurrency which is aiming to work with the banks. As the core premise of Bitcoin and other Cryptocurrencies is to replace banks, Ripple has faced some serious backlash in the Crypto-world for its plans to assist banks Cryptos are aiming to replace banks, Ripple are going against
2. HOW DOES RIPPLE WORK?
Central Currency – XRP
There are 3 elements to the Ripple platform that they regularly discuss (xCurrent, xRapid, xVia). However, for the purpose of this article, we’re only going to be discussing the main area which our readers will be familiar with – allowing banks to send money abroad.
Ripple works by providing a bridge between currencies:
Let’s say a bank wished to trade their GBP for an American banks USD. With the current system, this takes several days and can be costly.
Ripple works by introducing a central currency, XRP.
In other words, instead of directly trading GBP for USD, the UK bank would trade GBP for XRP and then trade XRP for USD.
The reverse process would occur from the perspective of the US bank.
While this may actually add an extra step to the process, each trade takes around 5 seconds and incurs a tiny fraction of cost.
As a result, the banks have now traded GBP for USD in 10 seconds (compared to the old system of several days) and for less than a 0.1% fee.
Above, we’ve described how the process occurs to use Ripple’s currency, XRP, as a means of speeding up cross-border trade while reducing fees.
Below, we’re going to describe another advantage that Ripple offers – providing liquidity for smaller currencies.
- Bank A has South African Rand (ZAR)
- Bank B has Thai Baht (THB)
- These two banks would like to trade their currencies.
- In other words, Bank A would like to send ZAR from South Africa to Thailand and Bank B wants to send THB to South Africa
Within the current system, this is very difficult to achieve because there is very low liquidity when trading ZAR/THB
What Does Liquidity Mean?
Liquidity essentially means the number of buyers and sellers in a market. The more people buying and selling, the higher the liquidity.
Higher liquidity makes it much easier to buy or sell:
Imagine you’re in a room with 2 people wanting to buy your currency and 2 people selling it. Now, imagine you’re in a room full of hundreds of people wanting to buy and sell.
Which room do you think it would easier to make a trade in? The more buyers and sellers, the easier it is to trade.
Ripple’s Liquidity Solution
This is one of the reasons that it can be very difficult to trade smaller currencies such as the South African Rand and Thai Baht; because there isn’t enough liquidity to facilitate easy trading.
Therefore, Ripple will be using their token as liquidity pool. In other words, every currency will first be traded with XRP. This process is identical to the process outlined above so we won’t go further into detail here.
Instead, we’ll discuss how having a central currency increases liquidity in a market:
Let’s say the following trades occurred in one day by 3 banks – a UK bank, a US bank and a European bank (ignore the inaccurate conversion rates used for simplicity):
- £1 Million GBP traded for $1 Million USD
- £1 Million GBP traded for €1 Million EUR
- $1 Million USD traded for €1 Million EUR
If you look at each of these pairs alone, they have a trading volume (liquidity) of 1 Million per day in their respective trading pairs – GBP/USD, GBP/EUR , USD/EUR.
Now, we’ll look what happens if we introduce a central currency (XRP) and carry out the exact same trades:
Note: The example above involves 2 Million of each currency being traded per day hence we’ve used those same values below
- £2 Million GBP traded for XRP
- $2 Million USD traded for XRP
- €2 Million EUR traded for XRP
Higher liquidity results in easier trading. For lesser traded currencies such as the Rand and Baht, this provides a huge benefit.
3. ARE RIPPLE SOLVING REAL MARKET PROBLEMS?
#1. PROBLEM – Slow Settlement Speeds
In their current state, cross-border payments require a number of intermediaries to be involved in the process. This means that payments can take anywhere between three and five days to reach completion.
The Ripple payment protocol will allow transactions to be completed within 5-10 seconds as opposed to 3-5 days
#2. PROBLEM – High Operational Costs
The number of intermediaries involved in the process not only affect settlement speeds but also cause transaction fees to be higher. The current average transaction fee for a $500 payment stands at $5.56.
The average transaction fee for a $500 payment is reduced by over 60% to $2.21
#3. PROBLEM – Payment Failure
Currently an average of 4% of all cross-border payments fail, a failed payment is of course of no benefit to any party involved.
All payments made using Ripple will be trackable on the blockchain
#4. PROBLEM – Smaller Currencies
Let’s imagine a bank wanted to send a payment of South African Rand to a another bank and receive Thai Baht in return. As an uncommon trading pair, it may take a significant amount of time for someone to match the trade.
Ripple will provide a liquidity pool in order to improve on liquidity issues
#5. PROBLEM – High Liquidity Costs
Ripple payments are a fraction of the cost of this
4. WILL THE RIPPLE TOKEN PRICE INCREASE?
This is another incredibly important point that people often overlook when investing in Cryptocurrencies – is the token price truly linked to the platform usage?
Investing in Cryptos is not the same as traditional investing – when you buy shares in a company, you’re buying ownership. As the company makes increased profits, the share price will increase and your investment value will rise also.
With the majority of Cryptocurrencies, the tokens don’t represent shares.
Therefore, it’s possible for the company to be successful (i.e the CEO and employees get rich) and yet the token prices may actually fall if they aren’t correctly linked to platform usage.
The ONLY factor determining token price is supply and demand on exchanges.
Obviously, supply and demand are affected by many factors but the price all comes down to the combination of these two. Because of this, it is essential to ask yourself the following two questions:
- Demand – Will there be token demand on the exchanges?
- Supply – Will there be excessive inflation hindering prices?
Let’s first look at demand:
What Are The Sources of Demand?
This section is actually very difficult for us to write as we’ve struggled to find sufficient information.
It appears online that there is significant confusion surrounding this topic so we’re going to outline the two potential options which could be true:
- Banks Must Hold XRP Tokens
- Banks Don’t Need To Hold XRP Tokens
From our research, it’s very unclear whether banks must first buy XRP tokens – to hold for liquidity purposes – or if they are able to use Ripple’s own liquidity pool.
IMPORTANT: This difference above may not sound too significant but it is absolutely fundamental to determine if XRP is a good investment or not. We would NEVER invest without knowing which of these two options is correct.
Below, we will explain why this difference is so important by highlighting the demand for tokens with both scenarios:
Scenario #1. Banks Must Hold XRP Tokens
This scenario assumes that banks must hold Ripple in their own liquidity pool in order to use the Ripple services.
Banks are going to be very keen to use Ripple as it provides an incredible improvement on the current Remittances options.
Therefore, there will be significant demand for XRP tokens.
It should be noted that banks will be able to XRP directly from Ripple but they have committed to selling a maximum of only 1% of XRP per month (more on that in a second).
Therefore, if banks wish to buy more XRP tokens than this, they will be forced to buy them on exchanges. As a result, this increased demand on exchanges should drive up token prices.
If this scenario is correct, we are bullish on Ripple and we would consider adding some to our portfolio – they are providing a solution to a big problem for banks and investors shouldn’t undervalue this.
However, we cannot commit to an investment as we cannot be sure that this scenario is correct. If scenario 2 is correct instead, we would remain well away from Ripple as an investment.
Scenario #2. Banks Don’t Need To Hold XRP Tokens
In this scenario, we’re assuming that banks don’t need to hold XRP tokens. We’ll explain how this is possible through an example.
Let’s say a bank wants to send GBP abroad and receive USD.
The UK bank would trade GBP for XRP and then trade XRP for USD.
It’s clear from this process that XRP needs to bought and sold to facilitate this trade BUT what if a bank is able to use Ripple’s pool of XRP tokens?
If they were buying XRP tokens from Ripple’s pool, there would be no requirement to ever buy tokens on exchanges.
With zero demand on exchanges – other than speculation from investors which isn’t sustainable in the long-term – there would be reason for XRP tokens to increase in value.
Simply put, there would be no demand and tokens would be worth virtually nothing.
If this scenario is correct, we would never invest in Ripple.
Throughout the rest of this article, we will continue to analyse other elements of the project as per our usual format. However, we want to be very clear on one aspect:
If scenario 2 is correct and banks are able to use Ripple’s liquidity pool without purchasing tokens themselves, everything else in this article is irrelevant; it’s a bad investment in our eyes.
What Is The Likely Inflation Rate?
Ripple created a limited supply of tokens, (100 billion XRP) meaning a zero inflation rate but this does not mean new tokens won’t enter the market.
Ripple, themselves, still hold 55 Billion XRP. These were not previously subject to any lockup period which led to the concern that Ripple could flood the market at any point drastically reducing the XRP token price as a result.
We will cover the news in more detail later but the announcement that these tokens have now been placed in escrow ensures no more than 1 billion XRP will be sold each month. With approximately 38 Billion tokens in circulation, this would represent an inflation rate of around 32% per year and is thus relatively high.
Obviously, just because 1 Billion XRP tokens can be sold each month, it doesn’t mean that they will and the inflation rate may be far lower.
Regardless, it’s a concern for us.
As a comparison, Ripple say that the average amount sold and entering the market during the last 18 months is 300 million XRP per month.
The token supply is a concern for us. Furthermore, the token demand is also a concern due to the reasons given above. If we were able to find more information and found scenario 1 to be the truth, we would continue forward with our analysis.
If we found scenario 2 to be true, we would end our analysis as they would simply not be a worthy investment in our eyes.
5. THE RIPPLE TEAM & ROADMAP
The Ripple Team
As our regular readers will know, one of our mantras here at Crypto Gurus is to “invest in people, not ideas”. It’s based off the principle that an idea is only as good as the people who execute it. As investors, we strongly believe in this principle. However, with Ripple already being an already established and operating currency we will just highlight a few key players.
Above is a just small section of the Ripple team; in total the team consists of upwards of 150 employees and is generally considered to be the largest of any cryptocurrency and one that is still looking to expand.
CEO Brad Garlinghouse has worked for companies such as AOL and Yahoo, as well as holding board positions with a number of companies showing himself to be well respected by his peers.
Marcus Treacher is another name for us to highlight; Ripple’s Global Head of Strategic Accounts has significant experience in the banking industry having spent 12 years with HSBC as Global Head of Payments Innovation as well as serving as chair of the Global Advisory Board for SWIFT between 2010 and 2016.
Their board of directors also have significant experience in policy, regulation and finance.
The Ripple Roadmap
Ripple was originally launched in 2012 and has of course seen significant progress since then. It is for this reason that the company offers no real roadmap at this time but has the overall aim of increasing the size of the RippleNet. As a well-established currency, this is not a concern for us.
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6. SELLING POINTS
Practical Use Cases
One argument presented by many revolves around Ripple being a potential ‘safe’ currency. There is a belief that even if the crypto bubble were to burst, Ripple would still be able to continue.
This is put down to the number of practical uses cases the currency serves but also their connection to the banks. Price is obviously determined by demand though so even if the system continues, there is no guarantee that the XRP token would retain its value.
7. BARRIERS TO SUCCESS
This is one that seems to constantly appear during our reviews and stems from the negative connotations that still surround cryptocurrency, even though it is now seeing more mainstream appeal. The project is only going to see success if it is adopted by both banks and consumers.
This is one that seems to constantly arise when speaking about Ripple and it stems from their connection to the banks. Many believe that this goes against the principles of cryptocurrency; which was originally supported because of its decentralized nature, by connecting with the banks is losing its identity for some.
8. EXTRA POINTS
One idea we found when researching Ripple surrounds people travelling across borders to find work and provide for their families.
This is one that we hadn’t previously thought about but there are a number of people leaving areas such as South America and travelling to America for example in order to provide.
When it then comes to them sending money back to their families, they of course face the issues previously discussed.
The Ripple protocol would be of great benefit to these individuals. While this is of course the case with many cryptocurrencies, Ripple will provide this in a system which is connected with the banks, rather than dissociated with them.
Some may argue that this is a negative point while others would say that it provides legitimacy to such transfers – the decision is up to you.
9. WHERE TO BUY AND STORE RIPPLE
Where To Buy Ripple Tokens
Ripple tokens are available for purchase on the following exchanges:
Where To Store Ripple Tokens
When it comes to storing Ripple tokens you have a number of options, the option we recommend would be to use a hardware wallet such as the Ledger Nano S. This obviously means that your tokens are stored offline and are generally considered to be the safest option as a result.
This is of course just a suggestion; you may prefer to store your tokens on an online exchange or another method entirely, each option has its own benefits and it’s important you find the one that best suits you.
10. RECENT PRICE SPIKE
We have discussed the currency in depth but what caught our attention and inspired this review was the recent price spike witnessed by XRP, with the token reaching an all-time high of over $1. We obviously cannot say for certain why this has occurred but we are going to highlight a couple of potential reasons.
American Express Partnership
This partnership was originally announced on November 16th but has found its way back into the news these past few weeks.
Ripple have previously held relationships with 5 banks testing their system since June 2016, including the Canadian Imperial Bank of Commerce and Italy’s Unicredit but the announcement that a partnership had been reached with both American Express and Santander is one that turned heads.
American Express customers in the USA will be able to send instant cross-border payments to Santander customers in the UK. Could the announcement of a viable link between two significant parties like the USA and UK have been what caused the recent price spike?
We personally believe that this announcement could be the biggest reason that XRP price has surged recently.
As previously mentioned the Ripple team hold a large amount of XRP, these were previously not subject to a lock in period and there was a worry that these tokens could enter the market at any time and flood the market.
This would have of course led to a sharp decrease in the price of XRP.
On December 13th, it was confirmed that Ripple had placed 55 billion XRP into escrow within this 1 billion XRP will be released on the first day of every month for the next for the next 55 months.
Any unspent XRP from month 1 will be placed back into escrow to be released on day 1 of month 56 and so on.
This ensures investors are always able to calculate the maximum supply that can enter the market and will eliminate any worries people would have previously had about Ripple flooding the market.
This allows investors to have a stronger level of confidence in the XRP project knowing the chance of their investment significantly decreasing overnight has been reduced.
11. THE CRYPTOGURUS CONCLUSION
Ripple will most likely provide an unbelievable solution for many banks around the world, allowing them to send cross-border payments with ease. We expect that Ripple will have a very successful future.
However, we’ve found some serious concerns for investors looking to buy XRP tokens. Therefore, we most likely wouldn’t invest into Ripple.
This is one of those situations where the general idea of the project is amazing but the devil truly is in the details – it’s because of incidents such as this which are why we like to delve into the details of a project and provide a more comprehensive review.
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