Be. in this episode of[In]Crypto’s video news show host Juliette Lima took a deep dive into the Ripple and XRP cryptocurrencies.
In this video, Juliet explains the difference between Ripple and XRP and how the technology behind it works. She goes on to elaborate on the benefits of using XRP as well as some of the drawbacks. Finally, Juliet summarizes Ripple’s ongoing lawsuit with the Securities and Exchange Commission.
What is XRP?
First, while intrinsically related, Ripple and XRP are two different things. Ripple is a blockchain network for payments, while XRP is the cryptocurrency that drives the network. Both are operated by a private company called Ripple Labs.
The company and its blockchain get its name from the fact that the technology enables payments to Ripple through multiple currencies. And while the RP in XRP naturally stands for Ripple, the X used in the ISO-4217 standard is a prefix for non-national currencies.
How does this work?
The ultimate goal of blockchain networks and cryptocurrencies is to improve the process of transfer of assets. The simplest way to use this currency is to transfer XRP from one wallet to another and directly exchange value.
What makes XRP different from other types of cryptocurrencies is its mode of operation. While transactions for many cryptocurrencies are confirmed through either the energy-intensive proof-of-work consensus mechanism or the increasingly popular proof-of-stake, XRP relies on a proof-of-consent model.
XRP was also designed to serve as a link between different currencies. Anyone wishing to send $100 worth of money to Japan can convert the currency into XRP, which the recipient can withdraw for the equivalent of Japanese yen.
XRP also holds efficient advantages over traditional bank transfers. Instead of taking more than a day or a week, and costing $25-$50 in transaction fees, as is currently the case with traditional banks, XRP allows similar transactions to be made, typically 3 to 5 for less than a penny. Can settle within seconds.
advantages and disadvantages
One of the things that sets XRP apart from other cryptocurrencies is its practicality. Rather than move to an entirely new financial system, as many imagine with bitcoin, XRP instead works within the existing infrastructure to improve it. This may enable it to act as the next step in the evolution of modern banking.
Another unique aspect of XRP is that all transaction fees are virtually liquidated, meaning they are eventually eliminated from the Ripple network. This makes XRP a deflationary currency, as the initial supply of 100 billion coins gradually dwindles, which would theoretically make it more valuable over time. Another attractive feature of XRP, given its long-term potential, is its current price point. Currently, XRP is trading at less than a dollar, which has led many investors to think they have got it early.
Despite these features contributing to the overall hype, there are still a lot of concerns regarding XRP. The first is likely to be appreciated. Given the large amount of coins in total compared to bitcoin’s total of 21 million, it is unlikely that it will ever increase in value to the same magnitude as bitcoin.
wave centralization
The second concern is that contrary to the core ethos of decentralization of crypto, XRP is actually very centralized. Out of 100 billion of the total XRP, only 48 billion are in circulation, the rest of which is mainly controlled by Ripple and locked in escrow. According to the escrow contract, Ripple is currently able to put in circulation 1 billion XRP per month.
While they have been prudent in distributing XRP so far, this poses a serious risk to XRP holders. If large amounts enter circulation, there will be a huge jump in the total supply of XRP, which could cause the price to drop.
transactions per second
While XRP may be bullish in terms of individual transactions, economies of scale mean that banks and major payment firms still have the upper hand in terms of overall transactions. Currently, a large major credit card company, such as Visa, can process up to 24,000 transactions per second. For XRP, this figure is now only 1,500 transactions per second. Unfortunately, this point of competition between older payment platforms and XRP may prevent the former from integrating the latter.
Like other cryptocurrencies, XRP has issues with extreme volatility, however, which is particularly detrimental to its ambitions to facilitate bank-to-bank transfers of value.
Over the past year, the price of XRP has moved anywhere between $0.40 and $1.90, but much of this may actually have to do with Ripple’s tribulation with the SEC.
SEC and XRP
In December 2020, the US federal securities regulator SEC filed suit against Ripple for issuing and selling $1.3 billion worth of XRP to the public, claiming the assets constitute unregistered securities. However, Ripple argues that XRP is not a security, and was not considered one from its initial release in 2013 until the indictment.
The initial indictment took a toll on Ripple’s reputation, causing many exchanges to delist XRP, causing the price to drop. Since then, the SEC and Ripple have been embroiled in a legal battle that could set a precedent for crypto regulation going forward.
Judging by some of the presiding judge’s comments, so far, it looks like the lawsuit may end in Ripple’s favor. It concluded that Ripple did nothing wrong, refusing to attack the SEC’s motion to defend its “fair notice” defense, which Ripple claims had no “fair notice” regarding securities to cryptocurrencies. In turn, the court has highlighted how little guidance the SEC has provided to help cryptocurrency companies comply with regulations.
The argument that cryptocurrencies constitute securities is at the root of SEC Chairman Gary Gensler’s approach to regulating the industry, which is being hotly opposed by crypto proponents.