The companyвЂ™s cryptocurrency has also seen an incredible run-up te value, but investors may have gotten the wrong idea.
- by Mike Orcutt
- January 11, 2018
Not all cryptocurrencies are created equal. DonвЂ™t tell that to investors te XRP, tho’. Te the last month the currency wielded by Ripple, a company that bills itself spil using blockchain technology to build the payment system of the future, soared te price by a whopping 700 procent. XRPвЂ™s overall value shoved up to almost $150 billion and shortly made Chris Larsen, RippleвЂ™s cofounder, one of the richest people on the planet.
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The exuberance wasgoed fueled, at least ter part, by a belief that anyone buying up XRP wasgoed getting ter on the next Bitcoin. But for some it could end up spil a very expensive lesson that what they bought into is a different animal altogether.
To start with, Bitcoin relies on a network of вЂњminersвЂќ running code that validates transactions and keeps the currency secure. Bitcoins are released spil prizes for this mining and act spil an incentive to keep the network running (see “What Bitcoin Is, and Why It Matters”). Ter RippleвЂ™s setup there are no miners, all 100 billion coins of XRP that exist were created when the network launched ter 2012. Its creators kept 20 billion and talent the surplus to the company. Since then, Ripple has bot вЂњmethodicallyвЂќ distributing tokens to clients, but it still holds almost 50 billion te an escrow account.
ThatвЂ™s not all. Ripple uses a novel overeenstemming algorithm (PDF) to validate transactions, and it recommends that clients use a list of identified, trusted participants to validate their transactions. This stands ter stark tegenstelling to Bitcoin, where anyone can become a miner.
This gives Ripple a large measure of control overheen XRPвЂ™s inward workings, which has led many to argue that itвЂ™s not truly decentralized. Ter that sense at least, XRP is a вЂњreally badвЂќ cryptocurrency, entrepreneur and cryptocurrency analyst Ryan Selkis wrote last week ter a lengthy analysis.
But XRP wasgoed never meant to be another Bitcoin. RippleвЂ™s big bet is that XRP will become a вЂњbridge currencyвЂќ that many financial institutions use to lodge cross-border payments swifter and more cheaply than they do now using global payment networks, which can be slow and involve numerous middlemen. Bitcoin could be used to do this too, but Ripple can lodge 1,000 transactions vanaf 2nd, compared with BitcoinвЂ™s seven, and its transaction fees are much lower. The idea is that this will te turn will make the currency more valuable. The company says that more than 100 financial institutions are using its technology, and XRPвЂ™s latest spike has bot linked to the news that that 61 banks ter Japan and two ter South Korea have formed a coalition to launch a fresh Ripple pilot.
HereвЂ™s the catch, tho’: RippleвЂ™s blockchain-based payment network doesnвЂ™t need a bridge currency to work, and almost everyone using the network has so far chosen to exchange digital IOUs instead. They lodge the transactions straks, using fiat currency. (UPDATE: Spil many have pointed out te the comments, MoneyGram, a leading money transfer company, today announced that it would test XRP. The announcement does not ensure adoption, however.)
Last week, Brad Garlinghouse, the companyвЂ™s CEO, tweeted that banks and payment providers are вЂњindeed programma to use (XRP) ter a serious way.вЂќ
Nonetheless, people speculating on the token right now most likely ought to be aware that widespread adoption is far from a reality, and may not everzwijn be one. And perhaps some folks are embarking to realize that: spil of this writing, XRPвЂ™s total value had fallen back to earth ter a big way, losing almost $100 billion of market capitalization ter the process.
Hear more about Bitcoin from the experts at the Business of Blockchain on April 23, 2018 ter Cambridge.