This morning, I saw a post of r/cryptocurrency warning potential users of a so-called fraudulent coin called Ripple (token XRP). Here are the contents of the post:
As many of you have likely noticed, Ripple has skyrocketed in value, becoming the 2nd most valuable cryptocurrency by market cap (reaching close to $9 Billion this morning). However, it seems that many people treat Ripple like any other cryptocurrency, like Bitcoin and Ethereum. This fundamentally misunderstands why Ripple was created and how it should be used.
In this blog post, I want to state how Ripple is different and give a recommendation for future use (spoiler: don’t invest).
Ripple is not an Open Blockchain. Individuals can’t get full access to the Ripple Network.
Unlike Bitcoin, Ethereum, Litecoin and 90% of all cryptocurrency blockchains, Ripple is a relatively closed blockchain. Through some effort, users can go download a wallet and transfer Ripple to it, but you have to create trust lines with other organizations in order to get access. In this way, you can’t just send money to whomever you want, they have to accept you as trustworthy before allowing transactions. And considering most users are banks, they have no reason to accept you.
The reason for this is because Ripple is designed to take real world asset and transfer them to the Ripple Network. This is done through a process known as ‘issuance’, where a bank will create a transaction that adds the real world asset to the Ripple Blockchain. They can then trade these issuances with other Ripple 3rd parties, taking advantage of the low cost of transacting on the blockchain.
The reason for these trust lines is because issuances hold very real value. If I have an issuance for a pound of gold, the other parties trust that I actually have this asset. If a malicious 3rd part creates a fake issuance, it will be treated as real. Even one instance of a fake issuance can break the trust of the system and collapse the network.
Because of this, Ripple is a blockchain for banks, primarily focused on B2B. Normal consumers are not supposed to interact with the system and have better alternatives available.
You can read more about the specifics here.
XRP is not a cryptocurrency in the Traditional Sense
When Bitcoin and Ethereum were originally created, their cryptocurrencies, BTC and ETH, were designed to be stores of value. When you created a transaction, you were sending a store of value to another account (for payment for goods and services). Miners created nodes on the network to process transactions and were compensated with this cryptocurrency, either through fees or mining rewards.
This is not how Ripple works. XRP was mined all at once by the parent company, with a majority of the cryptocurrency held by them. When a transaction is made on the XRP network, there is a fee paid in XRP, but this is not compensation. All transaction fees are ‘irrevocably destroyed’, not being paid to any members.
XRP was created as an anti-spam measure to make it costly for people to spam the network with transactions. All XRP was created to be destroyed and if the network lives long enough, will be destroyed. This is in contrast with BTC and ETH, which are specifically designed to be long-term stores of value.
While XRP does seem to have an incentive around trading (as state here), the ultimate point of XRP is to be burned, not held.
You can read more about transaction fees here.
The Founders of Ripple Recommend Not Investing in Their Currency
From the link above:
Private exchanges and liquidity providers may choose to hold additional XRP for trading. Ripple (the company) does not promote XRP as a speculative investment.
XRP has unique properties and a special use case that does not fit into the traditional cryptocurrency paradigm. The majority of the currency is controlled by the Ripple Foundation and while they absolutely have the option to sell of their share for a quick profit, this goes against the goals of the organization and their mission.
One thing I am not certain of is why the cryptocurrency is allowed in exchanges in the first place. If you have ideas about that, please comment on this post, as I have not found any research explaining that decision one way or another.
Conclusion
This article is not intended to be a defense of Ripple and their practices, but an explanation of why Ripple is different from traditional cryptocurrencies. Because the Ripple organization is such a heavy holder of XRP with unknown goals, it’s highly speculative on how the cryptocurrency is going to be valued in the years to come.
Here’s another way to think about XRP: Ripple owns the vast majority of the XRP (over 60% of the supply). They can decide to cash in on the value, or completely devalue the market by flooding it with cheap XRP. At this point, we don’t know what they’ll do with this high valuation, but regardless, you are at the whim of a powerful 3rd party with uncertain goals. And more importantly, they’re telling you the currency is not good for speculation.
For long-term holding, this is a deal breaker, particularly in a market with so many good options.
127
0
0
100
XRP*
Thanks!
maybe your favorite coin couldnt resist ripple (xrp) to be the toughest or you scared of your investment that cant even go the path of xrp.lol
XPR clearly is deficient compared to the one true cryptocurrency: Dogecoin.
SInce when does “Ripple (the company) does not promote XRP as a speculative investment” equal “The Founders of Ripple Recommend Not Investing in Their Currency” ?
The purpose of offering XRP is for member entities (ie Banks and other trusted 3rd parties) to use XRP in their transactions. Normal individuals like you and myself wouldn’t be part of that network, so the only reason we would ever purchase XRP is for speculation purposes, which is exactly what they’re recommending against. They want banks to invest, not individuals.
I took a screen of the supply of ripple 2 weeks ago and again now.
It has gone up about 90,000,000
It also went to 10c a couple of hours ago and has now returned to 21c
Cheesy…
I assume your text is talking about Ripple’s “Issuing Gateway”. In that sence you might be right. However, at the link you gave yourself, you can read about two additinal kinds of gateways:
“•A Private Exchange holds XRP and lets its customers buy and sell that XRP in its own system. Most cryptocurrencies rely on private exchanges to provide a market for the cryptocurrency, but the Ripple Consensus Ledger has a currency exchange built into the protocol itself.
•Merchants accept payment within the Ripple Consensus Ledger in exchange for goods and services in the outside world. Currently, Ripple does not have widespread support for merchant operations.”
My speculation is, that one day when everything is settled there will be an exchange rate between Ripple and FIAT. And it won’t be less then the current Ripple’s exchange rate at that time, because the ripple company is earning money with the value of their token (with the amoutn they kept themselves.
Furthermore, appearently the design includes an option for merchants to be directly attached to the ledger.
with best regards!
But since XRP will inevitably become scarce by usage, isn’t there still intrinsic value to own, even for those who cannot access the network?
That depends entirely on how Ripple decides to act. They own 60% of the total XPR. If they want to make it scarce, they can. If they want to flood the market, they can.
This is something that just doesn’t exist in Ethereum or Bitcoin. There are plenty of whales, but no user controls this much of the market. That’s concerning.
Thank you. It seems that their intention is to keep transactional cost of XRP at around 10 USD for any gateway.
10 usd per year that is
Bitcoin mining pools are controlling the bitcoin market, this is the same for Ethereum.
Bitcoin is absolutely in control of the Bitcoin network.
And the Ethereum miners are absolutely not in control of the Ethereum network.
When the DAO hardfork happened, the mining community voted against the fork. The Ethereum Foundation want the fork, and pushed it through anyway. As POS is implemented for Ethereum, an ice-age clock will be put in place that makes mining less and less attractive, forcing the miners off the network.
Ethereum has a very different battle being fought than the Bitcoin Network.
ripple is a great diversion to regulate and suppress the exponential growth of Bitcoin relative to fiat currencies.
ripple plays on the greed of people by continuing the PUMP up. As long as the music is playing, people will be diverted away from bitcoin and focused on ripple.
ripple is a brilliant move by the banksters to control the exponential growth of bitcoin because bitcoin is a true marker that exposes the real hyperinflation of the petro dollar that is going on
Good post. If Ripple (the company) was to sell the currency they own, they could very easily flood the market and crash the price. I doubt they would do that, but it’s just another risk to owning this one.
Have you ever thought the people who own Ripple might cash out and flood the markets and screw the banks over…everybody going down in a giant tsunami while being away on higher ground. Another reason not to own Ripple. On the other hand, I believe if you do speculate in this one pick a tiny amount of your money and wait for the big payoff since all banks will use it, it could be worth a lot.