Ripple is a technology company that leverages blockchain technology to provide solutions that enable financial institutions to send money globally in a more efficient manner in comparison to the existing method. It was co-founded by Jed McCaleb and Chris Larsen in 2012. The company’s vision is to enable the world to move money like information is moved today, by creating an Internet of Value (IoV). Currently, Ripple is the only enterprise blockchain company that has products for commercial use.
Ripple is one of the fastest blockchains with high transaction speed. Ripple’s target customers are financial institutions and RippleNet helps them provide a more convenient and fail-proof payment processing experience. Essentially, Ripple has two separate components; XRP and RippleNet. RippleNet is a payment network designed for enterprises whereas XRP is a cryptocurrency that acts as the fuel that runs the network.
Ripple (XRP) As A Product
With an aim to revolutionise the payment system, Ripple has identified banks and financial institutions as its target users. Instead of directly targeting individual users, Ripple aims to provide benefits of the blockchain technology to financial institutions which in turn would provide the benefits directly to the individual users. Providing a substantial improvement on the existing, traditional methods of payment processing, Ripple offers genuine utility to its target consumers. It has all the right tools and utility to truly revolutionize the global payment network and bring in the new era of finance.
Liquidity is the most important requirement for financial institutions operating in the global payments space and Ripple provides exactly that. It allows financial institutions to eliminate pre-funding through RippleNet’s On-Demand Liquidity (ODL) service. Ripple offers blockchain technology that enables financial institutions to expand into new markets around the world. Given Ripple’s utility and its target customers, it can be said that Ripple is a good product-market fit.
Ripple (XRP) As A Solution
Ripple’s primary purpose is to offer a technology that is an improvement to the existing payment system which is fragmented and prone to errors and delays. By using Ripple solutions, financial institutions can set up a platform that offers instant, secure and low-cost financial transactions. Through a decentralised platform, Ripple provides a way to facilitate quick and low-cost payments. It offers a similar solution for the secure international transfer of money that is offered by the existing SWIFT system but makes it more efficient by removing the middlemen. Based on this, it is fair to say that Ripple addresses the issues associated with the current payment systems and offers a substantial improvement to the existing framework.
Ripple Management Team & Community
Ripple Labs is directly involved with all the use cases of Ripple solutions and works continuously to improve the current financial system. With a vision to enable the world to move value as seamlessly as information flows today, the management of Ripple works continuously to bring more financial institutions on board the RippleNet. Over the years, Ripple Labs has been continuously innovating, offering more products and utility to its customers. Ripple focuses on building technology that helps find new utility for XRP and transform global payments.
Ripple management is extremely active on different community platforms. The management is active on platforms like Quora and Twitter whereas Medium is a space that has no shortage of insightful resources related to Ripple. Ripple’s CEO, Brad Garlinghouse is very often seen answering questions for the media, and often shares detailed insights about Ripple’s functioning and future plans. Ripple’s CTO David Schwartz is extremely active on Quora, answering all kinds of questions related to the financial world.
Amongst XRP users, Twitter, Reddit and Discord are extremely active online communities. XRP chat and XRP community blog are also good resources for anyone who wants to learn more about Ripple and XRP. Additionally, Ripple Swell Global organised virtual webinars that unite Ripple customers, partners, thought leaders and ecosystem players in one place where they can conduct business in an immersive virtual environment.
Available Resources & Ease For Target Users
and financial institutions. There are plenty of resources available on Ripple’s official website and on the internet otherwise about Ripple and XRP. Especially for Ripple’s target users, i.e., financial institutions, detailed information is available in Ripple’s whitepaper titled ‘The Cost-Cutting Case For Banks’. The resource category on Ripple’s official website includes the following pages:
- About XRP
- Developer Tools
- Press Releases
- Ripple Engineering Blog
Other than this, there are a plethora of other valuable content pieces available on different pages of the website. Moreover, Ripple’s products and cryptocurrency are very well covered by crypto and blockchain enthusiasts as a result of which there are plenty of insightful resources available for the general public.
Ripple’s target users are financial institutions which include banks, payment networks, etc. Ripple Labs’ whitepaper titled ‘The Cost-Cutting Case For Banks’ essentially covers all the reasons why and how Ripple’s products can help make the existing global payment system more efficient. For financial institutions, all the technical information related to Ripple’s products is easily accessible on their official website. Target users can learn about the benefits of joining RippleNet, its capabilities, different services and how it can help transform their payments system. Moreover, they can also find case studies that talk about how Ripple’s products have been used in the real world by established financial institutions and how it offers genuine and reliable utility.
Ripple offers utility to financial institutions by providing a way to process cross-border payments in a fast, low-cost and secure manner. With its On-Demand Service (ODL), Ripple provides financial institutions with the fuel, i.e., the liquidity to fund financial transactions. It enables them to free up pools of trapped capital and use it for other purposes. XRP is a digital asset that is built of payments and there is a demand for XRP from financial institutions because it has the capability to act as an instrument in bridging two different currencies in an efficient manner.
- Speculative Demand
XRP has speculative demand and it is often used by investors to speculate on investment opportunities. It offers an alternative to traditional investment assets and an alternative to the more popular cryptocurrencies like BTC and ETH. It provides investors with an opportunity to diversify their portfolio and manage risks better.
- Transactional Demand
Ripple’s On-Demand Liquidity (ODL) service enables companies to transfer funds from currency to XRP and from XRP to another currency. RippleNet customers use XRP for sourcing liquidity in cross-border transactions. This provides them with an alternative to pre-funding and ensures instant settlement at lower exchange fees and enables them to use their working capital in a more efficient manner.
The total supply of XRP is finite. The entire supply was minted by Ripple when the network was launched. Out of the 100,000,000,000 supply of XRP, over 45 Billion is in circulation whereas over 48 Billion is held in the form of an escrow and Ripple releases portions of the supply and sells them in the open market.
Since its launch in 2012, Ripple has methodically sold XRP. They have used the XRP supply to incentivize market maker activity in order to increase liquidity and strengthen the overall strength of XRP markets. The supply of XRP is issued at a rate that is determined by Ripple’s executives, and the transactions are processed by a committee of pre-approved stakeholders.
Underscoring Ripple’s commitment to building the liquidity of XRP and also to build healthy XRP markets, Ripple committed to placing 55 Billion XRP in a cryptographically secure escrow in 2017. This was done to create certainty of XRP supply at any given time. By securing a majority of the XRP supply, it becomes possible for people to mathematically verify the maximum supply that can enter the market.
The supply of XRP is finite and the available XRP gradually decreases over time as a portion of XRP gets destroyed due to transaction costs. The supply of XRP available to the general public changes due to the following factors:
- Transactions — Sending transactions in the XRP ledger destroys a small amount of XRP. The minimum amount that gets destroyed with each transaction is determined by the expected work of processing the transactions and how busy the network is. The senders can determine how much XRP should be destroyed.
- Reserves — Each account in the XRP ledger must hold a small amount of XRP in reserve as an anti-spam measure. This is done to disincentivize making the ledger data occupy too much space. The amount of XRP that needs to be held as a reserve can be changed by XRP ledger validators in order to compensate for changes in XRP’s real-world value.
When the XRP ledger began, 100 billion XRP was created and its supply was fixed. XRP cannot be mined and hence no more XRP can be created. The available supply of XRP decreases gradually over time as small amounts are destroyed to pay transaction costs. XRP’s demand-supply mechanics follow the scarcity principle. At any moment in time, there is a limited supply of XRP. Even though the amount of XRP available is large, it is still limited and hence XRP’s value can rise given that there is a constant demand for it.
Ripple (XRP) Competitor Analysis
Ripple was launched with the aim to transform the international payment industry. It offers a real-time settlement network for low cost and quick cross-border transactions. Over the years, Ripple has grown in value and adoption but it is not the only project that has made inroads in the world of international payments. Moreover, it competes with established networks of international payment. Let’s take a look at Ripple’s competitors in detail.
- Digital Fiat
- Other Cryptocurrencies
Jed McCaleb, a significant contributor to the launch and creation of Ripple, is the mind behind Stellar. Both Stellar and Ripple make use of blockchain technology to support fast, smooth and low-cost cross-border payments. The key difference, however, lies in the target audience of both projects. While Ripple’s target audience is financial institutes, Stellar focuses more on individuals as its main user base.
Many of the technical specifications of both projects are similar. This is because Stellar started as a hard fork in the Ripple blockchain. While the focus of Stellar is on individuals, it does have the technical capabilities of addressing the same market as Ripple, i.e., financial institutions.
Central Bank Digital Currencies (CBDC) are digital tokens issued by governments through their central banks. These currencies are a digital representation of the fiat currency of the country. CBDCs have political and legal support, as these are issued directly by the governments and hence pose a significant threat to Ripple as digital fiat can have the capacity of being used as a blockchain-powered payment network. Having essentially the same features, digital fiat could be a serious threat to Ripple. However, Ripple’s CEO believes that digital fiat only transfers the problems associated with fiat currency to a digital context and hence should not be seen as a competitor. That being said, the potential of digital fiat to offer similar features make them a viable alternative payment system at least on a national level.
SWIFT has been steadily improving its network and developing its Global Payments Innovation (GPI) system. It is one of the biggest competitors of Ripple Blockchain in terms of fast, cheap and safe cross-border transactions. The GPI system enables financial institutions to send cross-border quickly and is an improvement to the existing SWIFT network. Providing an alternative to the transparency benefit of blockchains, GPI allows financial institutions to track payments and monitor compliance with SLA (service-level agreement) contracts. That being said, even though it is an improvement to the existing network, it cannot compete with the speed of transactions offered by Ripple.
There are many other cryptocurrencies that are often used as a medium of exchange, or to settle payments but that is not their primary utility. As a result of this, while these cryptocurrencies offer the utility of being used for payment settlement, they are not nearly as efficient as Ripple in doing that. In terms of payments, Ripple stands out in the crowd. Here are a few statistics to further highlight Ripple’s efficiency when it comes to payments.
Ripple (XRP) Risks
XRP offers tremendous liquidity. It is a digital asset that serves as a universal currency and has the capability to instantly and cheaply change any payment into its needed local currency. XRP is essentially the liquidity that drives transaction performance on RippleNet. It is designed in a way that it can settle transactions quickly and can handle a significant number of transactions per second. Speed and volume are vital considerations when it comes to liquidity and XRP was created specifically for enterprises to provide liquidity for international transactions.
Evaluating XRP as a cryptocurrency, it is traded on more than 100 markets and exchanges worldwide that are not affiliated with Ripple. However, in response to the SEC lawsuit announcement, multiple crypto exchanges and platforms have delisted XRP and halted its trading and depositing. At the moment of writing, the list of exchanges is increasing every day. Centralized exchanges are a major contributor to the liquidity of a cryptocurrency as it is usually the go-to option for users to invest in cryptocurrency. While until recently XRP was available on all the listed exchanges, with the ongoing SEC lawsuit, it is being delisted and this will affect its liquidity as it would be less available to the users. But this would not affect its liquidity when it comes to the target customers of Ripple, i.e., the financial institutions.
Just like any other cryptocurrency, XRP is volatile and faces the risks associated with volatility. However, since Ripple offers On-Demand Liquidity (ODL) service, there is no need for financial institutions to hold XRP as it is possible to buy and sell it in a short period of time. The average transaction on xRapid that uses XRP is very short, lasting for only a few minutes and hence the window of volatility is very small. According to a study conducted by Ripple, it was concluded that XRP is 10 times safer than fiat currencies used for cross-border payments. Even though XRP is a high volatility asset, it does not have many volatility risks for financial institutions because the window of holding XRP is minimal. Over the last 1 year (1 March 2020 to 28th Feb 2021), its Sharpe ratio comes at 0.588.
The XRP Ledger is open-source, permissionless and decentralized blockchain technology. The openness with which the Ripple network operated also makes it susceptible to vulnerabilities. The open structure allows for attacks on certain nodes within the network and this can restrict some users from accessing their funds. According to the researchers at Purdue University, it is estimated that roughly 50,000 wallets can be immediately at risk in case such an attack occurred. As more time passes, security risks related to technology are less likely to occur. The more important thing pointed out here is that since the network is transparent, it allows for such shortcomings to be discovered and improved upon, something which is not possible for the conventional financing world which lacks transparency.
Over the past 7 years, XRP has had a solid track record in terms of its performance in relation to technology and governance. Since its inception, over 60 million ledgers on XRP have closed without any issue.
However, when it comes to the performance of Ripple-based products that were rolled out in partnership with financial institutions, its performance raises some questions. Here are a few instances where Ripple-based products did not work as promised:
Santander introduced a product called One Pay that uses Ripple. It is a mobile app that allows the transfer of funds between certain European countries. The promise of immediate transactions was only fulfilled for transactions between accounts of the Santander group to the UK whereas the rest of the transactions could take up to a maximum of 2 days. The delayed transactions for countries other than the UK lead to the poor reception of the product amongst Santander customers.
- Western Union
During the tests with Ripple, the CEO of Western Union believed that the results showed that the system was still not cost-efficient, even after using Ripple’s solutions. However, this statement was made in the early days of the tests. Currently, there are numerous experiments that are being done for testing use cases with payment solutions offered by Ripple.
XRP’s solid track records in terms of technology make it a reliable alternative to conventional payment systems and ensure that it is ready for institutional and enterprise use. Moreover, over the past 7+ years, Ripple has been adopted by over 300 plus well known financial institutions that have experienced genuine benefits by using Ripple and have been able to make their existing systems more efficient. Given its transparent nature, it is much more reliable for payment processing, exchange of money and other institutional activities.
The fact that Ripple holds 62% of the total supply of XRP is a matter of great concern for all investors. For a decentralised blockchain network, it should be possible for hard forks to take place and that is the case with Ripple as well but only on paper as because of the control that Ripple exerts over the XRP Ledger, it becomes highly unlikely. Moreover, the way in which the XRP Ledger is run again raises questions about how decentralised Ripple really is. Why is that so? Because Ripple selects the default Unique Nodes List (UNL); the set of nodes that validate a participant’s transactions. In theory, different nodes other than the ones selected or recommended by Ripple can be selected but in reality that is seldom the case as most users go with the default UNL.
Ripple holds a majority of the total supply of XRP available, about 60% and it is a natural part of their revenue model. However, Ripple does not actually hold all the XRP as 55 Billion has been locked in an escrow with 1 billion being released every month. In order to build trust amongst the Ripple community, Ripple published quarterly XRP market reports which contain details about how much of the XRP is spent, on what and how much is returned to the escrow. Even then, there is always a risk that Ripple might flood the market.
Other than Ripple holding a majority of the total XRP supply, it recommends a default Unique Nodes List (UNL) to participants on the network. Even though they are allowed to select their own set of nodes, Ripple recommending a particular set of nodes leads to most participants using the same default UNL.
Ripple has always made sure that it follows the guidelines mentioned in the regulatory handbook very carefully because of the type of customers that it is looking to attract. Since Ripple’s target consumers are financial institutions, they are in favour of governments creating regulations around cryptocurrencies that strike a balance between ‘capturing risk and innovation’. Over the years, Ripple has lobbied authorities on regulating new technologies relating to cryptocurrencies. Regulations around cryptocurrencies could be beneficial for Ripple as it would attract new entrants such as institutional investors.
While Ripple as a company is all clear when it comes to regulations, the same cannot be said about XRP, its native cryptocurrency. In late December 2020, the SEC alleged that Ripple Labs illegally raised $1.3 Billion by selling 14.6 Billion units of XRP since 2013 without registering the cryptocurrency as a security, as required by the agency. With this lawsuit, SEC indicated that it considers XRP security and subject to federal securities laws. However, Ripple Labs maintained that XRP should be considered a digital currency and not an investment that would be classified as a security. As a result of this lawsuit, many exchanges have delisted XRP and an SEC victory could significantly hamper XRP’s ability to trade.
Being a cryptocurrency, XRP is also susceptible to regulatory risks like governments banning crypto trading exchanges and other similar regulations.
There is no doubt in the fact that Ripple offers genuine utility and an improvement to the way things are being done currently with relation to cross-border payments. But, it would be unwise to say that it does not have any real competition. In terms of utility, it faces competition from Stellar which essentially has the same blockchain technology as Ripple and can offer similar utility but the differentiating factor is the target audience. With a few tweaks to the Stellar technology, it can be used to target Ripple’s audience as well and the same goes for Ripple.
Other than Stellar, it faces competition from digital tokens issued by governments through its central banks. These digital tokens are called Central Bank Digital Currencies (CDBC) and are a digital representation of the fiat currency of the country. Ripple believes that digital fiat does not really improve on the existing framework and just transfers the problems to a digital context. Regardless, in terms of adoption and favourable regulation by governments, it should be seen as a viable alternative to Ripple.
Moreover, SWIFT has also been improving its network with its Global Payments (GPI) system that enables faster, cheaper and safe cross-border transactions. Furthermore, more accepted cryptocurrencies like Bitcoin are also used as a method of payment but do not offer anything close to Ripple’s speed and efficiency when it comes to payment processing.
Given the points mentioned above, it is fair to say that Ripple faces genuine competition and is still a long way from clearly dominating the cross-border payments market.
Ripple is a technology company that aims to work with regulators, governments and central banks to improve the way world money moves. It offers efficient solutions to send money globally using the power of blockchain technology. Their vision is to enable the world to move value just like we can exchange information today. With over 300 financial institutions from 40+ countries, Ripple has been able to establish itself as a genuine alternative in the global payments market. Given this, it is fair to say that it has the ability to reach more similar customers in the future. With the way the world is digitizing, businesses have become increasingly international and financial institutions are on the lookout for innovations in cross-border payments.
There is no doubt about Ripple’s ability to revolutionise the way in which payments are made worldwide, however, with this comes a lot of regulatory and technology risks. Approving technology to change the way in which money is exchanged between financial institutions will take years. Moreover, all this needs to be done under the guidelines set by the US Securities and Exchange Commission which adds another layer of complexity that might slow down the transition process. Ripple solutions are feasible but there are still quite a few risks that need to be addressed which might slow down the process of its adoption.