Was Ripple’s XRP worth more than Wal-Mart? Be prudent when investing in Crypto

Cryptocurrency prices have been a roller coaster ride for the past 6 months. The price of Bitcoin has seen highs of over $20,000 followed by lows near $6,000. This wild market has affected other cryptocurrencies as well, most prominently Ripples XRP. XRP has seen a meteoric rise in price of over 30,000% to $3.80 (as of January 5th 2018). Investors should be extremely prudent as hype cycles have at times taken over rational investing decisions. While many have been labelling XRP as a faster alternative to Bitcoin, a closer analysis into XRP can bring some calm analysis to this new technology.

Ripple’s XRP is not a Blockchain

The technology behind Bitcoin, Ethereum and other popular cryptocurrencies is called a “blockchain”. This technology has been getting a lot of interest from prominent industry leaders as of late. While Ripple’s XRP is marketed as a blockchain, it more closely resembles a database. Blockchain’s are by definition a “a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly”. Ripple’s XRP transactions are sometimes recorded chronologically, but they are not all public. For example, all of the transactions before Ledger entry #32568 have been lost forever. The fact that ledgers can be “lost” is very concerning to those in the blockchain tech-sector.

The real supply of XRP is 100 Billion

Websites like “CoinMarketCap.com” list the supply of XRP at somewhere near 39 Billion XRP. This is somewhat misleading. Upon inception, the company “Ripple” issued 100 Billion XRP. After some severe backlash from stakeholders, Ripple decided to unilaterally self-impose a restriction on the distribution of 55 Billion XRP. Again, because Ripple’s XRP is not a blockchain, it was able to unilaterally change the rules to self impose this restriction. Conversely, if Ripple ever decides it does not want to adhere to this restriction, it can unilaterally remove this restriction.

When including the funds Ripple holds in escrow, at the peak price of $3.80, the total value of Ripple’s XRP currency was $380 Billion Dollars. This is $120 Billion dollars more than Wal-Mart’s market capitalization, currently at $260 Billion.

Free 35,000 XRP in 2013

Ripple is not a blockchain like Bitcoin. On the Bitcoin network, the digital coins are “mined” into existence, which ensures a fair distribution of the currency. Ripples original founder, Jed McCaleb, felt that mining coins into existence wasn’t energy efficient, and postulated a different method in a post on bitcoin forum in 2011.

Ripple on the other hand issued itself 100 Billion XRP when it started its network. To get XRP into the hands of users, it initially gave out 35,000 XRP to anybody who asked for it. They did this through a forum post in 2013 where anyone who responded was given 35,000 XRP ($133,000 at peak price).

The Founders of Ripple Issued themselves Billions of XRP

The co-founders of Ripple issued themselves 20 Billion XRP. Co-founder Chris Larsen was issued 5.19 Billion XRP, which gave him a net worth of $15 Billion. This issuance of XRP by the founders of the company caused serious backlash from the Board of directors.

“I’m no longer confident in the management nor the company’s ability to recover from the founders’ perplexing allocation to themselves of 20% of the XRP, which I had hoped until recently would be returned.”
- Jesse Powell, former Ripple Board member and Investor

This issuance of XRP to the founders of the business caused serious complications when Jed McCaleb left the company in 2014 amid conflict over company direction. This resulted in a series of lawsuits which, in which the amount of XRP that Jed could sell per day was limited. To add fuel to the fire, Mr. McCaleb proceeded to found a new cryptocurrency named Stellar in 2014. Stellar was initially a copy of Ripple’s XRP, which is an open source project. Since then Stellar, which from a technical perspective is virtually identical to Ripple, has itself amassed a market capitalization of $15 Billion.

Banks don’t appear to be using XRP

One of Ripple’s marketing strategies for its XRP currency is its perceived “bank friendliness”, and its potential use as a “bridge currency” for inter-bank settlement. While it does appear that Ripple the company does have some very serious bank clients, it remains somewhat mum about how its core products, xCurrent, xRapid and xVia, interface with the XRP network itself. Having a look at the open source XRP project, there does not appear to be any meaningful contribution from financial institutions, or features which appear to be built to cater to this industry.

XRP open source development seriously lags other projects

The XRP currency is run on a centralized network of servers running open source software written by the Ripple team. In 2017, compared to other cryptocurrency projects, XRP development seriously lags that of both Bitcoin and Ethereum.

Number of commits and merges to the reference open source projects of each cryptocurrency:

While Ripple appears to be growing very rapidly internally, the open source project behind the XRP currency has only 28 developers who made more than 10 changes since its inception in 2013.

It costs $10 to open a Ripple Account

One advantage ripple claims to have over other cryptocurrencies is its perceived lower transaction cost. At peak prices, Bitcoin transaction fees reached up to $80 (but have since dropped significantly). This has been a significant issue in bringing on new clients to the Bitcoin ecosystem. While ripple does have lower transaction fees, it costs 10 XRP (~$10) to open a Ripple account. Conversely, opening an account on Bitcoin or Ethereum is completely free.

Invest Wisely

The cryptocurrency space is extremely volatile, and very speculative. While there are stories of currencies that have experienced 30,000% gains over short periods of time, it is quite common to see 50–90% price drops as well. While many have been looking for the next “Bitcoin”, investors should be prudent, and properly research the history of projects and currencies. With the recent example of Ripple’s XRP, and its drop of 90% to $0.66 USD, it is clear that retail investors should be very conservative before investing large portions of their portfolios in these projects.