More IRA Cryptocurrency Options
Ripple, Stellar, and Zcash
In our last article, we discussed a few of the commonly offered cryptocurrencies for IRAs. This week, we’ll discuss the rest.
Ripple
Ripple (XRP) is a token that is often loved or hated by those in the cryptocurrency community. Some of the features XRP boasts are 4 second transaction times, and 1500 transactions per second, both which put it among the most capable “crypto” currencies for useful transactions.
On the flipside, all XRP that will be created already exist. This means there is no mining, a process that most tokens like Bitcoin and Ethereum use to ensure accurate accounting of transactions between untrusted partners. The result is that XRP exists in a middle ground between Bitcoin and traditional banking, where XRP requires trusted gateways.
XRP is also heavily dependent upon Ripple Labs, the company that has the largest holdings of XRP (6 out of 10 XRP are held by Ripple Labs). Last fall, Ripple Labs put 55 billion (out of 60) of their XRP into an escrow contract that allows them to take only 1 billion XRP per month out. This means at current prices, Ripple Labs is limited to selling about $450 million worth of XRP per month…or $5.4 billion per year.
Ripple Labs has also worked hard to get banks to adopt its protocol as a possible substitute for the current ACH transfer system, which is an old, slow technology. While it has been used experimentally, it seems unlikely the banks would set aside a stable, working system for a volatile currency that is majority owned by a private company.
Stellar
Stellar was created by the same developer who created XRP, Jed McCaleb. McCaleb parted ways with team Ripple in favor of a project that he felt would do more to help a wider variety of unbanked people. Stellar Lumens use a similar technology as XRP, and like XRP, there are 100 billion Lumens. Lumens are released with a 1% inflation rate per year, and over 8 billion have been given out at no charge.
Stellar is also capable of hosting smart contracts, meaning just like Ethereum, Stellar can be used as a smart contract platform.
Zcash
Zcash (ZEC) is cryptocurrency that operates similar to Bitcoin and Litecoin, except ZEC is capable of making shielded (private) transactions through a technology called zk snarks. zk snarks allow enough transparency to obfuscate a transaction’s amount, sender and receiver, but still ensure that all the proper cryptographic math was done and that the transaction operates within the rules of the blockchain. zk snarks are being adopted in other use cases as well.
Zcash currently offers private transfers as an opt in, so the majority of transfers done on the blockchain are currently public record and pseudonymous, like Bitcoin.
Investors in ZEC should ensure they understand the regulatory and technological risks of privacy coins. Some questions to ask before buying: are current regulations favorable for privacy coins? Who is this technology likely to be adopted by? Am I philosophically aligned with the idea of untraceable money transfers?
In conclusion, this rounds out a brief look at some of the most commonly available cryptocurrencies that are offered in current self directed IRAs. It is likely more will be available in the coming years.
Thoughtful investors will use these articles not as investment advice, but a starting point towards further research and understanding of various token systems. Many are bound to fail, and the returns of Bitcoin are unlikely to be duplicated anytime soon, but this is a growth sector and there is a lot of promise in blockchain technology. DYOR-Do Your Own Research-and have fun learning and investing!
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