XRP is a cryptocurrency and the native token used by Ripple. Like other cryptocurrencies in the marketplace, XRP has a currency code similar to Ethereum’s Ether (ETH).
In 2012, the team behind Ripple launched the XRP ledger, which included XRP, which would serve as the native token. The creation of XRP primarily enhances global financial transfers and the exchange of several currencies.
- XRP is a cryptocurrency and the native token of Ripple, founded in 2011 by Jed McCaleb and Chris Larsen.
- XRP is premined and has a total supply of 100 billion tokens.
- XRP is more cost-effective, has faster transaction time, is greener, and is more scalable than bitcoin.
All You Need to Know About XRP
Although XRP is often referred to as Ripple, it’s important to know that XRP is an open-source digital asset independent of Ripple, which is a technology company. Due to its fast, efficient, reliable, carbon-neutral, and fast delivery, XRP is the technology that Ripple uses in its solutions to help customers stay compliant.
XRP operates on its decentralized, open-source blockchain known as the XRP ledger (XRPL), and transactions are facilitated by the Ripple transaction protocol (RTXP). Unlike most cryptocurrencies, XRP is premined, with a maximum token supply of 100 billion. The token’s total supply was distributed in two distinct ways:
- First, 80 billion XRP tokens were allocated to Ripple, the parent company. To ensure a stable supply of XRP, the company locked 55 billion of the token in an escrow account.
- Then, Ripple co-founders and the core team received the remaining 20 billion XRP.
The History of Ripple
Ripple is a centralized financial technology (fintech) company building different products to solve global payment issues through its remittance system, payment settlement, and exchange. The company began as Ripplepay, founded by software developer Ryan Fugger in 2004. This period was before Bitcoin, the world’s leading cryptocurrency, came into the spotlight. Ripple was later co-founded by Chris Larsen and Jed McCaleb in 2012.
The goal behind Ripple was similar to the vision of Bitcoin creator Satoshi Nakamoto, which was to foster an easier, faster, and more secure way to make transactions globally. The tradeoff with Ripplepay was that it didn’t rely on the blockchain; instead, it was centralized.
In 2011, McCaleb, David Schwartz, and Arthur Britto started developing the XRP ledger as a recourse to the inherent limitations of Bitcoin. In 2012, when the XRP ledger was launched, it incorporated the native token XRP to aid its function. This team of engineers was later joined shortly after by Larsen, who now sits as Ripple’s executive chairman and co-founder.
Ripple changed its name several times from 2012 to 2015. First, in 2012, it changed its name from Newcoin to OpenCoin. Then, in 2013, it was renamed Ripple Labs. Finally, in 2015, it rebranded and became Ripple as its popularly known today.
The initial idea behind XRP from the onset was straightforward and is described as a peer-to-peer trust network. Ripple cites XRP as a faster, cheaper, and more energy-efficient digital asset that can process transactions within seconds and consume less energy than some counterpart cryptocurrencies.
Typically, XRP is created to serve as a settlement layer facilitating the transactions with the Ripple network. It has been traded as a cryptocurrency and is available on several exchanges, including futures, options, swap exchanges, spot exchanges, custodian exchanges, and non-custodian exchanges.
About 51% of XRP tokens are in circulation.
XRP Price Fluctuation
With XRP positioned as an alternative to bitcoin, it has gained massive adoption over the years from various communities, causing its prices to soar.
Most notably, at the height of the crypto bull market from 2017 to early 2018, XRP reached an all-time high of $3.40. This was a 51,709% jump from its original price at the beginning of 2017. Since then, it has experienced an exponential decline, yet maintaining a firm position as a significant coin regarding its market capitalization. It currently sits at the sixth position on the cap table.
It is important to note that the mechanism behind transactions of XRP doesn’t require a transaction fee, which is a standard feature for most cryptocurrencies. Instead, it requires the sender to burn a tiny portion of the XRP, which positions XRP as a deflationary asset.
Being a deflationary asset allows the supply of XRP to run down to zero. However, it has been estimated to take approximately 70,000 years at its current burn rate for that to happen. And scenarios like this can be mitigated by validators by adjusting the transaction cost and prices through a voting system as long as all requirements are met.
The XRP Controversy
Many issues have surfaced regarding XRP over the years, within the crypto community and from regulatory bodies. The most notable events have been with the U.S. Securities and Exchange Commission (SEC).
The first regulatory encounter was in May 2015, when the U.S. Financial Crimes Enforcement Network (FinCEN) charged Ripple Labs and XRP a sum of $700,000 for violating the Bank Secrecy Act by selling XRP without authorization and for failure to implement the anti-money laundering (AML) program. Ripple Labs agreed to remedial actions, including implementing the AML program and registering with FinCEN.
Later, in December 2020, Ripple’s CEO, Brad Garlinghouse, informed the public about the SEC’s plan to sue the company. Days later, on Dec. 22, the SEC filed a lawsuit against Ripple for selling XRP as an unlicensed security. The agency claimed that distributing $1.3 billion worth of Ripple’s XRP token to its stakeholders violated its law. At the time, XRP was the third-largest cryptocurrency by market capitalization.
In 2019, ahead of the SEC, some XRP stakeholders also filed a lawsuit (filed by XRP investors). This suit was based on the allegation that Ripple founders had an “intent to deceive or defraud” its investors.
For the SEC, the argument was whether XRP, the native token of Ripple, is a security—indicating a share in Ripple—or if it genuinely is a cryptocurrency like bitcoin. The SEC noted that CEO Garlinghouse and co-founder Larsen have both profited from selling their XRP during the bull market and garnering more than $600 million.
For further context, an excerpt from the SEC’s lawsuit states: “Defendants [Chris Larsen and Brad Garlinghouse] continue to hold substantial amounts of XRP and—with no registration statement in effect—can continue to monetize their XRP while using the information asymmetry they created in the market for their gain, creating substantial risk to investors.”
The confusion is because XRP is premined, has a fixed supply, and was distributed among its co-founders and Ripple. Ripple locked part of the token supply in an escrow—a similar process to how shares are managed and distributed in a company. This process can’t be compared to other completely decentralized cryptocurrencies that mine tokens. The architecture behind XRP, according to the SEC, is an arrangement that violates the agency’s law, as explained by the Howey Test.
As of March 2023, the SEC and Ripple have submitted final documentation and are awaiting summary judgement.
A Bright Side for Ripple
While in court, Ripple filed for a Fair Notice defense with claims that the SEC didn’t inform the company that XRP’s distribution would ever be prohibited under the security laws. Following the Fair Notice defense, in February 2022, the court requested that Ripple unseal two of its memos from 2012 relating to the Fair Notice defense.
Once unsealed, the memos indicated that Ripple had sought legal advice from Perkins Coie LLP concerning XRP tokens. The summary of the message states, “Perkins Coie LLP attorneys advised Ripple not to sell the proposed coins, as various conditions could subject them to being regulated as securities or commodities. A second memo by the same firm, dated in October of that year, suggested that XRP may not be considered a security under federal law but cautioned there was a risk the Securities and Exchange Commission would see things differently.”
The SEC attempted to preempt Ripple from going after the Fair Notice defense, but the court denied the agency. Going by the current landscape, Ripple has an edge in this case—this positive outcome was reflected in XRP’s price, which rose by 22% after the trial.
During this period, exchanges like Coinbase suspended trading of XRP, making it inaccessible to withdraw their XRP.
XRP and BTC: Factors to Consider
There has been a lot of back and forth concerning the differences between XRP and Bitcoin. Although there are similarities between both coins in their respective areas, their differences are vast, some of which include the following.
The consensus mechanisms used in validating transactions are different. XRP uses a unique consensus mechanism that relies on trusted validators or a Unique Node List (UNL) that decides what transaction to consider for the next ledger. For transactions to become valid, most trusted validators need to agree. On the other hand, Bitcoin relies on miners to solve complex mathematical problems—using proof of work—in validating transactions.
Cheaper, Faster, and Energy Efficient
XRP’s unique consensus mechanism allows it to authenticate transactions faster and cheaper. This process consumes far less energy. It’s the opposite for bitcoin and most cryptocurrencies, whose mining process causes transaction confirmation to take longer and cost far more. The proof-of-work mechanism contributes to Bitcoin’s enormous energy consumption.
Scalability of XRP
XRP is scalable and can handle up to 1,500 transactions per second. Bitcoin’s transactions per second are fixed between four and five, while Ethereum is set to 13 transactions per second. The introduction of the lightning network built on bitcoin solves its scalability problem.
How Secure Is XRP?
XRP’s Ripple network uses a consensus protocol to verify transactions. Validators update their ledgers every three to five seconds as new transactions come in to ensure that they match the other ledgers. As a result, the network can validate transactions more securely and efficiently than other cryptocurrencies.
Where Can I Buy XRP?
There are specific exchanges that allow the purchase of XRP, which can be done using fiat or other cryptocurrencies. Some of the exchanges that currently support the sales of XRP include Binance, BTCEX, Bybit, Deepcoin, and MEXC, among others, which make investing in XRP possible.
Is Investing in XRP a Smart Decision?
The question of whether investing in XRP is an intelligent decision has been debated due to the controversy surrounding it. Despite that, there are several reasons why you should invest in XRP. Some of these include the fact that XRP is among the most substantial coins by market capitalization, ahead of Cardano (XRP), Solana (SOL), and Polkadot (DOT). It can be a great store of value considering its efficiency in transaction execution and time and that XRP contributes to a greener environment compared to cryptocurrencies using proof of work. These reasons, among several factors, may contribute to XRP being a good investment.
The Bottom Line
In spite of its many controversies, XRP remains one of the top cryptocurrencies by market cap. It can be used just like any other digital currency, for transactions or as an investment. If you choose to invest, however, be sure that you don’t invest more than you can afford to lose.