Exclusive Interview: Ripple and XRP are More Stable Than You Think
Insights from talking with Ripple’s Chief Technology Officer:
XRP’s market cap surpassed $10 billion on May 15, 2017. It’s officially the first digital currency after Bitcoin (BTC) to break the double figure billion mark. It was only about two months ago, on April 2nd, that XRP wasn’t even worth $1 billion. Some think it’s a bubble that’s about to burst. But they might be very wrong.
Many only see the surface growth, without digging into the facts. Those who see it as a bubble about to pop are the ones who don’t understand what XRP actually is and what Ripple is doing with it. They say things like:
Their bank partners won’t be using XRP!” “It’s centralized!” “The supply is unlimited and will hyper-inflate!
False, false, and false.
I talked with Stefan Thomas, Chief Technology Officer at Ripple to set the record straight.
Want to know the real story? Here it is.
- Ripple isn’t creating any other cryptocurrencies or proprietary coins for banks. XRP is it. That means that Ripple success directly equals XRP success.
- XRP will soon be more decentralized than even Bitcoin. Thomas recently wrote a blog post explaining how.
- Not only is there a finite amount of XRP — just as with Bitcoin — XRP is actually a deflationary cryptocurrency, which means that a tiny amount of XRP is permanently shredded after each transaction. It’s the opposite of unlimited supply. As time goes on, the supply of Bitcoin remains the same while the supply of XRP will actually shrink, making it even more valuable with each passing day.
- What about the fact Ripple owns about 60 billion of the 100 billion available XRP tokens? Ripple just announced they are putting 88% of those tokens they own into escrow smart contracts for a period of at least four-and-a-half years. The structure of it means no one has to worry about Ripple flooding the market by selling their own XRP holdings. The fact that they are putting them into smart contracts means they can’t renege on that later even if they wanted to.
The biggest news here is that Ripple is “all in” on XRP. Previously it was believed they would sideline XRP and pursue other coins with banks. Thomas says that’s not the case.
We asked Thomas if Ripple has any coins other than XRP currently out there or in development. He responded with a very definite “no.” “We have no plans right now to create any others. We think XRP is the best choice,” says Thomas.
Why hasn’t Ripple previously announced this and made the public aware of their steadfast backing for XRP? Because they’re not a proponent of individuals trading XRP. Hence they’re not incentivized to share this information. It’s of no consequence to Ripple whether XRP trades at 50 cents or 1 cent. In fact, they’d prefer the latter. Why? Volatility. Ripple wants as little volatility in XRP as possible. Banks are conservative entities and don’t want the price changing in the middle of a transfer. Banks want a stable currency, not a volatile one.
Will XRP volatility scare off banks from using it?
It’s a great question, but here’s why it doesn’t make a difference. If a Bank A buys one million XRP and it takes ten seconds to transfer to Bank B, and during those ten seconds the price of XRP goes down by just one tenth of a penny, that’s $1,000 USD that evaporated during the transfer. That’s huge. We asked Thomas how banks will solve this. He said it’s simple: they’ll just use a liquidity provider (read: volatility lessening service), and it makes sense. The liquidity provider will assume the risk of market swings while the tokens are in transit and sometimes they’ll come out ahead and sometimes they come out behind.
“The time that banks are exposed to XRP during a transaction can be quite short. It can be on the order of five to 10 seconds. So the amount of volatility during such a short time period, even for a very volatile asset, is actually not that bad,” explains Thomas. “You can also rely on third-party liquidity providers to take on that risk. And those kinds of companies are actually very interested in taking on these kinds of risk to make a profit and they’re very comfortable with that risk.” This doesn’t work with Bitcoin because with Bitcoin you might be exposed to volatility over an hour, which is very different than volatility over ten seconds with XRP.
Regulators pushing for banks to adopt XRP
We’ve heard from sources that regulators themselves are behind-the-scenes pushing for big banks to adopt XRP. The regulators are asking banks to adopt XRP. Let me repeat that because of how significant it is: the regulators are calling for banks to use XRP. Follow Ripple closely enough and you’ll see why.
Ripple has been making incredible inroads with those in power. Ripple now has over 75 banks signed up that are experimenting with XRP. Just last month they recruited the former business director at SWIFT, the network that today facilitates money transfers between 11,000 financial institutions in every country on Earth. Some say Ripple is poised to replace SWIFT, which needs days to complete a transaction.
“I don’t think you can make a horse and buggy keep up with a race car,” says Ripple CEO Brad Garlinghouse.
Playing chess with those in power
Ripple is incredibly strategic with each of their moves on the chess board. They make moves without big announcements so as to not rock the boat. They want to make friends, not enemies, with those like SWIFT who sit in established places of power in the banking world.
But it’s not hard to connect the dots and see that SWIFT might be the one left without a chair when the music stops.
“It’s slowly about making that progress working with regulators, educating them, and figuring out what are some of these requirements,” says Thomas.
Leaps and bounds more developed than other coins
“It took us many years to come to a compelling, real use case for XRP.” Thomas explained there’s a lot of coins out there today with very vague use cases that people are buying up all over the place. It’s clear that XRP is leaps and bounds ahead of almost all of them in direction, vision, and implementation. Nearly all coins up to this point are conceptual, where XRP already has real-world traction.
Why is Ripple not creating proprietary coins for banks and instead encouraging them to use XRP?
It’s simple, actually. “Every bank wants their name on it, but no bank wants any other bank’s name on it,” explains Thomas. “So it presents this stalemate where they all create their own coin but then maybe can’t get anyone else but their own daughter banks and their own club to use it, at which point the value isn’t there. Settlement assets are valuable if they’re widely accepted across all organizations.”
Which is why Ripple has been able to get so much traction already, as they’re a neutral party to work with, as opposed to another big bank—and why XRP, not a bunch of other proprietary coins, is the solution that Ripple is exclusively selling to banks.
Ripple (XRP) vs. Bitcoin (BTC)
Ripple is an enterprise solution cryptocurrency. “XRP was designed for banks from day one,” says Thomas. He explains that Bitcoin isn’t really suitable for enterprise use and that Bitcoin was designed to exist despite government, rather than in harmony with government. And that harmony is another reason why Ripple could succeed in a big way.
XRP can also process much greater volume. Bitcoin can process up to seven transactions per second at the current limit, while XRP today can process over 1,000 transactions per second. That’s a huge difference in scalability as volume of transactions increase and more people start moving their money using digital currency.
According to a tweet on March 31 by Ripple CEO Brad Garlinghouse, XRP takes an average of 3.7 seconds to transact, while Bitcoin averages two hours. That’s on par with the maximum throughput delivered by Visa, the world’s highest volume payment processor.
Long term vision
“Real innovation in currency only happens every couple thousand years,” asserts Thomas.
“We’re looking at this from a very long-term perspective. We think that it’s going to take some time for large financial institutions to really become comfortable with using digital assets,” says Thomas. But a shift is afoot. “Before the last six months, it was always us pushing XRP. Now it’s become more of a pull where banks are actually asking us to do more with XRP faster because they’re starting to recognize the benefits and they’re wanting to implement them sooner.” Ripple has been around since 2013 and now in 2017 it’s finally picking up serious steam and has reached a point where things are beginning to exponentially accelerate.
Consider this if you think XRP has an over inflated market cap: the global foreign exchange market does $5.7 trillion per day in fiat transactions. The size of XRP today, despite its tremendous growth, amounts to a “rounding error” in the scope of its market potential. XRP’s current growth is big, but it’s not even a 100th of what it can become.
“Big money is betting that Ripple will power bank-to-bank and bank-to-consumer international money transfers in the future. Remittance [alone] is a [$500bn per year] market and Ripple has made great headway into it by partnering with major banks,” says Petar Zivkovski, COO of cryptocurrency trading platform Whaleclub.
This much is sure: Ripple is not the grand vision of blockchain technology realized. Which is why blockchain purists resent it. But Ripple is solving a gargantuan real-world problem that is slow and expensive cross-border transfers of money. Speed, or lack of it, is one of the greatest enemies of innovation and business. If Ripple can deliver on its promise of reducing an international wire from 4 days to 4 seconds, the world will change and innovation will move more rapidly than ever before in history. And it’s already delivering.
If you’re still confused, watch this video. It explains in four minutes how XRP can result in:
- No more counter-party risk for banks (this is huge because banks have to write off millions of dollars when another bank they have an account with fails).
- No more intermediary banks.
- No more SWIFT.
- Risk of banks’ nostro accounts being written-off disappears.
- Fees to transfer customer funds drop by 10-100X. Banks save billions.
- Time to transfer customer funds reduced from days to seconds. Commerce accelerates.
- Customer happiness skyrockets.
Author Disclosure: I personally own some XRP.
Additional Disclosure: AltcoinToday holds XRP