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The Two Sides of Ripple

 5 min read / 

The Ripple token XRP has had a very successful close to 2017. There has been a 10-fold increase in price over the course of a month with XRP trading at $2.30 at the time of writing. This could be due to speculators pushing up the price, as is likely happening with many coins that have enjoyed recent record highs. But as many have pointed out, Ripple is worth looking into as an investment option for the long-run because its value proposition is uniquely promising, considering it could replace SWIFT as the global choice for international settlements.

A Two-Step Process

However, recent sources have also pointed out that the value of the company Ripple doesn’t necessarily translate into true value underlying the XRP token that people have been buying into. A closer look at Ripple’s strategy to bring international banks on board their mission unveils that the company, in fact, appears to be planning on using two steps to achieve their ultimate goal of becoming the go-to system for settlements.

The first step involves getting banks excited about their underlying technology by offering a system called xCurrent. This is Ripple’s enterprise software solution that lets institutions tap into the powerful and efficient system for cross-border payment processing that the company Ripple has developed. It supposedly saves users significant portions of their funds on top of speeding up the process and increasing security. In short, it connects banks more efficiently but doesn’t necessarily get rid of the set-up used in SWIFT settlements whereby banks need to fund Nostro and Vostro accounts and decide on the interval of settling these accounts and the rates they will use. In other words, banks need to maintain parts of a rather inefficient system, but they can send any currency they want using xCurrent and do not need to buy large amounts XRP tokens to conduct settlements. In fact, they only need enough XRP to pay the network fees associated with each transaction.

Because this still involves some inefficiencies, Ripple proposes that banks use XRP to settle transactions. This is the currency that is native to the network and brings about even greater savings. It is advertised as a be-all and end-all solution to cross-border payments, and that is effectively what long-term investors are betting on when they buy XRP. This will come about once XRP is the universally accepted token for settlements on the Ripple network, held and trusted by all members of the network.

Looking at this two-step approach, it appears that the company is using a type of foot-in-the-door technique to get banks on board, only to sell the main solution to them in a second step.

Step one is already happening very successfully but step two is still quite far away. This is because of the risk of using XRP in the settlement process. Banks will only use the token if the price is relatively stable and not motivated solely by beliefs about its future price track. They are interested in settling transactions in the cryptocurrency that is the globally accepted reserve option. It is questionable whether XRP is on the path to becoming the said option. Both parties to the transaction would need to be willing to hold and exchange XRP at any given time.

What Does This Mean for Investors?

It is easy to fall into the trap of thinking that investing in XRP means investing in the company Ripple. This is only partially true.

Ripple, the company, has come up with arguably one of the best applications of the blockchain technology in existence. The ultimate mission of the company remains the same, but unfortunately buying XRP doesn’t exactly translate into buying a stock in the company. XRP will only truly take-off once it is universally used by all banks using the system and at a stable price that doesn’t raise currency risks in transactions. Banks will not care how much a single token is worth because it is simply used as a bridge currency, but since supply is limited, one can bet on daily transaction volumes being high which needs to be sustained by a limited amount of tokens carrying value from A to B, therefore putting upward pressure on the price of XRP. 

In such a scenario, investors could be confident that they are putting faith in a token that has real, tangible and measurable value. This stands in contrast to a scenario in which XRP becomes more valuable simply because everybody believes that it has value that translates into a higher trading price. There are many obstacles on the path of achieving the former, including the question whether XRP will be globally trusted and accepted. While XRP will enable banks to more easily tap into new and expanding markets, it remains open whether this is a strong enough incentive to use it. Ultimately, one of the main questions to be answered is whether at some point in the future the benefits of the savings associated with using XRP on the Ripple network will outweigh the risks associated with using the token in the eyes of the financial institutions using the technology.


As of right now only the network fee of a transaction needs to be paid in XRP and that is likely not a strong enough market force to justify the recent price hike. Therefore it is reasonable to assume that a lot of speculative value is currently driving the XRP trading price, which is fine in the short-run but likely not sustainable in the long-run. This means investors planning to buy and hold XRP need to be aware of the delicate structure of Ripple’s value proposition and need to decide how much value (i.e. how much price saving on behalf of the institutions using the network) they truly see over a longer time horizon.



  1. Reece Callenhell

    December 31, 2017 at 10:59 AM

    Ripple is the only choice once all the hype and real speculation fades from BTC. Here are the reasons:
    1) The fans of BTC like it because they HATE using banks and want decentralized; unfortunately, BTC does NOT work well enough to use so its a moot point and they HAVE to USE banks anyway!

    2) Speculators have only driven up BTC because they are riding the wave of the original BTC long holders who keep buying BTC to “stick it to the man”

    3) Ripple does try to solve a REAL problem (high cost inter-country money transfers) with Crypto technology! It actually SOLVES a real problem.

    4) With ALL the new alt-coins based on BTC, it is now easier for speculators to get returns off an alt coin.

    5) So…go with an alt coin that actually solves a problem if you’re going to speculate anyway instead of something that only can say “it was the first”

  2. Adler

    December 31, 2017 at 3:38 PM

    There is a massive misunderstanding of the value of the coin/company in the material above.

    The coin becomes stable in the moment the banks start using it for the transactions.

    A swift system makes 5 trillion in transaction per day. Therefore tanking into consideration the current valuation below 100 billion, the banks would have no reason to believe the coin would not be stable once used by a bigger group of banks.

    On the contrary to the assumption above, banks would have more control over the world finances by using ripple than dollar, since at any given small economic crisis, USA simply produces more dollars, which directly decrese the value of their own currency damaging worldwide banks.

    Moreover, tanking into account the current prices applied by the Ripple per transaction, 100 billion of market capital is far bellow the real gains of the company, since Visa has a market capital of 350 billion making early transactions of 8.9 trillion year.

  3. H Chang

    December 31, 2017 at 3:55 PM

    The price of xrp makes no difference as it’s only used a bridge currency.

  4. Ripple Researcher

    December 31, 2017 at 5:38 PM

    Live US/Mexico transactions are already utilizing XRP with the money transfer service Cuallix. A massive banking group comprising 80% of Japan’s banking industry is committed to utilizing XRP to source liquidity. There are also at least two non-bank companies with household names that are or will be using XRP, but their names haven’t been released due to NDAs. Those may be money transfer services, or corporations that do large amounts of international business. The point is that XRP usage is here and growing quickly. Companies just aren’t talking about it so that they can obtain a first-mover advantage in their respective markets. Once a few go public, other companies will have to follow to be able to compete with the better service and reduced costs of their competitors.

  5. monjur kho

    December 31, 2017 at 7:16 PM

    it will make no difference to the banks for the price of one ripple, because they can use fraction of a ripple for certain transaction, that’s way the supply of xrp will not going to be an issue.

  6. B

    December 31, 2017 at 7:52 PM

    The price of XRP fluctuating doesn’t really mater to a bank. Market makers can take on that volatility risk (they make money doing so). And you didn’t mention anything about the fact that banks that use XRP will no longer need to have Nostro/Vostro accounts setup in each Country that they do business with. This alone is enough of a reason for banks to want to use XRP (banks have billions of dollars tied up in these nostro accounts which they are unable to use to create additional profits. By using XRP, it unlocks these accounts so that they can use that money for better investments.

  7. Harry

    January 1, 2018 at 9:48 AM

    There is too much fan boy behaviour on ripple when you look at the underline facts it is a crypto

    all crypto that are fast can be used to settle ledgers

    question is why on earth would you want an institution alligned with the banks if they agree to a mutually beneficial relationship in the middle?

    I think the blockchain can add features to set a trust or escrow manager in future Updates and we will see trusted escrow companies offering middle man fees that are more competitive that what Ripple has in store for us.

    at the moment there seems too many people keen on getting rich and looking to make money off ripple they absolutely can’t see this ripple consept isnt future proof

    whats more
    why would banks join ripple at the moment ripple is giving them very attractive financial insentives to agree to try out their product but does it make sense for banks to leave swift?
    Answer is No

    if they wanted faster payments there is paypal

  8. Kyeran R

    January 4, 2018 at 9:32 AM

    If banks are to send cross-border transactions using XRP they are unlikely to be affected by XRP fluctuations as XRP transactions happen within four seconds. It is one of the fastest cryptocurrencies on the market.

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