XRP acts as a bridge between fiat currencies. Image: Shutterstock
Over the past few months, the world’s most famous digital asset, bitcoin, has had its share of the overall digital asset market capitalization drop by nearly half, from 80% to just over 40%. This is largely due to the rise of other digital assets that have driven the market’s total cap to break the $100 billion barrier.
Of these new assets, XRP is the one that is really turning the heads of market watchers and financial institutions. Since January, its value has surged from $0.006 to $0.30 by the end of May, while its growth of nearly 6500% since the start of 2016 compares favorably against bitcoin’s 700% increase. Through its holdings of XRP, Ripple is now one of the most valuable startups in the US, after Uber, Airbnb, Palantir and WeWork.
Yet, like all digital assets, XRP is often a source of confusion, mystery and speculation. So, let’s clear the picture with 9 things you need to know about XRP.
1. XRP is the only digital asset specifically designed for financial institutions and payment providers
A lot of digital assets lack a clear purpose. They may be used to store value, purchase commodities or for consumer transactions, but were not created with a single explicit application in mind. By contrast, XRP is specifically about the transfer of value and built for enterprises, making it one of the few digital assets with a real, clear use case behind it.
2. It acts as a bridge between fiat currencies
Some digital assets, like Bitcoin, aim to replace existing government-backed currencies. XRP works with fiat currencies on more than ten digital exchanges to help transfer value across borders quickly and efficiently. For example, a Mexican company needing to pay a supplier in Korea today would either need to pre-fund an account in Korea or go through a foreign exchange provider like a bank. Both options are expensive and slow. With XRP, the company’s Mexican bank or local payment provider allows the company to make the payment instantly and on demand. With no account pre-funding or foreign exchange fees, XRP makes for a faster, cheaper settlement.
3. XRP enables faster, cheaper and more reliable cross-border payments
XRP offers banks and payment providers a reliable, on-demand source of liquidity for cross-border payments. Today, it takes about 3-5 days to send money from one country to another through a bank, which usually involves high fees the risk of the payment being delayed (or never go through altogether). Alternatively, businesses can pre-fund nostro accounts in the recipient’s country, which ties up capital. XRP is part of a solution that fixes all these shortcomings, with an average settlement time of 4 seconds, at a fraction of the cost. By allowing financial institutions to source liquidity on demand, in real time, without having to pay foreign transaction fees or pre-fund nostro accounts, XRP will help them to expand into new markets, lower foreign exchange costs and provide faster payment settlement for its customers.
4. It is part of an overall network solution for faster cross-border payments
Ripple is committed to solving the issues with cross-border payments and create an Internet of Value where we move money as efficiently as we exchange information. Our solution involves creating a common standard for payments and using XRP as the digital asset that will bring together currently disconnected ledgers and blockchains.
5. XRP operates at a scale and speed far greater than Bitcoin
Bitcoin can process up to seven transactions per second, any of which can take more than two hours to clear. Compare that with a traditional payments service like Visa that averages 2,000 transactions per second and you can see that Bitcoin does not have the scalability to meet typical customer demands. The XRP Ledger processes more than 1,000 transactions per second and can scale to the same throughput as Visa, all in real-time.
6. It is secure
The XRP Ledger is where XRP transactions occur and are recorded. It is an open-source code base that is supported by a community of trusted validators and a team of full-time engineers that actively develops and maintains the ledger. Since day one, we’ve made the XRP Ledger more resilient and resistant to a single point of failure by decentralizing it, a process that continues today.
7. XRP is more sustainable than mined digital assets, like Bitcoin
Bitcoin is a mined digital asset, meaning that new coins are constantly created by huge datacenters processing complex math problems, or “proof of work”. This inefficient system demands massive amounts of electricity – the cost of producing one coin could power 3.67 US homes for a day – and has been called “unsustainable”. XRP is not a mined digital asset so every single unit of the currency that exists now has already been created, with most owned by Ripple (55 billion of which is held in escrow) and the rest held by companies and individuals.
8. XRP is the future
It’s a question of WHEN, not IF, banks and other financial institutions begin using digital assets in their day-to-day business operations and it will be interesting to see who the winners and losers in the digital asset space will be. We are confident that XRP will succeed because it has a purpose – enabling financial institutions to send money across borders quickly, cheaply, and easily – that is relevant to businesses and consumers everywhere.
9. It’s easy to buy
There are different ways to buy XRP depending on who you are. If you’re a financial institution, it’s best to contact Ripple directly. If you’re an individual investor, you’ve got many ways to buy – you can visit any one of the digital exchanges that lists XRP and do it that way.