What is XRP (Ripple)? Is it a profitable investment option in 2024

Ripple operates as a money transfer network tailored for the financial services sector, with XRP serving as its native cryptocurrency. XRP consistently ranks among the top 10 cryptocurrencies based on market capitalization.

In late 2020, the U.S. Securities and Exchange Commission (SEC) accused Ripple of selling unregistered securities in the form of XRP on crypto exchanges. After a lengthy legal battle, a federal judge partially sided with Ripple on July 13, ruling that XRP sales on public exchanges did not constitute offers of securities. However, the judge also partially favored the SEC, determining that off-exchange sales of XRP to sophisticated investors were indeed unregistered securities sales. The trial is ongoing, and a final verdict is anticipated soon.

Despite the trial not being concluded, the cryptocurrency market responded positively to the recent ruling, with XRP experiencing a roughly 75% increase in value on July 13.

What is XRP?

XRP operates as a cryptocurrency on the XRP Ledger, a blockchain created by Jed McCaleb, Arthur Britto, and David Schwartz. McCaleb and Britto later established Ripple, utilizing XRP to facilitate transactions within the network.

XRP can be purchased as an investment, exchanged for other cryptocurrencies, or used to finance transactions on the Ripple network.

Unlike most cryptocurrencies that rely on decentralized verification processes, XRP's blockchain operates differently. While anyone can download validation software, the Ripple network maintains unique node lists that users can select to verify their transactions. This consensus protocol somewhat centralizes the network, aiming to prevent fraud.

Validators on the Ripple network update their ledgers every three to five seconds, ensuring consistency among all ledgers. This swift validation process sets XRP apart from other cryptocurrencies like Bitcoin, which may take longer to confirm transactions and incur higher costs.

Lee explains, "Bitcoin transaction confirmations may take many minutes or hours and are typically associated with high transaction costs. XRP transactions are confirmed around four to five seconds at a much lower cost."

What is Ripple?

Ripple, the entity behind XRP, operates as a payment settlement system and currency exchange network capable of processing global transactions.

"Ripple was essentially designed as a replacement for SWIFT (a major money transfer network) or as an alternative settlement layer for major financial institutions," explains Pat White, CEO of Bitwave.

Acting as a trusted intermediary in transactions, Ripple swiftly confirms exchanges between two parties. The network facilitates exchanges involving various fiat currencies and cryptocurrencies, including Bitcoin.

Each transaction on the network incurs a small fee, deducted in XRP, the network's cryptocurrency.

"The standard fee for Ripple transactions is set at 0.00001 XRP, which is negligible compared to the substantial fees charged by banks for cross-border payments," states El Lee, a board member of Onchain Custodian.

The SEC’s lawsuit against Ripple

On December 20, 2023, the SEC accused Ripple of breaching existing securities laws through its initial coin offering and subsequent exchange sales of the XRP token. The SEC based this allegation on its interpretation How to Mine XRP
 for digital assets.

In response, Ripple promptly defended itself by submitting a Wells Submission to the SEC. Furthermore, Ripple requested multiple times for the dismissal of the SEC's charges.

On July 13, a federal judge ruled, in response to Ripple's motion for summary judgment, that Ripple's XRP offerings were not considered investment contracts, which was viewed as a setback for the SEC. However, the judge also determined that the initial sale of XRP did violate federal securities laws. This matter will be resolved in court at a later date.

Despite this, the ruling was perceived as a victory by cryptocurrency enthusiasts, leading to a more than 95% increase in the price of XRP. Additionally, other major altcoins such as Cardano (ADA), Solana (SOL), and Polygon (MATIC) experienced increases of 17%, 18%, and 19%, respectively.

How to mine XRP

"Mining" refers to the decentralized verification process used by most blockchain-based cryptocurrencies. It serves the dual purpose of facilitating transactions and introducing new currency into the cryptocurrency system as a reward for verifiers who support the network. For instance, Bitcoin has a maximum supply limit of 21 million tokens that are gradually released as more transactions are verified.

In contrast, XRP was "pre-mined," meaning that the XRP Ledger created 100 billion units upfront, which are then released periodically to the public. Ripple holds a portion of XRP in circulation, providing an incentive for the company to support the cryptocurrency's growth and success. Another portion of XRP is reserved for regular release into the market through sales.

This approach has raised concerns about the potential for a large amount of XRP to be released at once, potentially diluting the value of existing XRP. The comparative scarcity of a currency is a key factor in determining its value.

"The company has attempted to mitigate this uncertainty by implementing various mechanisms (such as trust and predictable release)," notes Tim Enneking, principal of Digital Capital Management. This distinction between mining and pre-mining may have contributed to the conflict between Ripple and the U.S. Securities and Exchange Commission (SEC) in 2020.

Ripple advantages

• Swift Settlement: Transactions are confirmed rapidly, typically within four to five seconds, contrasting with the days banks may take for wire transfers or the minutes to hours for Bitcoin transactions.
• Low Transaction Fees: Completing a transaction on the Ripple network costs just 0.00001 XRP, which is a minuscule fraction of a penny at current rates.
• Diverse Exchange Network: The Ripple network supports transactions with various fiat currencies and cryptocurrencies, not limited to XRP.
• Adoption by Major Financial Institutions: Ripple is utilized by large financial institutions such as Santander and Bank of America, indicating broader institutional market acceptance compared to most cryptocurrencies.

Ripple disadvantages

• Somewhat Centralized: One of the primary attractions of cryptocurrencies is their decentralization, which reduces control by large banks and governments. However, the Ripple system is somewhat centralized due to its default list of validators, contradicting this decentralized philosophy.
• SEC Action Against XRP: In December 2020, the SEC filed a lawsuit against Ripple, alleging that since the company can determine when to release XRP, it should have registered it as a security. Ripple has denied these allegations.
• Large Pre-Mined XRP Supply: While most of the Ripple supply not in circulation is held in escrow, there is a possibility that significant quantities could be introduced at unfavorable times, potentially affecting the value of XRP.

Ways to utilize Ripple and XRP

You can utilize XRP similar to any other digital currency, either for transactions or as an investment opportunity. Additionally, you can leverage the Ripple network to facilitate various transactions, such as currency exchanges.

For instance, if you intend to exchange U.S. dollars for euros, you could initially convert your U.S. dollars into XRP on the Ripple network, and subsequently use the XRP to purchase euros. This method is often faster and more cost-effective compared to traditional currency exchange services offered by banks or money changers, which often entail high fees.

Is it advisable to invest in XRP?

Investing in XRP can be a risky endeavor, requiring a certain level of risk tolerance.

However, if you have confidence in Ripple's potential success as a payment system, purchasing XRP could be a viable option. It's important to only invest money that you can afford to lose.