Introduction
Ripple is a project worth 43 billion dollars in terms of market cap. Before we go ahead and talk about its feasibility, we have to understand why it is needed. Many influential banks are still using systems that were built forty years ago for this task, including Western union, Swift, MoneyGram. These are just some examples of slow, expensive, and relatively limited systems that are used to transfer money during the thebitcoincode.io. Before diving deep into the subject, let us understand a little bit about XRP, Ripple, and whether it is safe for payment purposes or not. We shall discuss whether it is safe for payment purposes by analyzing different aspects of it.
What is XRP?
Ripples offer two different types of currencies, including IOUs and XRPs. IOUs refer to tokens that can be stored on any ripple wallet. The other one is XRP – which is the actual cryptocurrency. It is a token used on the Ripple network to transfer money between different currencies.
XRP is issued by ripple labs. This cryptocurrency uses ripple network to transfer payments. Now, suppose a bank wants to transfer a large amount of money. They will have to use a lot of banks to do that. But with the help of XRP, the money can simply be converted into XRP and that XRP can be sent to the required bank. XRP is an asset and not a liability. The benefits of using XRP are that it is fast and scalable. Sending the XRP transactions take 4 seconds, while other coins like Bitcoins take 10 minutes on average. About 1500 transactions can be handled by XRP per second.
How are XRP and Ripple Related?
XRP is a product used to exchange currencies. Ripple Labs was responsible for the creation of this currency. The company Ripple aims to serve the banking industry by allowing it to carry out international money transfers. Ripple labs aims to help banks and payments providers transfer money across the globe in an instant, at cheap rates. Unlike most cryptocurrencies that focus on individuals. Ripple labs aim to serve banks and payment providers.
The idea of Ripple was conceived in the mind of Ryan Fugger in 2004. Just the way the internet has its protocol to transfer the information as HTTP; similarly, RippleNet uses a protocol called the RTXP for moving value around the world. RippleNet is the network behind the current product. It is a decentralized system and is based on Blockchain technology. As of now, most international transfers utilize Swift, which is used by banks to transfer money. Swift handles an estimated 6 trillion dollars of currency transfer a day. In 2018 alone, half of all the high-value transactions were made with swift.
Does Ripple’s Technology work efficiently with payments?
Speed is an important factor in today’s world. When you want to send money from one country to another, sometimes it takes days to do so. It is usually very expensive. This new technology aims to enhance four aspects, including a messaging system, Interledger protocol, currency exchange rate, and the stability of transfers. Ripple net also has a feature known as on-demand liquidity (ODL). The two primary reasons why people are using on-demand liquidity are speed and low cost.
Is XRP a safe cryptocurrency investment?
So the SEC (Securities and Exchange Commission), which is an agency based in the United States, argues that XRP is a security and not a currency. SEC states that XRP sales were not different from a company selling a stock or bond and that is illegal because they were not registered with the commissions. The basic difference between securities and commodities can be found out by using the “Howey Test”. This test helps us figure it out by asking questions regarding whether if an investment involves money. The second question it aims to ask is if the investment is being made in a common enterprise. The last question is whether it comes with the expectation of profit.
The business model of Ripple has also been questioned by many business experts, and it has been called a dump and pump scheme by many. The business model involves generating and gifting billions of these XRP tokens, which are worthless to customers, and then taking steps to enhance their value. Keeping all these things in mind, XRP does seem fishy to an extent. Therefore, you should carry out research to assess the legitimacy of this token, before attempting a payment involving it.