Besides Bitcoin and Ether, XRP is the third-largest cryptocurrency by market capitalization (at the time of writing).
Like the top two cryptocurrencies, XRP, the token, is linked to a technology platform, Ripple, which was conceived as a way to facilitate cheaper payments and money transfers across borders – and because of this, it has received significant interest from major banks around the world.
Those who love the cryptocurrency point to its potential to radically reduce friction in the global finance system. Its detractors say that XRP shouldn’t even be considered a “cryptocurrency” (in the classical sense of the word) since its Ripple Consensus Ledger does not necessarily use XRP as an incentive to network node operators in the same manner as Bitcoin or Ether and because the platform can allegedly freeze funds arbitrarily.
Despite this fact, XRP remains popular with cryptocurrency investors and the Ripple platform has attracted strong interest from major players in the financial industry.
Ripple and its XRP token were the brainchild of two well-known names in the crypto scene – Jed McCaleb and Chris Larsen.
McCaleb – who previously owned a part of ill-fated Bitcoin exchange Mt. Gox – later went on to found the Stellar project. Larsen has been a Silicon Valley entrepreneur and founded online mortgage platform e-Loan in 1996.
With the help of Arthur Britto and David Schwartz, Larsen and McCaleb started developing the technology under the name of Ripple Labs. They joined forces with Ryan Fugger of OpenCoin and continued developing the software that would grow into the present-day Ripple platform.
Since the founding of Ripple, the company behind XRP, in 2013 – it has attracted a variety of high-profile investors, including Andressen Horowitz, Pantera Capital, Google Ventures and Santandar InnoVentures.
XRP was conceived as an element to facilitate Ripple’s vision of creating a global, frictionless payment system.
What does this mean?
Imagine that a person in Mexico wishes to send a large amount of money to a relative in Russia. To transfer Mexican pesos to Russian rubles, he or she would probably need to first change into US dollars in order to make the transaction.
And guess what?
Changing Mexican pesos to US dollars and US dollars into Russian rubles afterwards costs money – sometimes lots of money, depending on market rates and which financial institutions are involved.
That same transaction from Mexico to Russia also tends to be quite slow, sometimes taking several days to clear and settle.
With the Ripple platform and in particular its On-Demand Liquidity service , the XRP token serves as a “real-time bridge” – a medium of exchange to make this faster, and cheaper.
It is for such a use case that Ripple partnered with Intermex, a prominent remittances service provider to help facilitate cross-border transfers in Latin America. With over 30 million payment transactions per year to a network of 100 000 payer locations, Intermex serves a huge swathe of the US-Mexico remittances market.
Considering the size of the worldwide remittances market, the possibilities for adoption of the Ripple technology would seem to be quite big. The World Bank estimated that in 2018 that $529 billion worth of remittances were made to low- and middle-income countries. Add to that the amounts transferred between banks – $1.4 trillion in 2018 according to the Bank for International Settlement – and it isn’t hard to see where friction can occur in the current financial system.
A host of well-known financial institutions have started exploring Ripple as a means to combat this friction, including Santander, UBS and Union Credit. Santander, for instance, has built what it calls a “payment corridor” between the US and Latin America using Ripple’s xCurrent software, allowing for fast and free money transfers.
However, it is important to note that the Santander use case does not use the XRP itself. The Ripple platform allows users to issue their own token to facilitate transfers between them. For this reason, increased usage of Ripple technologies may not be directly linked to a rise in the token’s value as one might expect.
Another important fact to know is that Ripple Labs currently controls 61% of the supply of XRP and the company regularly sells amounts of XRP on the market to fund its operations.
Despite this, XRP continues to enjoy strong interest from its loyal community and Ripple as a company continues to row and expand with a Series C ($200 million) round of investment led by international investment firm Tetragon in December 2019.
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