$100 Billion Controversy: XRP’s Surge Raises Hard Questions for Ripple

Ripple’s native cryptocurrency, XRP, is on a bull run.

According to CoinDesk data, the price of XRP is up over 1,000 percent in just the last month alone, eclipsing $3.50 per coin Thursday after spending much of 2017 under $0.30. With a market capitalization above $120 billion, the token has usurped ethereum as the No. 2 cryptocurrency after bitcoin, and social media is rife with speculation about when it might take first place.

But where some might see the kind of meteoric growth that’s often associated with a breakout product, industry insiders have been quick to tap the brakes.

Rather than herald the run-up as a success story, some are using the spotlight to revive long-standing controversies that have dogged the Ripple blockchain network, the startup that created it and its fair-weather approach to marketing the cryptocurrency.

Indeed, founded with the mission to bring bitcoin’s decentralized, cryptographic architecture to financial services, Ripple has had a complex relationship with XRP – at times touting it as a way for banks to transact seamlessly across borders, while at other points describing it as a benign value-add to enterprise versions of the company’s software.

Such hot-and-cold thinking has long been on display in the company’s public remarks on the subject.

As far back as 2012, for instance, the founder and former CEO of Ripple, Chris Larsen, spoke of the service as a bitcoin-like payment system. Only a couple years later, Larsen was de-emphasizing XRP’s role, telling the Financial Times, “The world is not going to adopt a new math-based currency.”

Seemingly aligning with a rise in regulatory concerns over bitcoin and other cryptocurrencies, executives at Ripple even explained to Fortune in 2014 that its cryptocurrency is not meant to be a store of value or a medium of exchange.

And there were times when Ripple leadership hesitated to call XRP a cryptocurrency at all.

Asked directly about its use of terminology in 2016, Larsen pegged the decision to marketing, dismissing the term outright. “It’s not powerful,” he said then. “I think sometimes the word ‘crypto,’ branding-wise, is less institutional than ‘digital asset.'”

Yet, as the term “cryptocurrency” has come back into fashion over the past year, that narrative has changed.

In contrast to his predecessor, Brad Garlinghouse, who replaced Larsen as CEO when he stepped down at the beginning of 2017, has proclaimed the value of cryptocurrency, specifically XRP.

And in interview with CoinDesk Thursday, Asheesh Birla, who’s been the vice president of product at Ripple for five years, said he doesn’t remember anyone at the company downplaying the necessity of digital assets. Rather, he said:

“What we did realize is that there is a pragmatic way of developing use cases that will use digital assets. I think that is a very pragmatic approach of building a payments solution. I think the patience, and the pragmatic nature that we’re working towards is paying off.”

And Birla has a point – three years ago digital assets were thinly traded compared to today, so it was hard to market XRP as a liquidity play.

Yet the company’s shift in tone, coupled with the XRP cryptocurrency’s recent boom, has brought out a sea of critics who want to take Ripple to task for its seemingly opportunistic stance.

However, they’re being met by an equally strong force: a new group of crypto adopters who, all of a sudden, see XRP as an affordable way to get exposure to cryptocurrency and relieve their FOMO.

The XRP faithful

Given the passionate support of its online fanbase, it’s perhaps not a surprise that Ripple’s XRP cryptocurrency has attracted interest, especially as new investors seek to diversify in the cryptocurrency market.

For instance, Ripple evangelist and XRP bull Tiffany Hayden wondered in a tweet whether XRP could jump 740 percent to reach $20 a coin, and while that might seem a stretch, it sounds more plausible when considering that XRP gained 30,000 percent over 2017.

Further, according to a tweet from Chris Burniske, a partner at Placeholder VC, if XRP’s price stayed around where it’s at today and bitcoin’s stayed around $15,000 a coin, by the time each of those network’s cryptocurrency units (100 billion for XRP, 21 million for bitcoin) had been released, the XRP Ledger would have a network value greater than bitcoin’s.

Since bitcoin hit $20,000 this past December, a slew of cryptocurrencies have reached new all-time highs, some even outperforming bitcoin by leaps and bounds. But what sets XRP’s activity apart may be the sheer volume of crypto enthusiasts who, seemingly, are working under cloudy impressions of the industry.

In speaking with retail buyers, CoinDesk has found that, for some, XRP is their very first foray into cryptocurrency. In one conversation, a source, who wished to remain anonymous, reported that a friend had pushed him to buy XRP.

This investor also cited other reasons for taking the plunge:

“Surely, because of the advantage of transferring funds very quickly and efficiently anywhere in the world; also its endorsement by [potentially] Amazon and Amex. It didn’t hurt that it went from 20 cents to $1 rather quickly.”

It’s an interesting answer that sheds light on the state of the crypto industry as it moves into 2018.

Bogged down – at least in the eyes of new investors – by a years-long technical debate, bitcoin seems to have lost its hold on the faster, more efficient payment method use case. In turn, cryptocurrencies that seem more mainstream (such as XRP in its proximity to Ripple) are looking more attractive to rookies.

Yet, the partnerships Ripple has forged recently hide an inconvenient truth – that enterprises using Ripple’s services aren’t necessarily using XRP.

And as such, XRP investors might not understand they’re buying into a cryptocurrency very different from bitcoin and the others that have gained widespread attention over the years.

Without XRP

Case in point: While XRP investors might be charmed by the thought of holding a cryptocurrency that one day a large swath of the banking system may use, the vast majority of Ripple’s banking clients are using the company’s xCurrent product – a glorified messaging platform.

This product provides banks with real-time, bi-directional messaging with which they can track and manage cross-border payments, and is superior, Ripple executives say, to SWIFT’s messaging platform, which only allows for one-way communication.

So for instance, if an account number, name or some other data needed to send a payment gets mistyped when sending a SWIFT message, that message must go through its life cycle before the error can be corrected, with the receiving party sending back an error-and-cancellation message. The sending bank then has to go find where it messed up, and once the errors are corrected, a new transaction must be initiated. (However, SWIFT recently revealed a real-time gross settlement platform and is experimenting with blockchaintechnology to enhance its processes.)

Ripple’s platform, on the other hand, allows senders and receivers to communicate in real time, so simple errors can be fixed quickly, and transactions aren’t canceled, but instead merely put on a momentary hold of sorts.

Laid out to CoinDesk during the company’s inaugural Swell conference in Toronto in October, Ripple’s main product doesn’t involve its XRP token at all.

Onstage during the event, a number of banks using xCurrent asserted that they would not be using XRP anytime soon, contrary to what XRP investors might be banking on today.

And xCurrent is the platform American Express is using. In mid-November, Amex announced that it had partnered with Ripple to connect Amex customers in the U.S. using U.S. dollars to Santander bank accounts in the U.K. using British pounds.

During the launch, Ripple’s global head of strategic accounts, Marcus Treacher, told CoinDesk that Amex and Santander were connected directly with no need for an intermediary cryptocurrency…

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