Ripple (XRP) is one of the most talked about cryptocurrencies of the last 12 months and rightly so – it’s risen in value by tens of thousands of percentage points and, in doing so, has grown to become a behemoth of the sector, currently ranked third only to Bitcoin (BTC) and Ethereum (ETH) by market capitalization.
During early 2018, the coin has given back some of the gains enjoyed throughout the latter half of last year but XRP still goes for $1.23 apiece and has a market cap at these prices in excess of $47.7 billion.
Behind this value appreciation is a spate of partnerships and pilot programs, many of which are ongoing, with big-name financial institutions. We covered one earlier this month – a collaboration with Moneygram that will see the latter adopt Ripple’s xRapid technology and XRP as a settlement currency for cross-border transfers.
We won’t go into why this is such a big deal again, we have already outlined our reasoning a number of occasions, but trust us – it is.
There are still many that don’t understand why this technology can be a potential game-changer in the financial world and, in turn, can’t see the justification for Ripple and XRP’s positioning in this space.
As such, we’re going to use an example given as part of an interview involving Marcus Treacher, Global Head of Strategic Accounts at Ripple and Ed Metzger, Head of Technology Innovation at Santander UK, available here.
First, it’s worth touching on the partnership between Ripple and Santander as yet another example of a big-name financial institution working with Ripple in an attempt to figure how the latter’s technology can improve the existing processes employed by the former. Ripple is way ahead of the pack when it comes to engaging and proving its technology at enterprise level and this, in and of itself, for us, justifies its positioning in the top tier of cryptocurrencies by market capitalization.
Anyway, back to the point.
As part of the interview, Treacher was asked to explain how Ripple’s technology improves upon the currently available gold standard in international money transfer – SWIFT.
So, here’s how he explained it.
Imagine 300 islands of currency – Sterling, Dollar, Euro, Yen, etc. On each of these islands, payments from one party to another are quick and easy and, in turn, are settled incredibly fast and cheaply. When a payment needs to be sent from one island to another, however, things get complicated. The transaction cost rises dramatically and the process, facilitated by the SWIFT network, can take up to three days to complete, with nobody really knowing the exact amount time it’s going to take.
The islands use SWIFT because it’s the only technology available to them.
Ripple’s technology adds a second link between these islands but, unlike the SWIFT link, transfers from one island to another take seconds and can be done incredibly cheaply.
Each island doesn’t have to adopt XRP to facilitate these links – they can create their own cryptocurrency and link it into Ripple’s xRapid technology, which is installed on both the sending and receiving islands. However, it’s far simpler and cheaper to use XRP, and it’s this simplicity that drives a large portion bullish thesis for XRP going forward.
Moneygram decided it was simpler to use XRP. We think other companies and, in particular, financial institutions will follow suit.
Right now, then, XRP is trading at a considerable discount to what we see as fair value going forward. The recent dip has weakened sentiment and offered market participants an opportunity to pick up some cheap coins ahead of things turning around and, with Ripple, it can surely only be a matter of time before the company announces its next big name partnership – a catalyst that’s sure to get the coin running.