When thinking about buying XRP, the cryptocurrency that runs on the Ripple blockchain payment system, investors should be considering what role Ripple might play over the course of the next decade. A couple of important considerations factor into this.

Unlike many other popular cryptocurrencies, XRP is not mined. There are 100 billion coins in existence, and they were created by the company Ripple.

Ripple has been fast growing and is currently at a market cap of just under $7.5bn. This means that the currently circulating supply of about 38.5 billion XRP is trading at around $0.2 each. Here’s one basic idea to support buying XRP for the long-run (buy and hold):

With more and more banks using the Ripple protocol, the supply of Ripple will eventually have to be enough to support the total transaction volume of all the players using the system. Since XRP could feasibly replace SWIFT as a payment system due to its lower cost and higher speed, SWIFT figures can be used as an estimate. SWIFT handles about $5trn each day. Therefore, in an extreme case, there could be 100 billion XRP supporting 5 trillion worth of transactions. Since XRP is effectively a bridge currency that acts as a carrier of value from A to B, this would place one XRP coin at 50 dollars. This is, of course, an unrealistic and extreme example (Ripple’s market cap would be $5trn – Apple currently has the highest US market cap at $730bn). But the example serves to illustrate what investors are betting on. If one bought 100 dollars worth of XRP today and it were to rise to 5 dollars per coin, one would have turned a $100 investment into $2500 dollars, therefore a 2500% return.

Fluctuating Price

The number of institutions that have partnered with Ripple has exceeded 100 and is growing rapidly. Yet the price of Ripple has steadily fluctuated around $0.2 for the past months. Why is that? For one, there has been a lot of uncertainty about XRP supply. XRP supply, unlike other cryptocurrencies, is in part controlled by the company Ripple who currently owns more than 60% of all existing XRP coins. The fear is that the company will suddenly capitalize on its position and flood the market with those coins, causing a massive oversupply in the short run. If you are an investor in the company, that would instantly make you a lot of money, but for holders of the coin, it could be devastating.

Ripple CEO Brad Garlinghouse has addressed this issue by placing 55 billion XRP in escrow. This is a brilliant piece of technology that enables Ripple to promise a predictable supply and enables investors to instantly verify such a promise. The cryptographically secured escrow account sets up a so-called cryptographic supply schedule. In this case, it is programmed to automatically release 1 billion XRP at the start of each month while freezing the others. Whatever amount of XRP remains unused at the end of the month automatically gets returned to the back of the escrow cue to be released after month 55. This removes supply uncertainty and still gives Ripple the needed flexibility to direct their XRP coins towards investors that create the type of market conditions that benefit Ripple as a company, and that align with its larger mission, such as using tighter spreads for payments.

What Could Go Wrong?

There are still a lot of potential roadblocks on the way to XRP being traded at >5$. The biggest one might simply be the pace of ongoing innovation in the field. If another payment system offers an even more attractive alternative using a different coin as a bridge currency, the amount of money being transferred via Ripple will decrease substantially, or even wipe out XRP usage completely. Government regulation is another issue. China has recently banned ICOs and it wouldn’t be surprising if others followed suit and banned the use of currencies such as XRP by their financial institutions. Russia has effectively done this by creating a national cryptocurrency – the CryptoRuble – and banning the use of any other coin. Lastly, many banks have started developing their own cryptocurrencies for the use of interbank transactions. If these institutions efficiently develop and grow such systems, it could mean another bump in the road for Ripple.

Conclusion

The idea that the maximum supply of XRP will one day drive a majority of financial transactions is a powerful incentive to buy XRP coins. Ripple has managed to address the fear of rapid oversupply very effectively by using an automated supply schedule. However, the possibility of other curve balls heading towards Ripple is still significant. Those could include unfavorable government regulation as well as the development of more innovative systems that would act as competition.

Hope You Liked My Blog.

Please Upvote Follow And Resteem.

Image Credits :- Google