The Million Dollar Question

The phrase “the million dollar question” is an idiom that is frequently used to represent a question or idea that is “very important, or very difficult to answer.” Ripple and XRP have one of these types of questions being asked right now and I do not think it would be an understatement to say this question could be “the trillion dollar question” by the time it is officially answered.

What is a Security?

The Supreme Court helped to define a “security” in SEC v. Howey Co., which was argued 1946. In this case the Supreme Court stated that a security is one where “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” So the components that define a security are 1) an investment of money, 2) in a common enterprise, 3) with an expectation of profits, 4) from the efforts of the promotor or a third party. This ruling helped to better define what a security is based on the Securities Act of 1933, Section 2(a)(1):

The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

The million dollar question then is this: is XRP a security? We may get the answer to this question sooner rather than later.

Coffey vs. Ripple Labs. Inc.

On May 3, 2018, Ryan Coffey, through his attorney, James Q. Taylor-Copeland, filed a lawsuit against Ripple Labs, Inc., XRP II, LLC., Bradley Garlinghouse, and (Jane/John)DOES 1 through 10 (which I will collectively call “Ripple”) in the Superior Court of California in San Francisco (link to filed lawsuit here). In this suit, Coffey alleges that Ripple is in violation of several Security and Exchange Commission (SEC) regulations and is selling an unregistered security (XRP) in a “never ending ICO” with tokens that Ripple made “out of thin air.” Coffey claims that XRP is a security because:

  1. XRP Purchasers Made an Investment of Money in a Common Enterprise.
  2. XRP Investors Had a Reasonable Expectation of Profits.
  3. The Success of XRP Requires the Efforts of Ripple Labs and Others

The analysis below looks at each of the three security claims made by Coffey:

An Investment of Money in a Common Enterprise

Coffey begins this part of his complaint by pointing out that investors must purchase XRP with fiat or other digital assets such as Bitcoin or Ethereum, highlighting that this “meets the first prong of Howey.” Next, Coffey alleges that Ripple sells/has sold XRP on exchanges and that investors are able to purchase XRP on those exchanges, that the success of XRP is reliant upon Ripple’s development capabilities, thus, purchasing XRP is purchasing a “security” in the operational and development capabilities of Ripple because Ripple is the enterprise associated with building the network XRP relies on for execution.

The SEC compiled a report based on such a thought: Slock.it and the Decentralized Autonomous Organization (DAO) that ran on the Ethereum Blockchain (link here). In a nutshell the SEC found that the DAO was designed to operate similarly to a corporate entity with each holder of DAO tokens having voting rights and an opportunity to earn a “return on their investments” through the operations of the DAO and the management of Slock.it. While there are other nuances, these three items alone earned the DAO the right to be considered a security. However, neither one of these items applies to XRP or Ripple.

XRP does not in any way, fashion, or form, represent an interest in Ripple the company. If I am wrong someone please point me to where this statement is available. Additionally, XRP and the XRP Ledger (XRPL) are not solely reliant upon Ripple for further development and operational consistency. The XRPL “relies on a common shared ledger,” “is managed by a network of independent validating servers that constantly compare their transaction records…Servers could belong to anyone, including banks or market makers,” and the protocol is open source and is available for other developers to contribute to its design and development. Recent announcements by Omni, Coil, Ripple’s investment in Blockchain Capital Parallel IV, LP,  and Ripple’s own Xpring for investing in and incubating companies that build upon the XRPL help prove that anyone is able to use the XRPL to develop use-cases for XRP. As it happens to be, Ripple uses the XRPL to develop applications that help banks and other financial institutions (FI’s) move money quickly and more efficiently through cross-border transactions.

If XRP ends up being defined as a security, Ripple could be in violation of Section 3 of the Act and could be defined as an investment company. The SEC states an investment company is “an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in ‘securities.'” Additionally, “Section 3(a)(1)(C) of the Investment Company Act defines an investment company as an issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire ‘investment securities’ having a value exceeding 40 percent of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis.”

There are two points about the above SEC statements: First, is XRP a “security” as defined? If not, Ripple does not have to be concerned about being an investment company. Second, can Ripple prove that it does not “engage primarily in the business of investing, reinvesting or trading in ‘securities'” if XRP is deemed to be a security? The answer to this question could come down to minutiae not available to the public and would include records such as income generated from application (xCurrent, xRapid, xVia) sales and ongoing maintenance, pending partnerships, development costs, etc., versus XRP sales.

To conclude this point, based on information publically available, I do not believe XRP will be classified as a security which represents an interest in Ripple because XRP exists outside of Ripple and does not need Ripple to continue to exist.

Expectation of Profits

In his argument, Coffey presents many statements by Ripple that caused him to conclude he had a “reasonable expectation of profits.” These statements include Ripple presenting a “Buyer’s Guide” and a “how to buy” XRP link on Ripple’s website; a statement by Brad Garlinghouse where he says he is “very, very, very long XRP”; Ripple’s escrow of XRP as a means of upward price control; Ripple’s funding of outside projects to increase demand for XRP and thus increase XRP’s price; and Ripple’s $25 million investment in Blockchain Capital Parallel IV, LP., as a means of developing the XRP ecosystem and thus improving XRP’s price.

It appears that Coffey argues against himself in this section. First, providing a “Buyer’s Guide” that explains how retail investors can purchase XRP on a multitude of exchanges from other XRP investors does not constitute an expectation of profits but a way to purchase XRP. Next, Garlinghouse’s comments about being “very, very, very long XRP” does not imply any expectation of price increases, especially in the near term. Garlinghouse has been more than clear that he is viewing any potential change in XRP prices over a 3-5 year period, not the period of approximately 2 weeks in which Coffey purchased and sold XRP. The last items listed (escrow, funding outside projects, and investment in Blockchain Capital) seem to contradict Coffey’s allegations of reliance upon Ripple for price movements: Ripple is intentionally NOT selling XRP to just anyone, and is reserving the XRP they have in escrow to use to develop the XRP community through other entities. Ripple is doing this because, as they have stated over and over again, they are hyper-focused on cross-border transaction settlements. However, other companies can develop API’s (application-programming interfaces) using the XRPL that focus on other use-cases. Ripple recognizes that for the XRP ecosystem to be healthy other entities and organizations must play a part in that ecosystem. While, yes, this could give the illusion that Ripple is working to increase the price of XRP and thus the expectation of “profits” from XRP, Ripple has made no promises or guarantees that its efforts on cross-border transactions or that the efforts of others will produce any upward price movement of XRP.

The Success of XRP Requires the Efforts of Ripple Labs and Others

Well, yeah. Honestly, I am confused by Coffey’s complaint here. He makes the point that Ripple has taken the lead in developing the XRPL and that they hold about 60% of all XRP created. That said, he is wrong to state that Ripple created the 100 billion XRP. Instead, the XRP were created and gifted to Ripple for use as it developed the XRPL. It cannot be claimed that Ripple created 100 billion XRP “out of thin air” when Ripple was not the creator of those XRP. Ripple is like any other person or entity who has received XRP as a gift (tip?) from someone else who holds XRP. Otherwise, any person who has received XRP as a gift (tip) could be considered as a “creator” of XRP, which is ludicrous.

Coffey is trying to make a similar point that the SEC made in the DOA report. The SEC’s DAO report states:

The DAO’s investors relied on the managerial and entrepreneurial efforts of Slock.it and its co-founders, and The DAO’s Curators, to manage The DAO and put forth project proposals that could generate profits for The DAO’s investors.

Coffey begins this section of his complaint with the sentence “Lead Plaintiff and the class have entirely passive roles vis-à-vis the success of the XRP Ledger and XRP.” They key here is that this is the role Coffey chose to take with XRP. As with anyone else, he has the opportunity to use the open-source nature of the software and begin contributing to the XRP ecosystem. That said, I realize many individuals who own XRP at this point probably make this same choice, however, that does not change the fact that it is still a choice. I think of Wietse Wind (@WietseWind on Twitter) and his contributions to the XRP community. Instead of being a passive holder of XRP he has chosen to develop various apps that utilize the XRPL for the benefit of the community. Additionally, Wietse and numerous others participate in the continuation of the XRP community by running validators and nodes, helping to ensure that if Ripple (the company) ever went away, the XRPL and XRP would survive and thrive. And that last part is key: if Ripple went away the XRPL and XRP would be able to continue operating because of the decentralized nature of the XRPL and the efforts of other developers in the XRP community. A recent example is provided by a company called Data443 Risk Mitigation, Inc., based out of Raleigh, NC. This company began as a XRPL Validator and has since begun using the network for General Data Protection Regulation (GDPR) compliance mandates through its own API available for companies that use distributed ledger (DL) technology to store private information. This latest example, and many others, prove the success of XRP is NOT reliant upon Ripple or any other single developer. Rather, whether XRP is utilized in a commercial form will be determined by the combined efforts of the XRP community.

XRP and DAO are completely different constructs. XRP was in no way created to allow those who hold XRP to “create a profit” just by holding XRP through the managerial efforts of others. XRP is designed to make cross-border transfers capable at much faster speeds versus technology that is currently available. Yes, an individual or a business can purchase and hold (HODL) XRP, but that does not change the function of XRP. Coffey is trying to say holding 1 XRP is like holding 1 share of Disney, where the value of 1 DIS share is determined by the profits generated by the managerial efforts of the Disney leadership team. By owning 1 XRP what company, entity, or developer does one acquire the right to profit from? There is not one. However, anyone who owns XRP could benefit by an appreciation in price due to XRP adoption and utility which is being driven by Ripple and others within the XRP community.

XRP a Commodity?

Rather than being a “security” and held to the standards of the SEC, a Federal judge recently ruled that “virtual currencies like bitcoin can be regulated as commodities by the U.S. Commodity Futures Trading Commission.” The CFTC determined that “virtual currencies” are commodities in 2015. That said, in the ruling above, the issue was fraud based on “trading advice” about digital assets and misappropriation of funds from trades, specifically related to the operations of Coin Drop Markets. With this ruling, the precedent has been set that digital assets are commodities and fall under the purview of the CFTC rather than the SEC, except when ICO’s are involved.

The above mentioned ruling also deals with a company defrauding its customers which IS a major concern in the digital asset environment. Anyone who is contemplating purchasing a digital asset should ensure that the asset is compliant with the SEC (for ICOs) and the CFTC before making a purchase. Additionally, purchasers should know who is supporting the digital asset they wish to purchase. Are the developers clearly known? Is there a company (or multiple companies, in the case of XRP) supporting the asset and the network? How is the network controlled? Can someone gain a majority control of the network and cause double-spend issues like have happened this past week with three digital assets?

But Who am I?

No one, really. I am someone who hodl’s XRP and enjoys researching the digital asset environment. I have taken many classes on business law and securities law while working on my B.S. in Business and Accounting and my first Master’s in Accountancy, but I am no expert. There are those who are, though. For example Michael Arrington, founder of Arrington XRP Capital, used to practice corporate and securities law. His tweet below explains his thoughts on whether XRP is a security:

And Arrington has staked tens of millions of dollars worth of XRP on not being a security. Not only Arrington, but other Ripple partners, too. Western Union, MoneyGram, et al, would not have invested the capital to deploy xRapid (Ripple’s enterprise solution that utilizes XRP for cross-boarder transactions) if they, and their attorneys thought that XRP would be deemed a security.

A recent article explains that “the SEC is holding internal talks regarding whether certain cryptocurrencies should be called securities. There are little details about these talks, but it is known that regulators have held the talks on May 7.” Additionally, the former head of the CFTC under the Obama administration is quoted as saying, “he would refer XRP as a ‘non-compliant security’ as a result of its distribution structure.” However, both Tom Channick, Ripple’s Head of Communications, and Cory Johnson, Ripple’s Chief Market Strategist, are both on the record stating that XRP does not meet the guidelines as currently defined by the SEC and the Supreme Court. Based on the information available, I cannot help but agree. It appears we have our answer to the million dollar question.

XRP FUD Bingo

Would you like to learn a little more about the truth of XRP? A new website fudbingo.com has gone live with answers to questions that are frequently asked about XRP. And yes, they even answer the “security” question.

Until next time…stay strong XRP Community, and HODL.

 

If you would like to make a donation:
XRP wallet: rPEPPER7kfTD9w2To4CQk6UCfuHM9c6GDY Tag: 1577
Or, use the XRP Tip Bot on Twitter, @bigbuckor.
Thank you in advance!

 

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Ripple: Fast Company

I was reading the March/April 2018 issue of Fast Company recently and the “From the Editor” article caught my attention. The title of the editorial is “Lessons of Innovation for 2018”. In the editorial summary Robert Safian highlights a recent visit he made to Apple Park, Apple’s “new spaceship-like headquarters in Cupertino” California. Safian hadFast Company many positives to say about Apple, Tim Cook, and the products Apple makes and sells. Safian made a couple of interesting comments that struck a chord with me. First, “While many outfits aspire to emulate Apple’s system, it’s the company’s adaptability that truly sets it apart,” and second, “Apple’s culture combines intense effort, high standards, and a willingness to forge new paths, even if those paths may threaten the company’s existing products.” The whole time I am reading this I can see the exact same comments being made about Ripple.

Regarding the first comment about adaptability, Ripple has had its own wallet, had started Codius, then shelved it only to restart it again, built software (xCurrent and xVia) that helps open liquidity corridors that can then be filled with a new products, xRapid, which requires XRP. And now there’s speculation about xPool and what it might entail. Ripple has been very sensitive and adaptive to the needs of the market and has worked to ensure they are the “anti-peanut butter” company (I wonder if Ripple serves peanut butter at it’s headquarters….). Brad Garlinghouse, while a Senior Vice President at Yahoo! said,

I’ve heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular….I hate peanut butter. We all should.

Ripple’s focus has been perfectly clear: they are trying to fix the multi-trillion dollar problems of time and cost for cross-border settlements.

On the second comment, Ripple has proven itself to be extremely focused on this core problem of cross-border transaction settlement. That said, it has also begun to recognize the need to build out core products that support and expand the Internet of Value (IoV) by restarting projects like Codius and being willing to sign deals with startups like Omni while its senior officers invest. Omni doesn’t focus on the core of cross-border transaction, but neither does Money Tap. However, just because Ripple’s focus is on cross-border payments doesn’t mean others cannot help build out the part of the IoV that focuses on retail use. David Schwartz, Ripple’s Chief Cryptographer, stated on Twitter that he gets uncomfortable when Ripple speaks for XRP and that Ripple is only sharing its vision for XRP as those in the bitcoin community do for bitcoin. In the end, Ripple’s goal is to drive value for the billions of XRP they own….that’s important to remember.

The rest of the article focused on thirteen lessons that can help guide everyone through the technological innovations coming in 2018. Ripple was not mentioned….anywhere. Yet every point is a point that has been touched on by Ripple.

#1. Don’t Look Down… The article says, “Apple doesn’t obsess about its stock price.” Instead, Cook says that focusing on each near-term quarter “distracts from long-term strategies and investments that are actually the source of Apple’s success.” Brad Up DownGarlinghouse has taken a similar approach with the price of XRP (Ripple stock is currently not publicly traded). He states that he is “not focused on the price of XRP over three days, or three weeks, or three months. I’m focused on the price of XRP over three years and five years.” Apple, the article continues, “is always looking out, toward the future…” And so is Ripple.

#2. …But Watch Your Step. This next section mentions that Alphabet and Facebook are “absent from this year’s list” because they “both, in different ways, found themselves over their skis this year – and stumbled.” Ripple must be careful with its strategy and vision or it could end up allowing another company utilizing decentralized ledger technology (DLT) to out maneuver them. Look at Bitcoin. It was hailed as a way to bring down the banking system and a way for the “little guy” to control his money outside of “the system”. Now, Bitcoin is not hailed as an operational currency so much as a “store of value.” If not careful, Ripple, and XRP, could find themselves removed from the spotlight to the dump.

#3. Responsibility is in the Mirror. “Every business can be a platform for cultural impact, and not simply through soloed corporate social responsibility programs. Patagonia has had an exceptional year—financially, as well as in the realm of public opinion—because it has leaned into environmental activism.” Ripple has set itself, and its technology, as the anti-bitcoin when it comes to environmental issues. There have been articles posted ad nauseum speaking about the electricity needed to run Proof of Work (PoW) and Proof of Stake (PoS) networks. The RippleNet is able to complete transactions faster, less expensive, and using a fraction of the electricity that PoW and PoS networks use using a consensus model for deciding on which transactions to include in a block and closing that block.

#4. Transparency isn’t Radical. “Why would a company willingly disclose its profit margin on each item it sells? Because Everlane isn’t embarrassed about what comsumers will find out, and that puts pressure on everyone else to be more open.” Ripple has been open and honest about is vision and strategy, even to the point of “allowing” the world to see how much XRP is sold in a given month from each escrow because the transactions can be seen on the public ledger. While we all wish we knew more about Ripple’s partners, those announcements will come as both Ripple and their partners are in a position to make those announcements together. However, Ripple’s strategy, technology, and use of XRP is open for the world to see…putting pressure on everyone else to do the same.

#5. Diversity is Opportunity“Marvel Studios has reinforced its leading position by betting on new kinds of heroes. Netflix has made it a priority to appeal to kids in Bangkok on motorbikes.” Ripple is not just focused on one piece of enterprise software to build out the IoV and ultimately drive use for XRP. Instead, they have positioned themselves to use xCurrent and xVia to drive use for xRapid. And, we are now just learning about a potential new feature, xPool. While there is much speculation surrounding what xPool is, there is no doubt that it will help fulfill Ripple’s vision and be a core part of the strategy to drive XRP utility and price.

#6. Momentum is Power. ” Apple is hardly the only tech giant to benefit from an integrated ecosystem….China’s Tencent, already a dominant player across chat, media, finance, and more, experienced 59% growth in revenue.”  Ripple has built up a lot ofsnowball momentum coming into- and in the first part of this year. First, the company has been building out its talent network with recent hires Cory Johnson and Tom Channick. Additionally, Ripple has begun a “marathon” on partnership announcements since the beginning of the year. Garlinghouse recently stated that Ripple is signing up, on average, more than one bank per week. Momentum is definitely on Ripple’s side.

#7. Soloists Still Stand Out. “Spotify’s focus on music has so far fended off even rivals like Apple, with revenue up 52% and more than 140 million active users globally. DJI has turned drone making into an art. Compass Group has amassed enough heft in the food-services business that it is changing what we eat—for the better.” The point? Ripple’s focus on removing friction in cross-border payments is exactly what it should be doing (remember, anti-peanut butter). Ripple should not try to be everything to every person or entity out there. Yes, XRP can solve a lot of problems, but Ripple’s focus on cross-border transactions will allow them become more than just SWIFT 2.0.

#8. The Expected can be Unexpected. “Sugarfina is redefining the idea of the candy store, while Diamond Foundry is disrupting jewelry by taking man-made diamonds mainstream. Even our sullen acceptance of traffic jams is being challenged by Waze.” And yes, money can be sent from California to London faster than getting on a plane and flying it there, when Ripple’s products are used. Even SWIFT is trying to play catch up because they did not expect the disruption that could be caused by distributed ledger technology. Ripple is ahead of many other digital assets, too. While many have white papers and present possible use cases, Ripple has done more than that by executing its plan and signing on actual partners who are using its products, thus building out the IoV and driving XRP adoption and price.

#9. Data Science is for Everyone. “Math geeks and tech firms aren’t the only ones deploying data in novel ways. Rover analyzes cues from its community to find better matches for pet care. Cava is injecting new efficiency—and joy—into the restaurant business. Syapse is taking cancer care to the next level, saving lives.” And moving money across borders is faster, cheaper, and allows for full disclosure on a public ledger due to the way data is packed and moved, thanks to Ripple.

#10. Artificial Intelligence is Everywhere. “The machines haven’t taken over, but they are enabling new activities,…” Ripple’s use of nodes and validators reduces the time to present transactions, process them, and settle them to mere seconds. What currently takes SWIFT days to complete with its antiquated systems can be done in 3-5 seconds with Ripple.

#11. Mobile is Still Expanding. Ripple has partnered with SBI to help build MoneyTap, a “groundbreaking smartphone application” that will “allow customers of the [Japan Bank] consortium to settle transactions instantly” proving that “the power of blockchan can be applied to solving domestic payment issues as well.” This app will be going live in the autumn of 2018, according to Ripple.

#12. Money Talks. “As trite as it is true, dollars dictate action. Which is what makes a wave of new efforts to fix broken funding models so promising. Social Capital has taken aim at venture capital, while the Ford Foundation is going after philanthropy. The folksMojaloop at GiveDirectly are putting millions behind a test of universal basic income.” Ripple and the Gates Foundation are working together to create Mojaloop, an open-source software, by creating “a real-time, interoperable payments platform on a national scale to reach the world’s poor with essential financial tools….Mojaloop can be used to connect customers, merchants, banks, providers and government offices across a country’s economy, accelerating progress toward a truly inclusive economy.”

#13. Keep the Faith. “We all have good days and bad days, moments of adulation and despair. What allows innovative organizations—and their leaders—to keep driving forward is the hope that tomorrow will bring even more satisfying, fulfilling achievements.” It seems dark days are upon the price of XRP right now and everyone is looking at the price of XRP today instead of, like Garlinghouse, looking three to five years down the road. The fundamentals are strong, as pointed out by this blog by Hodor. I implore you to keep the faith in what Ripple is doing. In my last blog I spoke about how Ripple is building out the IoV, one partner at a time, and that the IoV is driving xRapid and XRP adoption. Stay strong…Ripple is a “fast company” deserving to be on anyone’s list of innovators for 2018 and beyond.

Standing Together

On that note, we are all stronger together. We must work together and support one another to help keep the XRP community positive and standing tall. Redwood trees can grow as tall as 379 feet (the tallest currently standing), longer than a football field. However, their roots only go down about five or six feet. How can a tree over 300 feet tallRedwood Grove survive wind and storms when its roots are so shallow? The root system of Redwood trees all intertwine together, as the roots from one tree reach out over 100 feet. This system forms a mesh, or web, of roots under the ground that help each tree support its neighbors. This is why you never see a Redwood standing by itself…they always grow in groves so they can support one another.

The XRP community is like a Redwood grove…none of us can stand alone. We all have our part to play in supporting the community and each other. We must realize that we need each other if we are going to stand tall and strong against the winds that blow in these markets and in life. I do not wish for prices to go down so “I can buy more” any more that I wish something negative happen to someone. That goes against everything Ripple and we as a community are trying to build. At the same time, I realize prices fluctuate and life happens. When prices go down we need to remind each other of the fundamentals behind XRP and “watch each other’s back” inside and outside our community. Otherwise, as a community we will be blown over by the prevailing winds. Remember, Ripple is not only a good company, it is a “fast company” with roots extending out like a web helping to support the entire XRP community….our roots brings us together.

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Ripple’s World Wide Web

I grew up enjoying the book Charlotte’s Web by E. B. White. I have also read it to my children, taking them back to a time where things were a bit more simple and a barn CharlotteWebfull of critters work together to save one of their own.

Many people read the story and think it is about Wilbur, the pig. But it’s not. He may be in the spotlight and get all the notoriety, but the story is about Charlotte, the little spider who set out to help her piggy friend survive and thrive in a world that would rather see the pig dead than alive and doing well. Charlotte was soft-spoken, yet persistent in her efforts to make sure that everyone knew that Wilbur was “some pig”, “terrific”, “radiant”, and “humble”.

Wilbur did not start off as a terrific, radiant, humble animal who found his label as “some pig!” Instead, the words used by others to describe Wilbur in the beginning were “runt”, “small”, “weak”, “will never amount to anything”, and as something that needed to be done away with. Unfortunately, these words kept Wilbur in fear until the words on Charlotte’s webs gave him the confidence he needed to become what she wrote he was. He questioned his own abilities until others started telling him he was more than just a “runt” that needed to be done away with.

How do Spiders Build Webs

Before I continue I need to give a caveat here: I do not like spiders (except for Charlotte, of course!). Maybe it’s from watching Arachnophobia back in the 90’s, or other films where giant spiders try to kill everyone. I don’t know…the little monsters look scary to me, and if they are big enough that you can see “fur” or hair on them, then I am obviously way too close. That said, have you ever watched one build a web? It is truly awesome to see.

I live in the country and, unfortunately, have a ton spiders running around the house, the barn, and the cabin. As much as I don’t like them, I can watch one build a web with fascination. A spider web usually starts with a series of “hub strands” that come together in the center made of silk that is said to be stronger than steel. The spider will connect all these little “hubs” together forming what is a very small, circular web, that I would say is the “core” of the web in the middle. From there the spider will go to the outer edges and begin connecting all the “hub strands” together at their furthest distances, going from one strand to the next, slowly moving closer and closer to the center, making a massive spiral out of the silk she lays, which we call a web.

As beautiful as they are, I cannot stand getting caught up in one. As a tall person I always seem to find my face covered in a web as I walk through the woods or even in the dark on my front porch. Once you get covered in one it is almost impossible to get out of it. I know I walk around pulling at, what probably seems to others, imaginary strands that won’t let go of my body. The spider’s web worked as it should: it caught me and has made it very difficult for me to escape. Any web that is built should be just like a spider’s web: made from super-strong materials, broad in coverage, and able to trap anything that it catches.

The World Wide Web

The internet as we know it today started off as a package switching network called Advanced Research Projects Administration Net, or ARPANET. ARPANET was funded by the U.S. Department of Defense and was also the first network to implement TCP/IP. Both ARPANET and TCP/IP “became the technical foundation of the Internet” according to information from Wikipedia.Arpanet_map_1973

ARPANET was established in 1969 with the first message being sent through it on October 29. Look at the image to the right: it is fairly easy to see how the NET connected together in what is visually a non-complex pattern, four years after being started.Arpanet_logical_map,_march_1977

Just a few short years later, it is easy to see how the NET had grown not just in hosts on the network, but how those hosts connected and communicated with one another. Slowly, a web was being built that came to be known as the world wide web, or what we call “the internet.”

The internet has grown in complexity, and availability, throughout the years. A merchant in China can sell its goods to a buyer in the United States without either party having to be in the same location as the other. At the same time, friends in Australia and the United Kingdom can communicate via email, sending important information to each other almost instantly. And, more recently, the advent of social media such as Facebook, Twitter, Snapchat, WeChat, etc.,  allows users to view pictures, videos, and other content posted by their friends and to send messages to each other through instant messaging apps, no matter where in the world those individuals may be located. The world wide web no longer looks like a few interconnecting hosts, it is a living network composed of everyone person, business, university, and government who participates.

Opte ImageThis is what the internet looks like today (this image was created by Barret Lyon of The Opte Project). A complex web that covers the globe, connecting people, businesses, governments, and other points of data together, allowing almost immediate access to information anywhere by anyone. The center of this web is its core, with “hub threads” extending to the outer reaches, but all connected by the strong hardware and software that allows the web to entangle and hold on to any person, entity, or information that finds its way onto (into) that web. The world has built a spider’s web for information, can the same be done for money and value?

Building the Internet of Value

Ripple executives have stated repeatedly that they are building the internet of value. What does this mean?

In a previous blog I discussed some of the attributes of the system currently used to send value across the globe: SWIFT. When looking at the Internet of Value, SWIFT could be analogous to the ARPANET. While SWIFT’s global penetration is more than what the ARPANET had, SWIFT relies on outdated technologies that cause values to transfer slower than the Encyclopedia Britannica across the web using a 14.4k modem. It’s time for a new protocol to transfer value across the globe and Ripple has already built the core of that world wide web of value: the InterLedger Protocol.

The InterLedger Protocol (ILP) was designed “for efficient payments across payment networks,” according to a Ripple Insights article titled “Implementing the Interledger Protocol in Ripple.”   The article goes on to state:

With Ripple and ILP, banks can leverage unlimited scalability and complete transaction privacy.

Today, banks are deploying Ripple’s solutions for Cross-Currency Settlement and FX Market Making. When those solutions are ILP-enabled, banks won’t have to change much – market makers will still hold accounts at their banks and they’ll establish relationships with the other banks and market makers with whom they want to transact. ILP enables transactions across any number of different ledgers and exchanges using cryptographic escrow and a specialized two-phase commit protocol.

ILP will also enhance the reach and impact of the Ripple Consensus Ledger (RCL), which serves as the root ledger for the digital currency XRP. Digital currencies continue to play a critical role in the burgeoning Internet of Value. As always, our focus is to make XRP the best bridge asset for market makers providing cross-currency liquidity.

Ripple, like a diligent spider spinning its silk, has built the core of the Internet of Value. What about the rest of the web?

Linking Up with Competitors

In the Internet of Value, competition is not a bad thing. Think of the internet. What would it look like and “feel” like if there were only one online search company available? What if there were only one social media company available to use? Only one place where you could buy retail items? Only one place where you could look at photographs? Only one place where you could buy a ticket for a movie, or an airline ticket? Or, only one place where you could hire a car and driver to take you where you need to go? What if…? The internet would be a pretty boring place and, I dare say, it would not have the global reach it does today. Instead of the beautiful image by The Opte Group, we’d be looking at something similar to the ARPANET.

The same can be said for the Internet of Value. If a bank wants to develop and use its own ledger technology, so be it. The ILP can connect that bank to the rest of the Internet of Value providing one more point to build liquidity from. And once a part of the ILP, they can easily begin using XRP as their source of liquidity settlement.

And, it is the ILP that xCurrent runs on, essentially opening new liquidity corridors every time someone joins the RippleNet. How many possible liquidity corridors are there? The formula to figure this out is n*(n-1)/2, where n equals the number of participants on the network. For this example, we will use the number 100 (since we know we have at least 100 banks signed up as Ripple partners). 100*(100-1)/2 = 4,950 possible liquidity corridors, or silk spider threads, connecting the users of RippleNet to each other. Let that sink in a moment. If we add one more bank to the network this week, the number of possible liquidity corridors rises to 101*(101-1)/2 = 5,050. Once there are 200 banks, the number of possible corridors is 19,900. The world wide web of payments, the Internet of Value, is being built right before out eyes.

How fast is the network growing? This is the exciting news! Brad Garlinghouse, CEO of Ripple, stated in an interview this week that there are “Well over 100 customers, ranging from some of the biggest banks in the world, to payment providers, the Western Unions, the MoneyGrams, LianLian Pay out of China.” When asked how many total partners there were, Garlinghouse stated he did not know for sure, but that “We’re signing up more than a bank a week now.” Think about what Garlinghouse said and think about how many partnerships get announced regularly. Then realize there are many more partners that have not been announced.

I would like to share with you a couple of websites that help show the various Ripple Partners. The first one is called The Rippening (by @jdimstrnate on XRPChat or @thezerpening on Twitter). This website is still underdevelopment, however, they are building out the Ripple partnership list and you can submit a Ripple partner for inclusion, by providing the source, on the submission form at the bottom of the page. The next one is called The Zerpening (by @Callandt on XRPChat). The Zerpening provides some interesting statistics about XRP, as well as which partners are using/piloting XRP specifically. If you would like to see what the RippleNet “looks like” as it processes transactions, then you have to look at A Living Ledger. This website shows ledger nodes as they process transactions live on RippleNet. The beauty of seeing the web of transactions being spun by RippleNet is almost too much for words. These websites, and others,  are trying to track the expansion of the RippleNet as it develops into the Internet of Value.

The ILP can connect the ledger of any bank, whether they are using fiat for transfers or a digital asset including XRP, to all the other banks in the network, building out a beautiful web where value can be transferred from one point to another, even if a direct trust line does not exist, using the path finding algorithm built into the ILP to search across the “silk threads” that have been used to connect one bank to another.

A Web of Announcements and Speculation

A recent announcement by BBVA Compass shows just how strong the RippleNet web is. BBVA Compass’ CEO stated that their test of Ripple tech “went very well” as they begin exploring further use of the technology. Just like being trapped in a spider’s web, once you begin using RippleNet, it is difficult to get away.

Another announcement that indirectly affects Ripple is between WorldPay, a “global leader in payments,” and LianLian Pay, “one of the top mobile payment service providers in China.” LianLian Pay recently joined RippleNet, using xCurrent, “to receive real time, cross-border remittances, invoice payments and e-commerce payments,” according to Ripple. Using LianLian Pay, “Worldpay customers can expect access to pay outs in CNY and enhanced deposit capabilities, on top of the 18 settlement currencies already available via a single technical connection.” These types of examples are exactly what the Internet of Value is designed to make a reality. LianLian is able to bring more liquidity to the markets they serve, thus increasing the value of RippleNet. While this is pure speculation, I would be willing to venture that WorldPay decides to become a Ripple customer once they see how efficiently they are able to move money through LianLian.

Many people have been asking about more “retail” use for XRP. Again, our very own @WietseWind on Twitter, has developed an app that allows for businesses to receivesearch-candy-logo-small payment in XRP. The first business to use the new app and accept payments in XRP is SearchCandy, a Search Engine Optimization company based in the U.K. Their website states:

PayPal is the dominant payment provider in the SEO industry for small payments, and due to this we lose a percentage of our income as a business to PayPal fees, especially when clients decide to use their credit cards.

We have also seen how powerful crypto, and specifically Ripple XRP can be as a method of payment.

XRP transactions complete in just seconds/minutes, meaning we receive your payment quickly and securely – and don’t lose ridiculous amounts of money on currency conversions or expensive transactions fees.

A company like SearchCandy can become a liquidity provider, if they choose to, based on how they use or hold XRP. No matter, SearchCandy has become part of the RippleNet and is now connected to and part of the Internet of Value.

Additionally, Brad Garlinghouse has been overseas spinning the silk thread of Ripple to anyone willing to listen. We have heard him compare Bitcoin to Napster, talk about regulation, and how banks are jumping on board with adopting RippleTech. Garlinghouse & Co. has become our very own “Charlotte”.

To understand the importance of RippleNet and the Internet of Value, I wrote a previous blog about how xCurrent (which rides on the ILP “rails”) is helping to build liquidity for XRP. The Internet of Value is being built to drive demand for XRP, one company, one thread at a time.

Looking at the Web

After all this, we can see many similarities between Charlotte’s Web and Ripple and XRP. XRP is our favorite little “runt” and is “the banker’s coin” that “no bank will ever use!” The team at Ripple is our “Charlotte” willing to do whatever it takes to save their “friend in the barn.” XRP gets the spotlight, but it is the work of Team Ripple that is placing that spotlight on the “runt”. The web they are spinning, the Internet of Value, has begun telling the world that little ol’ XRP is worth keeping around. “It’s fast!” screams one web. “It’s less expensive!” says another. “Companies are using it!” And just like Wilbur, XRP has begun to respond in a positive way to the words being written for all to see. Ripple is building a world wide web of value for XRP. Are you ready to connect to it?

On a Final Note

I realize not many people actually know who I am. While I have my serious times, I also enjoy having fun and, yes, even being a bit silly at times. I stated before, I am a big kid at heart.

A few weeks ago I posted a little poem about XRP based on some fun that was going on in the XRPChat forums. Since thenThe_Beverly_Hillbillies I have been asked if I could write something more.

I was mowing the yard for the first time this year just a couple of weeks ago and I began to think about ways to “word sleuth” with XRP (I had a lot of time. It took me six hours to mow the six acres I normally cut). Well, I came up with something quite ridiculous, but funny. I call it “The XRP Hillbilly” based on “The Ballad of Jed Clampett” from The Beverly Hillbillies. Please watch this video and have some fun! And yes, that is me singing, so please know this is not professional.

Y’all come back now, ya hear!

If you would like to make a donation:
XRP wallet: rPEPPER7kfTD9w2To4CQk6UCfuHM9c6GDY   Tag: 1577
Or, use the XRP Tip Bot on Twitter.
Thank you in advance!

 

Ripple Partners and XRP Price

There has been a lot of speculation lately about what impact certain companies who have partnered with Ripple can have on the price of XRP. Let’s be honest, everyone who has anything invested in XRP wants to see the price of XRP rise. In a small way, all current XRP investors could be viewed as mercenaries: we are motivated to take part in the asset by the desire for private gain. Those in the #xrparmy are willing to get a little bloodier than the rest. However, all XRP investors have the same common goal: a higher price for XRP.

The Impact of Partners

On February 26, 2018, I responded to a thread in the XRPChat forums about the potential impact of a Western Union (WU) partnership if WU uses xRapid/XRP for all of it’s customer-customer transactions. I believe an analysis of WU’s numbers and potential impact on the price of XRP will help XRP investors see just how much one partner can have positive momentum for XRP. Where assumptions are made, I will specifically state those assumptions.

Let’s look at a summary of WU’s numbers from 2016:

Western Union

I stated in my original post in the XRPChat forum that for this analysis I am not concerned about WU’s revenues (though, I made the argument there for the cost savings WU could see by using xRapid). I want to know what is potentially available to ride the xRapid rails and see XRP being used.

#1. The very first item that everyone should see is that WU had $80 billion in principal money moved between customers, $72.5 billion of this amount was cross-border transactions, according to WU’s 2017 10k . This is a huge sum of money. There are going to be those who say that amount is not much, but I hope to prove to you that $72.5 billion moving across xRapid is a big deal.

#2. 268 million customer-customer transactions. This is a LOT of transactions. This puts WUs average customer-customer transaction at approximately $300.

#3. WU completes transactions in 130 currencies. In a previous blog I spoke about how there are 180 circulating currencies recognized by the United Nations and argued that for xRapid/XRP to be successful there would need to be fiat/XRP pairs with a vast majority of those currencies. WU, alone, brings 130 of those currencies to RippleNet. This has significant implications for XRP/fiat liquidity and further use of XRP by banks and other FIs. Please do not let the importance of this one fact slip by you.

#4. WU has Direct to Bank money transfers available in 50+ countries. WU already has the infrastructure necessary to link their client platforms to banks in over 50 countries.

#5. WU has over 550,000 Agent Locations. We could call these “little banks” that are a gateway to fiat liquidity entering into the Ripple system.

#6. WU has over 100,000 ATMs and customer Kiosks. Once again, an important note of available infrastructure for liquidity corridors.

What do these numbers look like for 2017? Published on February 22, 2018, WU’s 2017 10k states:

  1. $81.8 billion in customer-customer transactions (2% growth vs. 2016)
  2. $74.5 billion in cross-border transactions (1.4% growth vs. 2016)
  3. 275.8 million customer-customer transactions (2.8% growth vs. 2016)

What impact can WU have on the price of XRP? Assuming WU were to use XRP for all of their cross-border transactions, we would divide $74.5 billion by 365 days in one year, and see that WU would provide an additional $204 million in XRP trading every day of the year. According to Live Coin Watch, as of this writing, XRP has just over $400 million in 24 hour trade volume, including the Korean exchanges. What impact would an additional $204 million in volume added to that $400 million be on the price of XRP? And this would happen every day, 365 days per year.

In my original post I argued that more people would transfer more money because the ease of use and less expensive costs that are expected with xRapid deployment. Look again at the example of cell phones. When cell phones first came out service coverage was not great, with most coverage being in larger cities, plus the phones and service were expensive. However, as coverage became available across the United States and the cost to purchase and use cell phones decreased, more people have started using them. Nearly every person I know has a cell phone (and has cut their land-line). Can you see this same possibility with the transfer of money across borders as the experiences becomes faster and less-expensive? Using cell phones as the example, could WU see transaction amounts grow to $100 billion? $150 billion? $200 billion? What does this segment look like when more people can send more money more efficiently for less cost?

Understand, this is “just” one company. This one partnership opens the RippleNet to 50 countries, and over 650,000 point-of-contact locations, providing liquidity in 130 currencies with a dollar value of cross-border transactions of $74.5 billion (in 2017). What if more companies use xRapid?

The Tip of the Iceberg

On February 28, 2018, Finance Magnates reported that Woori Bank of South Korea plans on using Ripple tech for overseas (cross-border) transactions. A Woori Bank official stated that using Ripple for cross-border transfers was “much quicker and cheaper than existing remittances…” Additionally, “Since the test results were good…Several banks, such as two or three megabanks and Internet professional banks, are pushing to introduce the practice.” This is exactly the news the Ripple community has been waiting for! Woori Bank is not a passive user of Ripple tech, they want others to use the tech too!

Also, on March 1, 2018, Ripple announced a new xRapid pilot with Cambridge Global Payments (CGP), “providing its 13,000 global customers with faster, cheaper, and more transparent cross-border payments.” Ripple reports that CGP “handles $20 billion in international transactions annually.” Ripple provides a peek behind the curtain with one of their next statements: “As Cambridge and more financial institutions begin to use xRapid to source liquidity…” With each xCurrent and xRapid announcement more liquidity is available to be transferred across the RippleNet. The issue of liquidity is slowly becoming a non-issue with Ripple products as the solution. If all $20 billion that CGP moves can be put on the xRapid rails, XRP will see another $55 million per day in XRP volume added to the WU numbers above (plus MoneyGram, IDT, MercuryFX, and Cuallix).

Understand, CGP did not just sign up with Ripple yesterday. There is a process of talks, presentations, tech meetings, regulations meetings, etc., that need to take place before someone can commit to even doing a pilot, and these events do not happen in a few days.

We do not know how big the “iceberg” of xRapid and xCurrent users are. All we know is what we can see. That said, there is obviously more we cannot see. Asheesh Birla, Ripple’s VP of Product, tweeted on February 15, 2018, that “We have more than enough interest in xRapid for the pilot/beta period. We are now working towards full production launch but experience and quality is top of mind for us.” Then he says, “Expect more details in the next month regarding dates.” Warren Paul Anderson, product manager at Ripple, tweeted about the CGP xRapid parternship, saying, “As product manager working at @Ripple on xRapid/ $XRP, it’s been incredibly rewarding to witness such market demand from so many experts in the global payments space!” (emphasis added) There are more companies using Ripple tech and specifically xRapid that we do not know about because of non-disclosure agreements (NDA’s). What we can see is truly only the very tip. Now we can begin to ask, “What if Ripple is able to start replacing SWIFT with xCurrent and xRapid?”

Not so Fast, SWIFTSWIFT Logo

Prior to SWIFT a messaging system called TELEX was used for international funds transfers, according to Investopedia. Unfortunately, TELEX was plagued with problems. These problems included, “low speed, [and] security concerns…” This sounds an awful lot like how SWIFT is being described today. With three- to five-day transaction times, the latest $1.8 billion “mega-fraud” with Punjab National Bank in India (while this was not an issue with the SWIFT messaging system, it does highlight how difficult it can be to track fraud with the SWIFT system, whereas RippleNet keeps a decentralized ledger of every transaction it closes), and admission of other hacks and security issues, SWIFT is beginning to look more like TELEX in a world where a better option exists. Though SWIFT has developed its Global Payment Initiative (GPI), GPI only speeds up the messaging service. There is still the time associated with settlement and counter party trust, all of which xRapid solves.

Investopedia explains that SWIFT gained rapid acceptance and that “Within three years of introduction, SWIFT membership had increased to 230 banks across five countries.” How many partners does Ripple already have? How many Ripple partners have been announced in the last few months? How many countries do those Ripple partners operate in? WU is in 50+ countries and is just one company sending cross-border transactions. Like TELEX before, an option exists that has already fixed the issues that are dragging SWIFT to the slow lane: Ripple.

What does 10% of SWIFT Transactions Look Like?

Imagine a world where Ripple is able to garner 10% of SWIFT’s volume using xRapid. Honestly, as Ripple tech gains acceptance I believe this will be much higher (who still talks about TELEX?). However, we are going to use 10% across the xRapid rails, leaving the remainder up in the air, at least for the moment.

According to the U.S. Department of Treasury, SWIFT transfers “nearly $5 trillion worldwide each day.” This equates to $1.8 quadrillion per year. Let that sink in a moment. 10% of $1.8 quadrillion is $180 trillion, per year. 10% of $5 trillion, is $500 billion, per day.

According to Coin Market Cap  January 4, 2018, saw $8.103 billion in XRP trade volume and the price per XRP reached an all time high (ATH) of $3.84 (which includes Korean exchange prices). All this volume can be assumed to be mostly speculative by individuals who were experiencing fear of missing out (FOMO), not purchases for transactional use. Looking at these numbers, the ATH of $3.84 was reached with $8 billon of trade volume, however, the days and weeks leading up to, and since the ATH, have fluctuated wildly and without any consistency. As of this writing, volumes are about where they were prior to the major price increase of XRP during December 2018, yet XRP is holding steady around the $1 mark.

Imagine what the price can do with $500 billion in consistent, daily volume (excluding speculative volume). Now imagine what can happen if XRP is able to attract 20% of SWIFT transaction volume. 30%. 50%. And we haven’t even talked about CHIPS and FEDWIRE, nor have we spoke about the myriad of other uses where value can be transferred between two parties using XRP.

How Big is the Entire Transfer Market?

The below graphic is used by permission and was produced by Dario Suveljak, also known as Stedas (Follow him on Twitter and XRPChat. View his website here). This graphic provides an amazing visual showing just how “big” XRP and WU are right now compared to the rest of the global transfer markets. Obviously, XRP has some room to grow before investors ever see its full market potential reached.

xrp-vs-money-markets

Do you see the potential for growth for XRP? Do you think xCurrent customers can easily switch to xRapid (see JoelKatz’s comments here) and XRP gain more of the value presented above? What does this mean to you? What price do you see XRP reaching? And after all that, I would say there is still room for digital asset competitors to Ripple(think SWIFT vs CHIPS vs FEDWIRE).

Having said all this, there is something I need for you to do: please stop looking at the charts a million times every day. I know, I went through that phase myself. But I had to stop. XRP is not going to corner the entire global transfer market today, this week, month, or year. So take a break. Come back in a few days and check to see how XRP is doing. It is fun to watch it rise (everyone starts talking about “moons” and “lambos”…just give me my “cabins” and “Jeeps’), but social media loses its mind when the price drops. You will go crazy watching the price all the time. Step away, please. Ripple is playing the long-game with XRP. XRP investors should be playing the long-game, too. Remember, even at current prices, we have only seen the tip of the iceberg.

What Can You Do?

I put out a request for questions on Twitter that the XRP community might want to see answered. I have received several questions thus far but want to provide an answer to this one from @Abn_Stubby (and you should have received your XRP tip via the XRP Tip Bot on Twitter today!):

How Can I Help

Let me say that the answer is simple: stay off the sidelines. Stay involved in the communitySidelines: I am personally involved with XRPChat and Twitter. XRPChat is a wonderful community of individuals who enjoy talking about all things XRP, from the technical innovations to price speculations. Just so you know, there are some unique individuals on XRPChat. Those who introduced me to all things XRP include a royal chicken (@RegalChicken), a bull (@zenkert), an angry looking pickle (@PickleRick), a $50 dollar bill (@XRPto50dollars), and a Chewbacca (@Chewiecoin). Our fan favorite, Hodor, is on XRPChat as well as Twitter and always has great blogs and information for us to use!

On Twitter there is one “personality” who could be considered the “general” of the #xrparmy, Dr. T. Without “the Doc” I am sure my introduction into the Twitterverse would not be what it has been, nor would I know as much as I know now. Thank you!

Saying this, I want to encourage you to branch out of the social media spaces you have been a part of. Over time we start to see what we want to see and miss things we need to see. If we never look elsewhere and engage with others we will continue to see the things we always see as we have always seen them.

Next, research. Go to Ripple’s website and read/watch everything you can. I am not a tech guy, but I am striving to understand everything Ripple has to say about its products and XRP. Look up JoelKatz (David Schwartz, Ripple’s Chief Crytpographer) on YouTube and watch the interviews he has done. He will always give you more information than you could ever want! When Ripple announces a new partner, look them up. Find their website and see what the press has said about them. If they are a public company in the U.S. look up their 10K’s and 10Q’s filed with the Security and Exchange Commission. Read as many articles and blogs as you can and watch as many vlogs as you can. Then print or write out items of interest to you, pin them to a board, and try to find connections. Ask questions, search for the answers, then let everyone know what you have found. No one person knows everything about Ripple (unless your JoelKatz!). Together we can find out more and support the XRP community showing others the value we see.

If you can, I would also encourage you to set up a validator and become a part of the decentralization of the RippleNet. I have not done this yet, but I do plan on doing so as soon as I get some extra time to do so (I not only work full-time, but am finishing a second master’s degree this semester, too). There is a gentleman on Twitter, Wietse Wind, who has built a Docker container you can use to install Rippled on your hardware or using a cloud-based server such as Digital Ocean. Those who have used the Docker container say it is easy to set up. Here is a link to his website, too.

Finally, HODL. If you are not a trader, then just HODL. We know XRP prices can do three things: go up, go down, move sideways. Any one of those three happening should not be a surprise and should not cause any of us any anxiety. Put a game plan in place that details how you begin exiting XRP when the time is right for you. My plan will not be the same as your plan, and that’s okay. Figure out your end-game and help support the XRP community as we cheer our favorite digital asset down the field towards the end zone. There’s nothing like celebrating the success of a win with others who are as passionate about winning as you are.

 

XRP: What about Volatility?

I love roller coasters! I rode my first coaster at the age of 5 and still remember it to this day. The Orient Express at World’s of Fun in Kansas City, MO, opened my eyes to a world of thrills and excitement that I continue to enjoy. That first ride led me to parks and coasters from the East Coast to the West Coast of the United States. What makes roller coasters fun to me?

Orient Express

To answer this question I have to give you a little personal information. I am 6’6″ tall…and afraid of heights! I jokingly tell people that I get vertigo when I stand up. When I walk up to a roller coaster my knees get shaky, my palms start sweating, and my heart feels like it is going to jump out of my chest. I have to convince myself to get on this “machine of fear” even though I know I am going to enjoy the ride.

The pumping of my heart becomes stronger and stronger as I lock myself into the seat. I usually find myself saying, “Why did I do this?” as we begin the ascent up the lift hill. And then it happens…the track falls away and all I hear is my voice, screaming and laughing like a little five-year old boy on his first coaster, as the sky and world around me zoom past, up and down. Sheer exhilaration, that ends with laughs and smiles!

What is good for my inner child, though, is not good for digital assets. The ups are fun to watch and everyone speaks of “moons and lambos” (I am a “cabins and Jeeps” kind of guy, but to each their own). When the price falls, Chicken Little comes running out declaring the end of XRP and the “fact” that “Banks will NEVER use XRP!” These extremes can take place in a matter of hours. Volatility is spoken of as a major stumbling block to the adoption of XRP by major financial institutions (FI’s).

What is Volatility?

According to Investopedia, volatility is “a statistical measure of the dispersion of returns for a given security or market index.” Got it? For most, that is clear as mud. They also provide an easier definition to understand:

In other words, volatility refers to the amount of uncertainty or risk about the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

VolatilityThe digital asset markets are very volatile. In a few hours a digital asset can rise by double digit percentages only to fall back to where it was before the rise, or go lower. XRP is not exempt from these swings. The price of XRP reached an all time high (ATH) of $3.30 on January 4, 2018, according to Trading View. The price dropped to $.57290 on February 6, 2018. Between the ATH, the low on Feb. 6, another “high” of $1.22760 on Feb. 10, and the current price of $.95, the price has fluctuated wildly. This is volatility. In the span of a short period of time, one month, if an individual or an FI had purchased XRP at the ATH of $3.30 they would have seen a loss in value of 82.63%. XRP, like or not, is a highly volatile asset. This type of roller coaster ride causes digital asset users to rethink their implementation of digital assets due to the holding costs associated with volatility.

The Impact of High Volatility

Steam

2017 ended and 2018 began with businesses and other entities stating they would no longer accept Bitcoin (BTC) for a variety of reasons, including high volatility during the time of transfer. Steam, the gaming community site, posted a blog on December 6, 2017, stating they would “no longer support Bitcoin as a payment method on our platform due to the high fees and volatility in the value of Bitcoin” (emphasis added). They added, “Historically, the value of Bitcoin has been volatile, but the degree of volatility has become extreme in the last few months, losing as much as 25% in value over a period of days.” This statement was made before the market fall in January of 2018.

In an extreme case of irony, the North American Bitcoin Conference (NABC) announced they were no longer accepting BTC for payment just days before their conference because of “network fees and congestion.” At the time of that announcement, users were reporting transaction times for BTC in hours, if not longer. The day after this announcement, on January 11, 2018, BTC dropped from a high of $15,000 per BTC to a low of $13,000 within a matter of four hours, with another fall from $14,356 to $9,362 just a few days later. Evidently, the roller coaster of volatility the NABC was on was too much to handle, even though it is a “ride” they encourage others to take. The money lost due to volatility during transaction processing cannot be overlooked.

Does Ripple Address Volatility?

Ripple has not released a lot of information regarding how xRapid, the protocol that requires exclusive XRP use, works. However, they have released information regarding how xCurrent works and we can make the assumption that a transaction on xRapid will work in similar fashion to a transaction on xCurrent, possibly even better since XRP is native to the XRPL(edger) on which xRapid runs.

Ripple has released a video explaining how a transaction is settled between two banks using xCurrent. I need you to please stop reading and watch the video. Please come back once you have finished watching it.

Let me summarize what is said in the video:

A. xCurrent is made up of two components, a messenger layer for identification and the InterLedger Protocol (ILP) for funds settlement.

B. A transaction executes as follows:

  1. The translation layer parses the message and collects account information to initiate the payment, messaging with the Corresponding Bank and Beneficiary Bank for total fees and costs.
  2. Pre-transaction validation occurs. Compliance screening is conducted (KYC requirements), account verification checks completed, and payments are pre-validated to ensure availability, before funds are locked and moved.
  3. Cryptographic hold of all sourced funds (liquidity) across each ILP.
  4. Simultaneous settlement occurs across the ILP, insuring no settlement risk.
  5. A confirmation message is sent with showing the transaction is complete.

All of this happens in a matter of seconds. Need a real-time visual for how fast all this happens? Here is Gatehub’s Ripple Live Network Transactions page. Notice the Ledger Index on the left-hand side of the page. Approximately every 3 seconds a new ledger is created with the number of transactions on that ledger listed below. You can see the transactions execute, from start to finish, in the center of the page. If you look (quickly!) you can also see what is being settled: XRP/USD, JPY/XRP, etc., and whether the transaction is a trade or payment (those have been the two I have seen).

The “Secret Sauce” – It’s Atomic!

Secret Sauce

Putting this together, do you see the “secret sauce” Ripple has built into the RippleNet? Can you see how Ripple has solved the issue of volatility for XRP? Using xCurrent, and presumably xRapid, to settle transactions, Ripple has built in a process to mitigate volatility no matter if the price is going up or down instead of staying steady.

Look again at numbers 2, 3, and 4 above. Before any value is committed to the transaction, the sourced liquidity is verifiable on both ends of the transaction (#2) using Ripple’s built-in decentralized exchange. If the liquidity is not available, the transaction fails. Unlike in correspondent banking, with Ripple a partially completed transaction cannot be “stuck” because it fails at some other point-of-process. If #2 is completed, here is the key, all the liquidity is cryptographically held at a specific value (#3) until it is released at that same value (#4) on both ends of the transaction, simultaneously, and within mere seconds. It’s called an “atomic” transaction. Let me give an example:

Say I am an FI in the U.S. and I need to send $1 million USD to China (which, as of this writing would be 6.34 million CNY) and I want to use XRP. Using xCurrent, I can set up the transaction, the USD/XRP on my end sourced, the XRP/CNY sourced on the receiving end (#2) (this happens through the built-in exchange mentioned above). Once the liquidity is sourced and available, all the funds are cryptographically escrowed (#3), and then settled (#4) simultaneously. Combined, numbers 2, 3, and 4, constitute what is called the “atomic” transaction, and the effect is truly explosive! Ripple states it this way: “A single Payment transaction in the XRP Ledger can use multiple paths, combining liquidity from different sources to deliver the desired amount. ”

USD to CNY, settled using XRP in the middle, in seconds, at the value assigned to the transaction before the funds transfer. The takeaway: I send $1 million, they get 6.34 million CNY no matter what the price of the assets being exchanged is doing.

The volatility roller coaster, the “machine of fear,” has become a merry-go-round.

In my previous post I showed how every xCurrent partnership opens a new corridor where liquidity can be built, leading to XRP adoption. We now see how Ripple was prepared to tame the “machine of fear” the markets call volatility. Instead of screaming like a little five-year old boy, FIs can laugh all the way to the bank knowing the values in their transactions are safe from the volatility in the markets.

 

Why XRP needs xCurrent

Ripple has had a lot of great news lately with various financial institutions (FI’s) beginning to use Ripple tech. Ripple has definitely started running the marathon CEO Brad Garlinghouse said it would run. Unfortunately, most digital asset investors seem disappointed in these announcements because the FIs have primarily been announcing their use of xCurrent, which does not require the use of XRP, versus xRapid, which does require the use of XRP. The fear, uncertainty, and doubt present in the digital asset community, every time one of these announcements is made, come out with strong force, usually with a statement such as “XRP will NEVER be used by banks!” If I could only collect one XRP for every time I have to read that statement I would probably be a “zerpillionaire” already.

The xCurrent Users

The most recent xCurrent announcement came to the crypto world on February 21, 2018. With this announcement three more banks have signed on to use xCurrent: “Itau Unibanco, Brazil’s largest private sector bank and Latin America’s biggest bank by market capitalization; IndusInd, a leading private sector bank in India; and InstaReM, a major remittance provider based in Singapore.” Additionally, two xVia users were announced: Beetech in Brazil and Zip Remit in Canada, “will both use xVia to open payment corridors for their customers around the world.”

Previously, on February 14, 2018, an announcement brought the Saudi Arabian Monetary Authority (SAMA), the central bank for the Kingdom of Saudi Arabia, into the RippleNet/xCurrent family. The importance of this partnership cannot be understated: while SAMA is not the first central bank to use xCurrent (the Bank of England gets that honor), SAMA is the first to “use xCurrent to instantly settle payments sent into and out of the country, with greater transparency and lower costs” with all of their participating banks. This means that SAMA is going to be working with all of its banking partners to implement xCurrent for payment settlements. This is not just a one-off banking partner, but an entire banking system for a very wealthy country! “But it’s just xCurrent. Banks will never use XRP!”

Prior to SAMA, Ripple also announced partnerships with UAE Exchange, American Express and Santander UK, SBI Holdings, Inc., forming SBI Ripple Asia to reach the Asian banking market, and more than 100 other FI’s across the globe. “But it’s just xCurrent. Banks will never use XRP!” Yeah, I know….

Sending Money

Western Union Logo

Have you ever tried to send money to someone in another country? I do every month. And my options are limited. Currently, I use Western Union (who just recently announced a Ripple partnership testing xRapid/XRP ) to process these transactions. When sending the money I have two options. I can send the money for a low fee ($4) using a bank account transfer, which takes approximately four business days to settle, or I can send the money using a debit/credit card for a fee that is almost three times as much ($11), but, will reach my intended recipient within minutes. The trade-offs are obvious: pay less, but take longer to process the transaction, or, pay much more to get the transaction done in minutes. What if there were another way?

Sending Value with Digital Assets

I have been searching for a way to make the transfers I do every month faster and less expensive. While this is not a piece about the attributes of xRapid/XRP, one cannot overlook the significance of fast transaction time (3-5 seconds) and inexpensive fees (less than $.01) if one were able to make a similar transaction using XRP solely, such as sending XRP from my wallet to their wallet. At this time my friends in the Dominican Republic have no way of exchanging the XRP I could send them into Dominican Pesos (DOP), the local fiat currency, for use. There is not an exchange that I have been able to find that offers XRP/DOP pairs.

What can I do? How is it possible to send value using digital assets to my friends in the Dominican Republic? Let’s look at an example:

I could purchase XRP using USD on my preferred exchange. I could then send that XRP to their personal wallet. At this point, my friends would exchange their XRP for BTC. But, we are still stuck with the BTC/DOP pair issue. No need to fret (that was sarcastic…this next part may make you fret even more), there is a solution: http://www.localbitcoins.net. Using this website my friends can connect with an individual buyer of BTC, place a sell order, which places the BTC in escrow until the buyer confirms payment has been sent to my friends, at which point they can release the BTC to the buyer. This exchange will cost another 4% of the value I transferred due to exchange rate differences. All this sounds easy, right (please remember my sarcasm above)?

Imagine You are an FI

Think of the above scenario but, instead, you are an FI that wants to send value using XRP from your country to the Dominican Republic. You want to use xRapid but using the above scenario, finding liquidity for XRP/DOP is non-existent. Sending value to the Dominican Republic using XRP just is not feasible at this point because of the lack of liquidity for XRP/DOP, especially for a company who wants to send thousands or millions of dollars in value across the border. Why would an FI want to use XRP at this point, unless they can provide their own liquidity on both sides of the trade? What should an FI do? Keeping the status quo seems the best option, but it is not the way of the future. Here’s where xCurrent enters the picture.

xCurrent for Building Liquidity Corridors

xCurrent would allow you, as an FI, to settle your cross-border transactions into the Dominican Republic. You do not have to use XRP (though you could) with xCurrent. Instead, you can deploy xCurrent to send the value(s) you wish to send, in seconds, using your current liquidity options. Here is where it gets interesting: as more FI’s begin sending money in-to and out-of the Dominican Republic using xCurrent they will begin to see the necessary liquidity become available that will allow them to use xRapid/XRP as an efficient and less expensive settlement option. Additional liquidity will be provided by Market Makers who see the increase in XRP/DOP use and who will begin trading in the XRP/DOP pair. xCurrent, in this example, allows FI’s to build the corridor necessary for using XRP before being required to use XRP in an environment with low liquidity.

RippleNet Globe

It’s Already Happening

The February 21, 2018 partnership announcement mentioned above has an important statement regarding the establishment of liquidity corridors. Speaking of Beetech and Zip Remit, Ripple states, “Additionally, both will look to establish a connection for their customers into China, an opportunity that is now possible thanks to the recent addition of LianLian International to RippleNet earlier this month.” Every new partnership announced, even if that partner is using xCurrent or xVia, builds liquidity between those RippleNet connections.

handshake-1

In the last 24-48 hours an exchange called Coinsph in the Philippines has launched the XRP/PHP trading pair. While this may not seem significant to the digital asset community, it is one more XRP/fiat pair needed to build liquidity on a global scale so that xRapid and XRP can be used efficiently, as designed. XRP/PHP is one more pipeline opening up for XRP to be used. Now I can send value, utilizing digital assets, and specifically XRP, to the Philippines without the need to find a personal buyer for my XRP. Now, an FI can begin to source liquidity for XRP in the Philippines so they can be more competitive in the global markets.

For xRapid to be used the way the XRP community wants it to, xCurrent is the first stepping stone. xCurrent opens the door to begin building the liquidity corridors necessary for XRP to flow through. Without these established corridors, those who say “Banks will never use XRP!” are right. What FI would ever want to send thousands or millions of dollars in value to a country where they cannot exchange XRP for the local fiat? The answer is simple: none.

There are currently 180 circulating currencies recognized by the United Nations. These currencies generate over $5.3 trillion (yes, with a “t”) in trading every day. If XRP is going to succeed, liquidity must be able to be sourced from the vast majority of these currencies using XRP/fiat trading pairs. xCurrent is the gateway that opens the doors of opportunity for that liquidity to be sourced. Is there any other digital asset that has an enterprise option to build liquidity for the asset before users must take on the full risk of using that digital asset? Ripple has provided an option for FIs and other companies to begin using distributed ledger technology without the inherent risks involved with limited liquidity and market volatility, all while positioning xRapid and XRP as the next logical step once liquidity has been established and volatility can be more easily controlled.

The Next Announcement

The next time you hear Ripple announce another partner that is using xCurrent, do not be dismayed. Realize that Ripple is doing exactly what it should: building another corridor for XRP liquidity. And when you hear all those with fear, uncertainty, and doubt say, “But it’s just xCurrent. Banks will never use XRP!” you can just smile, consciously aware that the XRP game plan is being played perfectly, knowing that XRP needs xCurrent to succeed.

**In full disclosure, I own XRP. This is not investment advice.