The battle for cryptocurrency supremacy is happening not just in the marketplace —where bitcoin still reigns supreme— but also in the chat rooms and news sites where a war of words is looming over Ripple and its XRP token.
The biggest knock against Ripple? XRP isn’t really a cryptocurrency, some say, and it doesn’t belong in the same category as bitcoin, ether, litecoin and the rest.
January has been a month of highs and lows in the cryptocurrency market, with bitcoin sinking below $10,000 USD for the first time since November, shedding half its value, while Ethereum broke the $1,000 barrier, even reaching as high as $1,422 by mid-month. Meanwhile, Ripple’s XRP, which a year ago was worth about $0.006 per token, jumped as far as $3.84 by early January — an increase of over 60,000 per cent — and has challenged ether for second-place behind bitcoin in terms of market cap.
What will the scene look like a year from now in January 2019 is anyone’s guess, but if some of Ripple’s critics had it their way, the XRP token wouldn’t even be in the running for top cryptocurrency.
“XRP is not a cryptocurrency,” has been the claim from a number of well-known members of the community, including Litecoin creator and crypto-guru Charles Lee, who together argue that Ripple transgresses Principle #1 of cryptocurrencies, i.e. decentralization, and thus should be kicked out of the club.
Ripple was created by a private company, unlike Bitcoin, Ethereum, Litecoin and most other cryptocurrencies, which are typically not-for-profit…
Purists claim that the blockchain technology behind currencies like bitcoin has been put there for a reason, namely, to ensure that value transactions can occur without the need of a centralized authority deeming them legitimate. That lack of centralization is what, they say, makes them a threat to the traditional financial system involving banks and lending institutions which serve as middle-men within transactions and charge fees for that service. Cryptocurrencies, the theory goes, can produce legitimate person-to-person transactions through validation by the entire community undergirding the blockchain.
How is Ripple different? While bitcoin is an actual currency that can be traded and exchanged, the XRP token isn’t. Its purpose is to stand in for any type of currency within a more constrained system, serving whatever particular purpose its users need it to serve at a given moment. While this makes XRP more useful as a quick way to process payments and transfers, it doesn’t necessarily make it a digital currency.
Moreover, Ripple doesn’t use a blockchain to validate transactions but relies on agreement between a designated group of computers, along with being backed by Ripple Labs. That centralization is what makes for the distinction, say the experts.
“Ripple is more a fintech than a crypto,” says Byron Berry, analyst and CEO of research firm, Corventus. “Ripple was created by a private company, unlike Bitcoin, Ethereum, Litecoin and most other cryptocurrencies, which are typically not-for-profit.”
Thus, the flow of money into XRP (a market cap of $61 billion as of Saturday) is seen as more than a little bewildering while nonetheless in keeping with the current frenzy surrounding blockchain and cryptocurrencies. In fact, Ripple itself insists that it “does not promote XRP as a speculative investment” but rather sees it as a “convenient bridge currency.”
“There is no sense that it is a store of value,” says Berry, “although those benefiting from the recent price increase may beg to differ.”