Is Ripple XRP a Good Investment? [Pros & Cons 2020]

Compared to Bitcoin, XRP (also known as Ripple, its parent company) may be nowhere near as popular to the average person, but it’s actually the third biggest cryptocurrency by market cap. So with much interest in XRP for one reason or another, and its increasing use in banking systems, is it actually a good investment? Firstly, let’s have a quick look at what is XRP.

Is XRP a Good Investment?

What is XRP?

Just as with its fellow altcoin, Ether (and its parent company Ethereum), many people get the name of the currency mixed up with its parent network. In XRP’s case, its network is Ripple, an open source protocol (developed by Ripple Labs, more commonly also known as just Ripple). Although XRP can now be spent in over 180 countries worldwide, this is not why it was created. The primary reason XRP was created is for it to be used as a token to facilitate cross-border currency transfers through the Ripple network. 

Is XRP a Good Investment?

XRP is a good investment because of the huge potential it has to grow. Its low price makes it a great investment opportunity, and its use through the Ripple network as a token for ultra-quick currency transfers, with ultra-low fees, has seen its use increase amongst multinational banks.

Although XRP is a good investment overall, any investor really needs to weigh up the pros and cons for themselves — it may not be suitable for everybody to invest in. Let’s start by looking at how XRP works.

How Does XRP Work?

With current settlement systems for transactions such as SWIFT and Paypal generally using U.S. dollars as a common currency for conversion, incurring money and time as a result, the aim of XRP is to act as a mediator that settles almost instantly, and with a fraction of the cost. It does this through RippleNet, a liquidity solution using XRP that has been developed to make these lengthy and expensive transactions a thing of the past. XRP acts as a token of currency on the network. 

As Ripple put it themselves:

International payments, especially in emerging markets, require businesses to hold pre-funded accounts in destination currencies. It’s a costly endeavor that ties up resources.

RippleNet provides an alternative. While any financial institution on the network enjoys reliable, instant and lower-cost transactions, those who use the digital asset XRP to source liquidity can do so in seconds—freeing up capital and guaranteeing the most competitive rates available today.

To demonstrate how it does this, let’s use an example:

Tom in the U.S. wants to send $1,000 to Rachel in the U.K. Traditionally, this would have involved going to the bank and filling out various forms. After having done that, it would have taken up to three days for the transfer to go through and cost up to around maybe $10-$20. 

This is because of the liquidity costs for the financial institutions administrating the exchange. Pre-funded nostro accounts would be needed on either side of the transaction in order to exchange the currency (in Tom and Rachel’s case from USD to GBP). Holding these accounts would entail liquidity costs for the bank, which would ultimately be passed on to poor Tom.

However, if this payment was done using XRP on the Ripple network, the outcome would be considerably more favorable for Tom.

It would take away the need for pre-funded nostro accounts. Instead, the bank could transfer USD for XRP, then XRP to GBP, in a fraction of the time and cost. Rather than taking up to three days and $20 for processing, on the Ripple network it would take only around 10 seconds and cost a minimal fee. The fee on the Ripple network will be less than $0.01, but the bank may set a fee themselves (but it will still be nowhere near the fee of a traditional bank transfer).

How is XRP Different From Other Cryptocurrencies?

Several factors make XRP different from other cryptocurrencies, and quite unique.

No Blockchain

Unlike Bitcoin and other cryptocurrencies, XRP doesn’t operate on a blockchain. Instead, to verify transactions on the network, Ripple uses its own technology – the Ripple protocol consensus algorithm (RPCA). It works similar to a blockchain though, in that there has to be a consensus for transactions to be verified on the network. It does so through a consensus protocol. 


Linked to the fact that XRP doesn’t operate on a blockchain is that it’s centralized. With Bitcoin for example, its whole original purpose is to bypass the involvement of third parties. But with XRP, it is controlled solely by its parent company Ripple. Its services are sold to banks — something unthinkable with Bitcoin.

Not Mined

Also unlike Bitcoin and other cryptocurrencies, XRP isn’t mined. Although there is also a finite supply of the currency, XRP is not created through the actions of miners. It is instead issued by its parent company Ripple. When the currency was launched in 2013, 100 billion coins were created. But to date, less than half of that are currently in circulation. Coins are released periodically by Ripple from escrow. 

XRP Price History

Since launching in 2013, XRP has seen some crazy price fluctuations in its history. Up until 2017, its price had barely managed to reach above $0.01. But in the March and April of that year, its price began to shoot up significantly. By the end of April, it was up to $0.05. And it didn’t stop there, not by a long shot. 

By the end of May, it was up to $0.25. It retraced slightly in the coming months, but then rocketed in price as 2017 closed and 2018 dawned, just as other cryptocurrencies (most notably Bitcoin which peaked at nearly $20,000) did at this time in the infamous crypto bull run. Its price peaked at $3.84 on January 4 2018. 

But within two weeks, it had lost more than half its value. By early 2019, it was around the $0.30 mark, and it hasn’t risen above the $0.50 mark again to date. 

In terms of where XRP’s price will go in the future, predictions vary between analysts. Some have said if XRP continues on its road to wider adoption, its price could be as high as $200-$300 by 2030. Other predictions have varied between $20, $17, and ‘beyond’ $5 to name but a few. Of course, no one has a crystal ball and there are many factors involved in affecting XRP’s price in the future.

Factors Affecting XRP’s Price

Industry analysts have highlighted some correlation between the price of XRP and other cryptocurrencies. Pierce Crosby from TradingView told the Coin Telegraph in February 2020 that as Bitcoin has such a dominance over the crypto market, such correlation was inevitable:

Everything correlates to Bitcoin, much like in the U.S. equity market, everything correlates to the U.S. dollar.

Some factors are beyond the control of the markets as they cannot be predicted. As markets crashed in March 2020 during the onset of the COVID-19 pandemic, so did the prices of many cryptocurrencies, including Bitcoin and XRP. The price of XRP crashed to around $0.15, but prices recovered after that. However, its recovery was nowhere as marked as Bitcoin’s. 

There are other factors that can also affect XRP’s price, which we’ll look at in the next section: the pros and cons of investing in XRP. 

The Pros of Investing in XRP

Its technology allows for almost instantaneous and negligibly cheap financial transactions (less than $0.01). It also has tremendous scalability, being able to process 1,500 transactions per second, over a thousand times faster than Bitcoin. To demonstrate this, TechCrunch founder Michael Arrington in October 2018 allegedly sent $50 million in XRP and it “took like 2 seconds and it cost 30 cents.” — impressive, whichever way you look at it.

For these reasons, it has gained the backing of many multinational banks and financial institutions, such as JP Morgan, Santander, and the Bank of America, and notably in June 2019, a strategic agreement was signed between Ripple and global money transfer giant MoneyGram. Such agreements can definitely be interpreted by potential investors that XRP is going places. 

Also, when you invest in XRP, you’re not just investing in the currency. You’re investing in the company. Ripple is a company with over 500 employees, ranging from those promoting the currency in marketing to those who work on the technology side of things. If the company continues to grow and does well, then the currency will surely follow suit.

The Cons of Investing in XRP 

A lot of the beef that people in the crypto community have with XRP is for exactly some of the above reasons — it is seen by some as a centralized, banker’s currency. The very fact that Ripple co-operate with financial institutions has been said to go against the reason why Satoshi Nakamoto created Bitcoin in the first place — a decentralized currency away from the control of the banks.

Another criticism it has attracted is the fact that it can’t be mined like Bitcoin and many other cryptocurrencies. The advantage of having a mining-based cryptocurrency is that market conditions can at least partially help to determine how much exertion is made in creating new blocks on the blockchain, which can in turn affect the price. If the price of a cryptocurrency is low, generally less mining takes place, because it is not cost-effective to do so, and vice versa when the opposite scenario is the case. 

Although there are accusations that Ripple could have some sort of malicious intention by holding these coins, the company has insisted they have justifiable reasons for this. They release a certain amount of coins every month from the ledger escrows, up to a maximum of one billion. However in reality significantly less are released than that, with the unused amount being rolled over to the next month. This is done, it is said, so there isn’t a sudden rocket in the supply of XRP, and the price doesn’t crash. This can be definitely seen as a positive, as investors are less likely to see themselves liquidated due to a sudden market move.

In response to the concerns about centralization, Ripple announced their decentralization strategy in May 2017, with the aim of making Ripple’s XRP Ledger more decentralized than Bitcoin. What was noted at the time was the potential vulnerability of “Bitcoin, which at the time of writing is 51% controlled by just five mining pools. This means the largest five pools working together could achieve a 51% attack.” An update was released by Ripple in October 2017, which stated:

Ripple remains committed to decentralizing the XRP Ledger and divesting itself of operational control. This multi-phase approach does that, but is intentionally conservative and has been devised with a single goal in mind: to ensure the reliability and stability of the network during the transition period to a fully decentralized and distributed architecture.

Since then, Ripple themselves has re-emphasized the decentralized nature of XRP, saying:

The XRP Ledger is based on an inherently decentralized, democratic, consensus mechanism — which no one party can control.

The Bottom Line

If you’re prepared to hodl and play the long game, then XRP could well be a worthy investment. It is also still cheap, so perfect for first-time investors. It certainly looks like a bright future could be on the horizon for the cryptocurrency, with financial institutions needing more and more liquidity to complete financial transactions – and as explored in the article, XRP could go on to provide some of the solutions to the problems associated with that. 

Interestingly, Ripple CTO David Schwartz said at the 2019 Future of Fintech Conference in New York that financial institutions are “extremely conservative” and “slow-moving”, which could go some way to explaining that while there has been much interest in XRP, actual adoption has been a slow process — and, as such the price has remained rather stagnant for some time.

However, its price increased in value massively (over 35,000%) during the infamous crypto bull run in 2017. If the currency continues to gain traction, its mainstream adoption becomes more widespread, and confidence grows in the currency further, there’s no reason to think why investors can’t be bullish about XRP once again. It can definitely be a worthy addition to your investment portfolio. 

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* This content should not be seen as trading and financial advice, it is merely an opinion. Trading is done at your own risk.