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Investing in Ripple? Here’s 3 Points to Worry About

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Investing in Ripple? Here’s 3 Points to Worry About

Weiss Ratings, an independent rating agency has been listing cryptocurrency ratings since January of 2018. The agency has helped a lot of investors pick cryptos with the highest potential while avoiding the least promising. The spotlight was on Bitcoin’s relatively low grade of a C+ (recently upgraded to a B-), but many other cryptocurrencies were graded too.

Ripple (XRP), the third most popular digital token, has a current market cap of under $28 billion is the latest to get under the limelight by Weiss Ratings. Juan M. Villaverde, an editor at Weiss Ratings, has gone out and said that Ripple token is not a bad investment in the near term. Villaverde has been covering cryptocurrencies since 2012. He also exclaimed, “What puzzles me, though, is how XRP owners can hope to profit from Ripple’s long-term trajectory.”

Ripple’s XRP token could make some healthy returns in the near-term, but there are three big reasons that the investors cannot ignore about the token if they consider their investment as long-term.

Number 1: The Ripple Token has Nothing To Do With Ripple Labs

Firstly, in order to achieve swift and cost-effective authorization by transacting via the Ripple protocol, the parent company Ripple is relying heavily on making deals with banks and financial institutions.

But the Ripple network is merely a transfer vehicle, used to transact from fiat to Ripple and back to fiat. What’s more, banks are not even obligated to use the XRP token for these transactions at all.

Similar to gold trusts or funds issue shares of gold, a whole new set of tokens will be issued for each fiat currency. This process is called ‘tokenizing,’ and it bypasses the need to use the XRP token in the first place.

In simpler terms, if you buy up XRP tokens upon every partnership announcement from Ripple because of FOMO, you could be left with some hefty bags.

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Number 2: Ripple’s Partners are not Required to Use XRP

Secondly, as Ripple is a private company – and XRP tokens aren’t shares – the owners of these digital tokens will not be entitled to the company’s potential profits. Think of the XRP tokens as merely ‘demo’ digital tokens to woo banks. That’s it.

Ripple’s XRP and RippleNet are different and partnerships done with RippleNet do not use XRP, Ripple’s digital token. Ripple hope to have XRP as the bridge currency for banks so that they do not suffer extra expenses related to currency exchange rates.

Number 3: Banks MAY see Ripple as a Threat

Unlike Bitcoin, Ripple is a centralized company which is not as resistant to regulatory clampdowns; which is one of the biggest challenges for them. Therefore forbidding decentralized currencies would require lesser efforts. Banks can go to the extent of simply using their own digital tokens to cut costs, or they could simply lobby governments to do their bidding if they feel Ripple is a threat to their existing business model.

After all, the debtors are always at the mercy of their creditors. SWIFT and similar networks may be technologically inferior to RippleNet, for example, the XRP token would simply not be needed as supranational institutions and governments will issue their own tokens to maintain full control over their monetary system.

Bitcoin, on the other hand, is an apolitical, open-access decentralized protocol whose unit of account (BTC) is an inexorable part of its blockchain, the most secure and censorship-resistant public ledger in the world today.

Villaverde concludes:

“In fact, it’s safe to say that banning decentralized cryptocurrencies would be almost impossible. But Ripple is anything but decentralized.”

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