Ripple is currently the third most valuable cryptocurrency after Bitcoin and Ethereum. The currency with the abbreviation XRP is a token of the company Ripple Labs. Anyone who bought ripple for 100 euros on 1 January last year was able to withdraw 36,000 euros on January 1, 2018. The sum of all ripple tokens has a market capitalization of $ 89 billion. The founder was at the top of the list of the richest people at the beginning of this year. Are these tokens worth 89 billion? Certainly not. But what real value do they have? I think: 0. Here is my reasoning.
What Ripple is designed to do
When banks transfer money across borders, they use Swift’s service (and technology). It is a protocol from the early 1970s. It enables digital transfer of money between banks without having to send real banknotes back and forth. Swift is one of the cornerstones that has made our current, globalized monetary economy possible. Swift is expensive, slow and awkward. On the other hand, it has been functioning for four decades with a permanent increase in money transfers.
Ripple Labs has now invented a blockchain-based protocol to replace Swift. If it is introduced nationwide, it will replace Swift and all its disadvantages. The need and interest of the banks is there and it’s significant. If money transfer costs almost nothing, the institutes will save billions. If Ripple Labs prevails on the market, the company will also be worth billions of dollars.
XRP is not Ripple Labs
If you own Apple shares, you own a part of the business. You are (sometimes) entitled to a share of the profits in the form of dividends. Or even a vote on the fundamental direction of the company. Similar to all forms of investment, he value of the stock is based on the belief in the future profitability of the company. However, this is supported by the ownership and related rights.
The Ripple XRP token, like virtually every other crypto token, is not tied to company capital. Anyone who owns XRP, owns… nothing except the token. No property, no dividend, hardly any rights. The price of XRP hardly correlates with the company Ripple Labs, but only with the expectation of buyers for a higher sales price in the future. That may bring the price up, but not the value.
Utility by itself is not valuable
Crypto tokens can be divided into three groups: currencies (such as Bitcoin, Dash, Monero), investments (such as stocks or notes), and utility tokens. The latter are used to pay for a service. In the casino euros will buy you a few chips that you can then use to play. In the crypto world, you buy Ether to pay for the operation of the Ethereum supercomputer. Or just XRP to pay for the money transfer. Utility tokens are a currency used to pay fees.
XRP has no value
In the crypto scene, Ripple is accused of not being a real blockchain. The reasons are that it is centrally controlled, intransparent, isn’t mined and is controlled by a company. However, for Ripple’s purpose, those are not bad things. After all, for 45 years banks have been doing very well with a centralized Swift. But the problem lies elsewhere: XRP is only used by banks. But the token is tradable on public exchanges. This is pointless, because I personally have no need for ripple, except for speculative purposes. Speculation means price fluctuations and that’s a horror for banks. Just imagine, a transfer from Vienna to Timbuktu costs 3 cents today and 25 euros tomorrow. In order for XRP to be used as a utility token, it must disappear from the public market. And so the price drops to its actual value.
No utility token is an investment
At least since the industrialization of 200 years ago, our economic system is based on this principle: the more of a product is produced, the cheaper the unit price. The more a service is used, the cheaper the individual use.
But how do crypto tokens work? The more they are used, the greater the demand. The greater the demand, the more expensive the price. The token principle is at odds with our economy.
The bottom line
In order for the token to not get caught up in this contradiction, it may not be used for the service. There are already many blockchain projects that have two tokens. One to collect money (speculative) and a second, stable one to use the respective platform.
With such a solution, the token XRP would be detached from its original use. It would only be the company value. But wait: it does not exist. And in terms of value, things get even more uncomfortable. If a listed company wants to issue new shares, then the current stockholders must vote on it. Because with new shares, the value of each individual share is diluted. Not only is XRP the sole decision of the company, but they haven’t put more than half of all XRPs on the market. The value of XRP is therefore not in the hands of the market, but can be (and is) manipulated by Ripple Labs.
All of this happens while Ripple Labs owns the company. They can now go to a conventional exchange at any time and issue real shares with ownership. So they can raise capital a second time and only hand out shares once. Then XRP owners clearly look will be left behind.
This does not just apply to ripple labs, but to any crypto token that does not serve as a currency.
That’s why I think that XRP has no value. And neither do most other tokens. However, I am open for discussion.
Update from August 2018: Please bear in mind that the article was published in Februar 2018. While many disputed some of the facts back then, they didn’t get any fresher in the past six months. Although the price proves my polemic right. Currently.