Hash (SHA1):
D3DA4D50DE7654576F68A8C3E30BE78792BA95515BB4662473616C0820CEE486
No.: Lianyuan Security Knowledge No.082
As an old cryptocurrency, Ripple (XRP) has seen a significant price surge in 2024, soaring from $0.48 to $2.5, with a market value of over $239.2 billion. Behind the surge in XRP, there is progress in the lawsuit between Ripple and the U.S. Securities and Exchange Commission (SEC), as well as the FOMO sentiment in the crypto market and Ripple's breakthrough in cross-border payments. The rise in XRP is not only related to changes in market sentiment, but is also closely related to the turning point in the technology and regulatory environment.
This article will take you through the past and present of XRP. After reading it, you may have the answer to the future market of XRP.
XRP and the SEC
If you want to know the reason for its surge, you have to first talk about its past and present life and its disputes with the SEC.
The origin of Ripple (XRP) is quite interesting. It was first proposed by Ryan Fugger in 2004, even earlier than BTC. However, cryptocurrency was not used at that time. Instead, digital IOUs or credit were used for transactions.
Seeing the popularity of Bitcoin, Ripple launched a blockchain-based payment network, RippleNet, in 2012, breaking the cross-border payment methods of the traditional financial system. Like a rising star in the field of cryptocurrency, Ripple quickly became the focus of everyone's attention.
However, it is easy to stumble when you walk fast. In 2015, Ripple was fined $700,000 for failing to comply with the regulations of the US Financial Crimes Enforcement Network (FinCEN), which was considered a "small episode". In 2019, XRP's price plummeted under the influence of the bear market, and then in 2020, the SEC suddenly sued Ripple, accusing XRP of being an unregistered security. As a result, XRP's price fluctuated like a roller coaster, and trading platforms like Coinbase had to remove XRP from their shelves.
In the following years, legal battles have become a daily occurrence for Ripple. However, Ripple is not a pushover. In 2021, they argued that the SEC did not clearly define whether XRP is a security, but instead used "fair notice" as a defense. The court ruled in favor of Ripple at multiple points, especially the judge's ruling in March 2021, which clearly pointed out that XRP has practicality and is different from the legal status of cryptocurrencies such as Bitcoin. Despite this, the lawsuit has not yet come to an end. The SEC and Ripple are playing against each other, and the case is still unresolved.
In 2022 and 2023, Ripple continued to "fight lawsuits" and stepped up its lobbying efforts in the United States. In July 2023, the court finally ruled that it was not illegal for Ripple to sell XRP publicly to exchanges, but it was considered illegal to sell XRP to institutions. This victory allowed Ripple to re-list XRP on exchanges. In October 2023, the SEC finally announced that it would withdraw all charges against Ripple executives and canceled the trial originally scheduled for 2024. In this way, the legal status of XRP gradually became clear, and Ripple also stabilized its position in the market.
In August 2024, Judge Torres again ruled that Ripple should pay a fine of $125 million, which was far less than the nearly $2 billion proposed by the SEC. However, the court temporarily decided not to enforce the fine and wait for the result of the appeal. The SEC was naturally unwilling to accept the decision and said that this ruling violated many precedents and was ready to appeal to the Second Circuit Court. Ripple said that the SEC's defeat proved that XRP's status as a non-security had been legislated into effect.
While Ripple continues to fight, Bitwise has also applied to trade XRP shares in an ETF, which means that XRP may usher in new opportunities in the crypto market.
So what is the difference between XRP and our traditional blockchains (BTC, ETH, SOL), and why can its market value suddenly increase by hundreds of billions? This requires a discussion from its technical aspect.
What makes XRP different
Peer-to-peer payments
XRP is very different from traditional blockchains. XRP is mainly used for peer-to-peer payments.
Please think about it, if I need to transfer money to an overseas address, what should I do? First, obtain the bank information of the recipient, then go to the bank, confirm the amount of the transfer and the corresponding exchange rate, explain the reason for the transfer, pay the handling fee, confirm the transfer, and wait for a few working days.
What if I use BTC or ETH? I only need to know the other party's address and send BTC or ETH to the other party. But there is a problem, the handling fee is extremely expensive. In BTC or ETH, if we encounter congestion on the chain, the handling fee may be raised to 100u or more. If your transaction has timeliness requirements, you may be troubled by this handling fee.
XRP solves the problems of inconvenience and high fees of banks. And unlike BTC, XRP has an extremely fast confirmation time, which takes only 3-5 seconds to confirm the transaction. Therefore, current cross-border e-commerce or large cross-border remittances will be transferred through XRP. So how does XRP solve these problems?
Consensus Mechanism
First of all, the consensus mechanism. XRP does not rely on traditional consensus mechanisms such as proof of work (PoW) or proof of stake (PoS), but adopts a unique mechanism called Ripple Protocol Consensus Algorithm (RPCA). RPCA confirms transactions through multiple validators, and these nodes do not perform mining. The validators collaborate with each other to reach consensus on transactions in each ledger cycle (usually within a few seconds). Compared with the mining methods of Bitcoin and Ethereum, XRP's transaction confirmation speed is very fast, usually completed within a few seconds, and the network can handle more than 1,500 transactions per second.
Centralized Node
Secondly, although XRP is decentralized, it uses a trusted verification network. The Ripple protocol network consists of a group of certification nodes (Validator Nodes), which can be run by anyone, but only selected nodes can participate in the consensus process. In order to enhance network security, Ripple regularly verifies and updates the list of verification nodes, which are operated by independent organizations and companies, making XRP highly centralized.
Ledger and transaction records
XRP's ledger is different from traditional blockchains. XRP uses a decentralized distributed ledger that is updated and maintained through the Ripple protocol. Unlike Bitcoin and Ethereum, which record transactions based on "blocks", XRP's ledger does not have the concept of "blocks" in blockchains, but is composed of multiple independent ledgers. These ledgers are updated after each transaction, and the Ripple protocol is used to verify and ensure the consistency and transparency of the network.
Token supply and destruction mechanism
XRP's supply mechanism is also different from Bitcoin and Ethereum. XRP has 100 billion tokens pre-generated at the time of issuance, unlike Bitcoin, which is generated by miners. In the Ripple protocol, the issuance of XRP is fixed, that is, there is no inflation. In addition, every transaction on the XRP network requires a certain amount of XRP, which will lead to the destruction of a small number of tokens and gradually reduce the amount of XRP in circulation.
Cross-border payments and liquidity
Ripple's payment network (RippleNet) allows financial institutions to quickly transfer between different fiat currencies using XRP as a bridge currency. In RippleNet, XRP exists as a "liquidity tool" that can help financial institutions reduce the cost and delay of cross-border payments. This is different from the use of cryptocurrencies such as Bitcoin and Ethereum. XRP is mainly used for transaction settlement between financial institutions, while Bitcoin and Ethereum are more used in blockchain ecology and smart contracts.
Risks of XRP
After reading the above, you may find that XRP is not a public chain like BTC and ETH. It is more like a private chain managed by a company, but this chain is open to the public. Therefore, XRP still has many "centralized" risks. In addition, the biggest risk of XRP is actually the law.
Legal risks
One of the biggest risks for XRP is the legal dispute with the U.S. Securities and Exchange Commission (SEC). Although Ripple has made some progress in its case with the SEC, the issue is not completely resolved. The SEC once believed that XRP was an unregistered security, which led to large fluctuations in the price of XRP. Although Ripple seems to have won a legal victory at present, the SEC may still appeal, and the regulatory attitudes of other countries and regions may also affect the legal status of XRP. If XRP is eventually judged to be a security, it may cause exchanges to delist XRP and investors to face significant losses.
Token Centralization
Ripple holds a large number of XRP tokens, which means that the company has a large control in the XRP market. Ripple's decisions and actions may have a significant impact on the price of XRP. If Ripple chooses to release or sell a large amount of XRP, it may cause a surge in market supply, thereby depressing the price of XRP.
Conclusion
XRP is actually an old blockchain that tends to be centralized, which goes against the purpose of blockchain decentralization. But for payment, XRP is extremely successful, and it does provide a very convenient channel for cross-border payments.
But for investment, XRP is still a very risky thing. First of all, XRP is different from traditional blockchains. It is not born to serve the decentralized ecosystem. Only designated whitelist nodes can run. And most of the tokens are still in the hands of the government. In addition, XRP also has a complicated feud with the SEC, which are all factors that will affect its price.
I hope you can look at the increase in XRP with a wise eye, make rational decisions, and move forward steadily.
