What Are the Disadvantages of Ripple (XRP) as a Cryptocurrency?

The main problem with XRPs, and thus also against the Ripple network, is the way the XRPs were distributed. Ripple Labs, the creators of Ripple, created the network with 100bn XRPs in it, and no new XRPs have been created since its inception. This is not an unknown practice in the crypto space – a lot of networks ‘pre-mine’ their tokens.

However, the network creators usually only keep a fraction of the tokens for themselves, pre-selling the rest to anyone that wishes to buy some. Ripple, however, still owns about 60% of the initially issued tokens. This raises a few issues.

First, the company could try cashing out and potentially crash the market. It is very unlikely, however. Ripple has recently taken steps to promote its XRP market and put the majority of their XRPs into escrow (then again, the escrow is unlocking 1bn XRP every month for the next ~4.5 years so it could be better).

Secondly, since the network fees are paid through ‘burning’ XRPs, they essentially enrich everyone in proportion to the amount of XRPs they hold (if 1% of the tokens got burned, the remaining tokens would be worth about 1% more provided the market doesn’t change). This means Ripple Labs is essentially earning 60% of all network fees on the network. This probably doesn’t amount to much at the current time, but it may be more important in the future.

Lastly, the amount of XRPs owned by one company gives it a negative reputation. A lot of people in the crypto space dismiss Ripple outright as a ‘pre-mined scamcoin’ just because of a number of coins owned by Ripple.

The founders of Ripple, Jed McCaleb, Chris Larsen and Arthur Britto, gave themselves 20bn XRPs early on. This later came to bite Ripple. McCaleb left the team to start his own version of Ripple called Stellar, and decided to sell his XRP stash, resulting in a legal kerfuffle, a settlement and a schedule for how those coins may be sold.

If those numbers are correct, McCaleb is still cashing out $20,000 per week, and come ~2019, he will be able to cash out 750m XRP (worth ~$256m at today’s price of $0.34 USD/XRP). Not an ideal situation if the money from your network will be going to a former employee building your direct competitor to the tune of a quarter of billion dollars. While some of those funds might go to charity, that’s still not an ideal outcome.

Besides these problems with Ripple (premined, centralized, etc.), there are a few more. Ripple works closely with banks, which repels all those interested in investing in and supporting technology in order to dismantle the current financial system. Ripple is very weak on anonymity (although are making efforts to change that).

That’s all I have about Ripple. Hopefully, this will give you some edge.


Leave Your Comment

Leave a Reply