As investors look for alternatives to the volatile bitcoin bubble, crypto-currency
Ripple has become the second most valuable virtual cash system, followed by ethereum and litecoin.
Bitcoin Bubble Fear Means Ripple Looks Attractive
The media has been full of reports about the steep and rapid rise in the value of the blockchain-powered crypto-currency. From a value of £740 per bitcoin at the beginning of 2017, to in excess of £15,000 in December, falling (with a few bumpy troughs) to £11,000 this week, many investors, spooked by what many see as a bubble have been looking for alternatives.
It is likely to be no coincidence, therefore, that the value of crypto-currency Ripple has risen as bitcoin’s value fell to see it take second place to bitcoin at $2.34 (1.73) per XRP (the name for a single Ripple unit). Although this doesn’t seem to be a large amount, it is much higher than the $0.0065 (just over half a US cent) each unit was worth a year ago.
The crypto-currency of Ripple is now worth $142bn, second in value to bitcoin at $251.4bn, and ahead of ethereum at $100.6bn and litecoin at $13.2bn.
Unlike bitcoin which operates outside of the reach of the banks, Ripple was set up to help banks speed up and modernise how they pay each other. 100 banks, so far, have signed up to use Ripple’s payments system. These sign-ups include big hitters like Bank of America and UBS, Japan's big credit card companies (for payments and settlement), and some South Korean and Japanese banks (through a pilot project to handle cross-border payments).
Ripple has no real assets or revenue streams to support the rate, and the market is calculated by multiplying the number of XRP coins in existence by the current dollar exchange rate. Also, Ripple XRP coins, unlike e.g. bitcoin, aren’t ‘mined’ by the members of the network that processes the transactions, but have been pre-mined and are slowly released as the network is used.
It is believed, therefore, that the recent adoption of the currency by these banks and credit card companies, and the search for alternatives to the uncertainty of the bitcoin bubble have been the main drivers of the value of Ripple.
Ethereum and Litecoin
Ethereum, the next highest value crypto-currency after Ripple has seen an increase in value of 9,240 % year over year. Litecoin meanwhile, has also seen a rapid and steep rise in value of 5,195 % year over year (Coinbase figures).
The rise in the value of these crypto-currencies also corresponds with the fall in value of bitcoin.
With the rise in value and popularity of crypto-currencies, experts have warned that there are likely to be more incidents of ‘crypto-jacking', where people’s devices are taken over by people trying to mine crypto-currencies. Earlier this month, for example, the Android phone-wrecking Trojan malware, dubbed 'Loapi', was discovered by Kaspersky researchers. In tests, after running it for several days mining the Minero crypto-currency, the android phone used in the test was overloaded with activity (trying to open about 28,000 unique URLs in 24 hours) to the point that the battery and phone cover were badly damaged and distorted by the resulting heat.
What Does This Mean For Your Business?
The rise of crypto-currencies, such as bitcoin, to the point where it was finally being taken up by investors, businesses and governments, has been filled with high profile ups and downs e.g. a fall in its value on the Tokyo-based Mt. Gox exchange following a hack in late 2013. Predictions of the value being a risky bubble, coupled with a hack of the NiceHash digital currency marketplace’s payment system resulting in the theft of bitcoin to an estimated value of $80m have sent the value of bitcoin downwards again in December. As investors look elsewhere for safer alternatives or the next big thing, and as they become more used to the concept of crypto-currencies, Ripple ethereum and litecoin have benefitted.
Bitcoin has many attractive advantages for businesses such as the speed and ease with which transactions can take place due to the lack of central bank and traditional currency control (Ripple is actually a product of the banks).
Crypto-currencies generally mean easier, faster and more convenient cross-border and global trading, but traditional currencies tend to have the backing of assets or promises of assets of some kind. Crypto-currencies, therefore, tend to be less trusted and more volatile in the markets, and it’s likely there will be many more ups and downs with many different crypto-currencies, although bitcoin has a head start and has weathered storms before. It’s a case of watch this space.