Outside of people asking me, “How high can Bitcoin really go?,” one of the digital asset topics I’m most often asked about is XRP (Ripple). “What is it?” “Why were/are they tied up in court with the SEC?” “Should I buy it?”

Since XRP is seemingly in the headlines on the daily, I wanted to share some insight into what it is and why I believe it’s worth staying away from. Let’s dive right in!

A Brief Timeline

• 2004: Ryan Fugger creates RipplePay, an early decentralized payment system.
• 2011: Jed McCaleb, Arthur Britto, and David Schwartz began work on a new digital currency system that does not rely on mining (like Bitcoin).
• 2012: Chris Larsen joined the team, and they founded OpenCoin (which would later become Ripple Labs).
• 2012: XRP Ledger (XRPL) is launched, with 100 billion XRP pre-mined (unlike Bitcoin, which is mined over time).
• 2013: OpenCoin is renamed Ripple Labs with a stated focus on real-time gross settlement (RTGS), currency exchange, and remittances.
• 2014: Ripple Labs partnered with banks and financial institutions to improve cross-border payments.
• 2015: Ripple Labs rebranded to simply Ripple.
• 2016: Ripple formed RippleNet, a network for banks and payment providers using its technology.
• 2017: XRP’s price surged during the crypto boom, reaching over $3 per XRP in early 2018.
• 2020: The SEC (U.S. Securities and Exchange Commission) sued Ripple, alleging that XRP is an unregistered security.
• 2021-2023: Ripple fights the SEC lawsuit, gaining partial legal victories.
• 2023: A U.S. court ruled that XRP is not necessarily a security when sold on exchanges, but Ripple’s institutional sales may still be subject to securities laws.
• Despite regulatory challenges, XRP remains one of the top cryptocurrencies by market cap.

4 Reasons I’ve Steered Clear of XRP

Mining and Distribution

There hasn’t been a single XRP token ever mined. Instead, 100 billion XRP tokens were created all at once in 2012. This is known as “pre-mining” or “pre-allocation.” Initially, 80 billion XRP went to Ripple Labs, and 20 billion XRP went to its founders and early team members. This is an example of the Cantillon Effect at work.

The Cantillon Effect is an economic concept that illustrates how money creation affects different people in different ways depending on where they are in the flow of money. New money entering the system tends to benefit those at the top, especially before the inflation factor kicks in and negatively affects those later in the flow.

Ripple’s Ownership

Ripple Labs is estimated to still own ~50% of supply, which they hold in “escrow wallets.” At any time, Ripple Labs could dump a significant portion of supply, flooding the market and sharply decreasing the price.

It’s Not Truly Decentralized

Ripple Labs has significant influence over network development, validator selection, and coin supply. Many nodes and validators are affiliated with Ripple or are Ripple-friendly partners. When a small group of people can change the rules in their favor (and at a great cost to other investors), it creates a greater level of risk, especially relative to a decentralized token with fairer voting rules.

Real-World Adoption is Limited

Most XRP advocates believe that huge portions of the financial system could run on the XRP blockchain one day. Transaction settlements, foreign currency, wires—you name it. Most banks that use RippleNet use ONLY the technology and not XRP tokens. This limits XRP’s utility and potential demand from institutional adoption.

How Bitcoin Differs from XRP

• Mining and Distribution: 0 bitcoin were distributed at its inception. Every single bitcoin created has been mined through a proof of work consensus mechanism (more on this below).
• Ownership: While estimates vary slightly, the most widely accepted estimate suggests that Satoshi Nakamoto (Bitcoin’s creator) mined around 1M bitcoin. That puts his ownership at less than 5% of the immutable 21 million bitcoin that can be mined.
• Truly Decentralized: Bitcoin uses blockchain technology, a distributed ledger secured by cryptographic techniques. Bitcoin uses proof of work, a decentralized consensus mechanism that requires network members to use effort (computing power) to solve an encryption puzzle.
• Institutional Adoption: Money from institutions continues to pour into bitcoin at an astounding clip with no signs of slowing down.

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