As an economics student, I have been very interested in cryptocurrency. More importantly what it is and why is it important? Cryptocurrency is one of the fastest-growing currencies in the world, and whether we like it or not it will become the new form of currency in the future. So I am going to break down what it is, why it is intimidating, and which types of crypto are the most important to know.
Imagine a world where cross-border payments were as quick and effortless as sending an email. Imagine having the ability to control your finances, business ledger, or digital assets, without the help of central banks or large financial institutions. Whether people like it or not, this is the direction the world is heading, and it’s unfolding before our eyes faster than we can fathom. Digital currencies, also known as cryptocurrencies, have been challenging the banking system since the birth of Bitcoin. Although it has minimal real-world use, Bitcoin is essentially digital gold. It’s commonly compared to gold because it is scarce in supply, it cannot be duplicated, and it is a great way for investors to protect themselves from the worldwide inflation of fiat currencies. At the time of writing this article, the market cap of bitcoin is just over one trillion dollars, pricing each coin at over Fifty Thousand Dollars. Struggling nations like El Salvadore, India, and Pakistan have already started adopting bitcoin as an alternative currency, due to how worthless their native currency has become. In fact, one US Dollar is the equivalent of 20 pesos or 76 Indian Rupees. As the value of Bitcoin continues to rise, many third-world countries will adopt it in an effort to save their struggling economies.
Skeptics however have actively voiced their concerns over this digital revolution since its existence, and rightfully so. The same qualities that give bitcoin its value are exactly what will hold it back from worldwide adoption. With only 19 million in existence, there is too scarce of a supply to be distributed around the world. Bitcoin also requires a tremendous amount of electricity to use, is expensive to transact, and can take anywhere from 5 to 30 minutes to settle each transaction.
Simply put, Bitcoin is not the solution the world is looking for as we move into a cashless society. In order for a digital society to evolve, the world will need an asset that is cheap to utilize, settles transactions quickly, and is environmentally friendly. This is where Ripples XRP comes into play. Ripple is a real-time gross settlement system that uses its digital currency called XRP to instantly transfer funds around the world. Imagine a central bank in China wants to send 10 billion dollars to another bank in Russia. These banks currently use the Swift payment system to send these transactions. Most people have never heard of Swift simply because the average person does not use swift for transactions, only banks do. To put this into perspective, Swift moves roughly 45 Quadrillion dollars per year, making them by far the largest payment system in existence. The problem, however, is that each transaction takes anywhere from one to two weeks to settle, and costs banks a 2% fee to do so. That may not sound like much, but when you consider their annual volume, that money adds up quickly.
Ripple on the other hand, settles transactions in 3 to 5 seconds, and only costs fractions of a penny to do so. This is a tremendous improvement, and many countries have already begun working with Ripple to make XRP the standard for cross-border payments. Ripple is currently partnered with over 450 banks and was recently tested for the first time by Japan. On July 28th, 2021 Japan used XRP’s on-demand liquidity to send funds to the Philippines in preparation for their CBDC. Central Bank Digital Currencies are still in the beginning stages, however many counties such as China, France, and Sweden have already implemented their CBDC’s as they seek to stay ahead of the curb in this digital revolution. This is why XRP is the most useful cryptocurrency in existence. While most cryptos seek to challenge the banking industry, Ripple aims to assist them.
Cryptocurrency is scary and can be harmful to our society, but Ripple seems to be the best direction to go in. However, it is important to understand cryptocurrency and the effect it will have on our economy in the future.