It's been an interesting year for crypto. The presidential election victory of Donald Trump last November sent most cryptocurrencies surging, as Trump has cozied up to the sector and promised to make the U.S. the crypto capital of the world, a promise he has so far tried to fulfill. But cryptocurrencies have also had to contend with a perplexing macro environment, trying to figure out if inflation has been reined in or if it will remain elevated or even surge higher at some point.
Few cryptocurrencies have performed better than XRP (XRP -3.53%), the third-largest cryptocurrency in the world, which is up roughly 390% during the past year. Although XRP has done extremely well, many investors are still torn on whether the token has more room to run or has run too far too fast. Where will XRP be in three years?
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Can XRP become a force to reckon with for international payments?
When assessing cryptocurrencies, most investors look for coins and tokens that operate on strong technical networks, and XRP definitely checks this box. Interestingly, XRP's network does not operate on a proof-of-work consensus mechanism like Bitcoin, the world's largest cryptocurrency, or proof-of-stake like Ethereum, the world's second-largest cryptocurrency.
Rather, XRP uses a system referred to as a unique nodes list in which the network relies on a list of selected nodes, which are computers or devices that are part of a network, to validate transactions and create new blocks.
This means XRP uses far fewer nodes than more traditional blockchain networks, making it easier for the network to revise incorrect transactions. True crypto diehards may not view this as a positive because it means XRP is less decentralized. However, this type of mechanism is much faster than many other crypto networks out there and XRP can process as much as 1,500 transactions per second (TPS), according to Ledger Academy.
What's also intriguing about XRP is the company behind the creation of the token. Ripple has built out its own network of products, leveraging the capabilities of XRP to try and bridge the gap between crypto and traditional finance, offering banks and other companies the ability to take advantage of cross-border instant payments. Ripple has created RippleNet, which aims to compete with SWIFT, the Society of Worldwide Interbank Financial Telecommunications, a messaging system banks use globally to send payment instructions to one another.
RippleNet provides interbank communication software, real-time liquidity, and an application programming interface (API) so banks can more easily tap into the network. Ripple Chief Executive Officer Brad Garlinghouse has specifically said that the ability for crypto to offer real-time liquidity means banks won't have to pre-fund international accounts and have as much in reserves, giving them more flexibility in terms of their own regulatory capital and liquidity requirements. Corporate clients may also prefer a network that is less decentralized because it makes it easier to fix mistakes like incorrect payments.
Not only does Ripple list numerous customers on its website, but earlier this year, the company acquired the large prime broker Hidden Road, which has more than 300 top institutional customers on its platform. Garlinghouse has previously made comments that he thinks Ripple and XRP could steal as much as 14% of SWIFT's volume.
Where will XRP be in three years?
Given how volatile crypto is, making long-term predictions is no easy task. But I expect Ripple to gain more corporate clients and broaden its ecosystem, which should increase demand for XRP. The big question is whether it can truly take significant SWIFT payment volume and also stave off competition in the crypto sector because there are other networks that can process more TPS than XRP.
Ultimately, I don't think XRP is going away and I do believe it will be here in three years, with its performance partially influenced by the performance of Bitcoin, which I consider a bellwether for the sector. While I find XRP intriguing, I am still keeping my investment toward the smaller, more speculative side right now, given volatility and difficulty in deciphering how much market share XRP and RippleNet can really take from traditional international payments.
