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A statistician and investor, Zhiyuan Sun, explains the pros and cons of this innovative digital coin.

Ripple (XRP) has returned a respectable 12,758.41% to investors since its inception in 2012, turning a $10,000 principal into $1,265,841 within nine years. That’s pretty much, noted Zhiyuan Sun, but only decent relative to the crypto world. For example, Ethereum returned 85,719% from its launch in 2015 to now, and that’s still pretty small compared to some of the alternative cryptocurrencies like Dogecoin.

XRP has a lot of positives, but Zhiyuan Sun wouldn’t bet all chips on it, seeing it as a speculative investment at best.

RippleNet is a platform consisting of payment solutions designed to let money flow freely via XRP over a public ledger. The idea may be simple, but hundreds of financial institutions across 55 countries are already using XRP to facilitate transactions. Its biggest customers include Bank of America and American Express, said Zhiyuan Sun. On July 28, Ripple, the company behind XRP, announced a partnership with SBI Remit, the largest money transfer service provider in Japan, to facilitate cross-border payments using its digital currency.

Everyone can easily see why XRP possesses significant utility in handling credit cards, PayPal, and money orders. It takes just five seconds for an XRP transaction to go through and costs as little as 0.0001 XRP, or $0.00007525, with little energy consumption. So it’s very difficult for payment services to compete with Ripple due to their high fees, pointed Zhiyuan Sun.

He sees XRP’s utility is even better when compared to Bitcoin. Due to its increasing mining difficulty, each Bitcoin transaction costs as much as $40, takes as long as one hour, and consumes 250 kWh, which is about the same amount of energy used by a refrigerator in a year.

What is the biggest threat? Zhiyuan Sun underlined the downsides of XRP. Cryptocurrencies require constant capital inflows for price appreciation because their supply is fixed (at 100 billion for XRP). One area where XRP is lacking is its ability to facilitate large institutional capital flows, which can amount to tens of billions of dollars in one transaction.

By the words of Zhiyuan Sun, the company faces stiff competition from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Over 11,000 financial institutions, including major global banks, treasuries (such as the Federal Reserve), and sovereign wealth funds across 212 countries use SWIFT for cross-border payments. That represents a total of about 4 billion bank accounts.

SWIFT also has the vision to allow anyone to send money seamlessly anywhere in the world, said Zhiyuan Sun. Back in 2019, it took anywhere from 30 minutes to less than 24 hours for SWIFT to complete 50% of its transactions. On July 27, the company launched SWIFT Go — shortening transaction times to mere seconds with full security against potential cyberattacks and greater transparency to comply with complex international regulations. Banks such as Société Générale are already praising the innovation.

According to Zhiyuan Sun, if investors are hoping that SWIFT could synergize its new payment solution with that of XRP, they’d be very disappointed. Two years ago, Brad Garlinghouse, the CEO of Ripple, called SWIFT a “slow and expensive payment network.” SWIFT then proceeded to ignore the company and developed its own institutional blockchain network.

So should XRP is worthy of investing? It’s almost a given, Zhiyuan Sun said, that banks will continue to use SWIFT instead of RippleNet. For starters, Ripple is facing a lawsuit from the Securities and Exchange Commission over allegations that Ripple sold XRP as unregistered securities back in December 2020. Until that settles, not a lot of financial clients would want to deal with a potentially regulatory-rogue company. In addition, the prestige of services like SWIFT and Bank of International Settlements will continue to entice financial institutions. So at best, XRP is an OK cryptocurrency to buy on the dip, as with the rest of the cryptocurrency stocks, resumed Zhiyuan Sun.

Zhiyuan Sun is a statistician skilled in analyzing clinical trials and company financials. His interest covers healthcare and innovations alongside looking out for new, actionable stock investment ideas in these sectors. Lately expanding into the cryptocurrency and biotech sectors. Columnist at The Motley Fool since April 2020.

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