Ripple (XRP) Isn’t Fully Decentralized – Maybe That’s Why Banks Love It

At some point in the past few months, Ripple (XRP) established itself as a top-3 cryptocurrency – with investors and analysts all over the crypto world predicting that this coin would eventually unseat Bitcoin (BTC) and Ethereum (ETH). After all, this technology was faster and cheaper than both BTC and ETH while achieving the same basic purpose of both.

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At the time of writing, it’s the 3rd most valuable cryptocurrency worldwide. Bitcoin Cash (BCH) is in 4th place and has only about half of XRP’s market value.

On top of being favored by investors over other up-and-coming altcoins, Ripple (XRP) gets a ton of positive media attention. It is even being heavily speculated that XRP will soon wind up on Coinbase, which has added about 10 percent to its price in the past day.

But it’s not just news blogs and investors that love this coin – there is a very particular group of organizations that are warming up to this technology, and it’s working out great for XRP (or at least the company that owns it).

One certain sector sure loves the Ripple coin

Perhaps what has been the biggest boost to this coin’s growth story, though, has been the fact that it has been known as the “favorite cryptocurrency of the banking sector” – and there are good reasons for it having this reputation.

Most recently, Cambridge Global Payments (a subsidiary of Fleetcor) just announced it would use this protocol in a cross-border payment pilot program. That new partner joins other big names like MoneyGram, Western Union, Cuallix and Santander – which have all at least tested XRP’s payment technology.

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That’s sort of this payment technology’s whole point: being able to solve the problem of banks settling funds amongst themselves instantly and cheaply. You see, Ripple is a company first and foremost – a company that offers payment solutions to banks.

And a company that holds most of its cryptocurrency supply – oh, and don’t forget a company that controls a centralized currency (which a lot of its investors don’t even realize).

Ripple (XRP) isn’t decentralized (yet)

A lot of crypto purists out there don’t see Ripple as a genuine decentralized ledger technology (DLT) for one huge, blaring reason: at the moment, it is centralized.

One of the main identifying characteristics of cryptocurrency – and also one of its biggest appeals – has always been decentralization. Digital currencies were supposed to be able to rid our financial system of centralization, where our funds and transactions are controlled by a central power. Instead, transparent blockchain technology would govern how we move money around.

Ripple (XRP) goes against that premise. First of all, the nodes in the network are controlled by the company – they also control when new ones are created. It’s not like anyone can just start mining.

Second, most of the global XRP supply is held by the company itself. To make that seem less bad, management locked 55 billion coins in an escrow account – but investors still have to put a lot of trust in their ownership of it.

Sure, they are working on a decentralization strategy – but their description of it is a doesn’t 100% state that their won’t be a centralized governing power over the coin supply. Plus, there will still be corporate-controlled nodes after they phase in “independent” validators. They just say they are making it more distributed, but they don’t say exactly how much will be Ripple-controlled.

There’s more, but investors don’t really care

Another strange fact that a lot of investors don’t realize is the fact that most of those financial firms that are testing and using Ripple technology aren’t actually using XRP coins – in fact, most of them aren’t. They are using a solution from the company that makes the coin called xRapid, which is how they execute cross-border transactions.

And, sure, the long-term sales strategy is to get all their clients to use the actual XRP coins, the incentive for them not to just create their own coins.

It may be that banks like the centralization part, or it may be that they are just adopting xRapid and that’s it – they might even fully embrace XRP as a digital currency and take this coin straight to the moon. But, at this point, it’s a corporate-controlled digital currency network and investors are putting a lot of faith in that corporation.

Investors certainly don’t seem to mind that much.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.


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