Monday, 26 August 2019

What is Ripple and How Does It Work?

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Ever since cryptocurrency entered mainstream consciousness a few years ago, Bitcoin has dominated headlines, with Ethereum a close second. Bitcoin, Ethereum, and Ripple are the top three cryptocurrencies by market cap; but, unlike the first two cryptocurrencies, Ripple is a little more complicated – and has a lot more to offer the crypto market.
Ripple is actually a platform first, and a cryptocurrency second. While Ripple is perhaps best known as a cryptocurrency, it’s mainly a digital payment networkand protocol. The technology functions more similarly to SWIFT, the traditional international money transfer network used by banks and financial institutions. For those just learning about cryptocurrency, Ripple offers a more accessible platform for understanding this market and making smart investment decisions. Here’s how Ripple works and the main advantages of this technology.  
How does Ripple work?
Ripple is a blockchain system that owns a currency. XRP is the name of Ripple’s cryptocurrency, most of which is held by Ripple, the company. Currently, Ripple owns approximately 60 billion XRP and can sell up to one billion per month. More importantly, however, is the blockchain network operated by Ripple, called RippleNet. The infrastructure of RippleNet is designed to support fast, convenient transactions, making Ripple the preferred cryptocurrency and blockchain solution for big financial institutions and the “unbanked” population.
A key difference in the way that Ripple works is that it specifies a path for a money exchange. For example, if Bank A wants to send a money transfer to Bank B overseas, Bank A must specify “by which gateway (other banks, institutions, or individuals) it is connected in the Ripple network” to Bank B. Then, once the transaction is formed, it gets sent to a validator. The validator takes the transactions, turns them into proposals, sends those proposals to other validators, and then participates in a vetting process. Proposals that get more than 50% consensus in the first round must participate in three more rounds before being approved. The goal is to weed out “transactions that are somehow doubtful or clearly wrong, such as instances of double spending.” 
Ripple’s mechanism has the advantage of using less energy while enabling instant verification of transactions without any central authority figure directing traffic. It’s a win-win for many companies: Ripple is decentralized, yet faster and more reliable than other blockchain networks. 
On RippleNet, the company has carved out a niche in hosting cross-border paymentsAmerican Express is just one of the companies that’s taken advantage of Ripple to move corporate funds between the US and the UK, with no lag time. It’s just the beginning for what the company sees as an opportunity to bring banking to the “billions of ‘unbanked’ people who currently lack a convenient way of moving that money across borders.” 
xCurrent and xRapid are Ripple’s two main cross-border transfer payments. xCurrent, Ripple’s most highly adopted product, enables participants to message, clear, and settle transactions. It’s quickly disrupting SWIFT, which can take a few days on average to settle payment. 
The benefits of using Ripple
Faster, trusted transfers are just the beginning of what Ripple can begin to offer the market. Like other blockchain networks, Ripple does not depend on one central authority to manage and secure their database of transactions. As a result, confirmations get approved quickly and securely. 
Another advantage the company enjoys in the crypto market is Ripple’s stake in their XRP cryptocurrency. Ripple owns about 60% of all XRP in existence. That gives the company a valuation of at least $20 billion. It’s an incredibly powerful position to be in where Ripple can completely revolutionize the way transfers happen, taking on the outdated SWIFT method more rapidly than if Ripple had to raise funding.
The so-called unbanked population globally is about two billion people. These are people who do not have access to a bank account or financial institution, relying exclusively on cash to buy and sell goods and services. The World Bank points to lack of access to banking as a perpetuation of poverty: “bank accounts have an important part to play in the founding and expanding of businesses, making transactions more efficient, secure and transparent and managing savings.” There’s a lot of potential for Ripple to help expand access to banking through efficient, cross-border transfers that have virtually no transaction fees.

Thursday, 1 August 2019

Cryptocurrency: A New Investment Opportunity?

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Run a quick Google search and you’ll find all kinds of conflicting opinions out there about cryptocurrency. “Gamblers and speculators are the best candidates for the cryptocurrency market,” writes US News and World Report. “These kinds of returns are impossible to acquire within the realm of traditional investments,” crows one pro-cryptocurrency site.  
Cryptocurrency, and the underlying blockchain technology has been part of mainstream consciousness for the last few years. Today there are over 2,000 cryptocurrencies being traded. Bitcoin, Ethereum, and Ripple may be the top three by market cap, but there are all kinds of variations, including some seriously weird ones like Dogecoin and Whoppercoin. 
Like any investment, cryptocurrency requires careful research and consideration before choosing to buy any type of coin. This market is extremely volatile, which is why it may not make the best investment option for many people. Here’s what you need to know about cryptocurrency as a new investment opportunity. 
Cryptocurrencies have posted strong returns 
If you invested in cryptocurrencies even a year ago, there’s a good chance your investment has skyrocketed. In comparison with the traditional stock market, cryptocurrencies are yielding massive returns in the last five out of six years. Here’s how Bitcoin has performed since 2011: 
  • 2011- Bitcoin +1500%
  • 2012- Bitcoin +299%
  • 2013- Bitcoin +5400%
  • 2015- Bitcoin +37%
  • 2016- Bitcoin +130%
Some of the bigger tech stocks, such as Facebook, Amazon, and Google, have all seen great returns as well – but none can compete with Bitcoin’s total returns of 22,004%. Of course, it would be foolish to expect that kind of exponential growth to continue, but historic performance shows cryptocurrencies have strong potential. 
Crypto makes a great “global currency”
For those overseas, investing in a “global currency” is a particularly interesting opportunity. “With the very real ‘war on cash’ escalating in India, Australia, combined with an uncertain macroeconomic and geopolitical environment and a monetary crisis in Venezuela, conditions for Bitcoin’s demand-side reliability have heightened. Bitcoin can provide a superior alternative for people in the developing world looking for reliable digital payment channels,” writes The Balance
Investing in equities or bonds can make it hard to access your funds when you need them. You need to wait for the stock market to swing in your favor, or for a bond to mature, before you cash out. With cryptocurrencies, you have the ability to transfer money quickly across borders to friends, family, or business partners. 
Cryptocurrencies are speculative 
While cryptocurrencies might sound like a great investment opportunity, there are some caveats to entering this volatile market. The biggest concern many analysts have around cryptocurrencies are the speculative nature of the marketplace. A coin’s price ultimately depends on the supply & demand dynamics in the marketplace. The price goes up when people want to buy it, and there are not enough coins to be sold at the current price. The future price is entirely dependent on what other people will buy it from you at,” writes Hackernoona blockchain blog. 
Investing in crypto is similar to gambling: coins like Bitcoin aren’t based on the gold standard, or any standard for that matter. Despite the value determined by economic concepts like scarcity and utility, cryptocurrencies remain dependent on market forces – which can be too big a risk for some investors. 
There’s no federal protection for your investment
When a currency is based on the gold standard or tied to a national economy, there is some protection for investors should something go wrong. However, for those in the cryptocurrency market, the SEC can’t do much to protect investors from fraud. “A December 2017 statement from SEC Chairman Jay Clayton notes that decentralized exchanges and trading can often exist and occur outside the confines of the U.S. borders. And, since a number of digital currency transactions are designed to be anonymous, recovering your investment may not be possible,” writes the Motley Fool
Investing in a global currency is a double-edged sword. On one hand, you gain the ability to make seamless transfers and protect your wealth from fees. On the other hand, you lose the protection of a national watchdog or federal banking regulations. 
Cryptocurrency and blockchain may be the answer to high transfer fees
If you’re seeking to invest in your business, then cryptocurrency, and the underlying blockchain technology, might be a good tool to help you grow. Commercial payment fees cut into many merchant’s small profit margins. Credit card processing fees range from 0.9% to 2.9%, plus other hidden fees that can eat up revenue quickly. 
Cryptocurrency facilitates direct transfer, circumventing the third party that often charges for processing payments from a bank, credit card, PayPal, or another payment method. “This crypto benefit reduces processing fees charged by banks and financial institutions for wire and other fund transfers. The widely adopted blockchain technology stores the online transaction ledger and reduces the threat from hackers, as every new block created must be verified by the ledgers of each user on the market,” writes US World News ReportFor business owners, cryptocurrency can offer streamlined payment options to vendors and supply chain partners that might help their business grow in the long-run. 
Best case? Crypto as part of a diversified portfolio
Perhaps the best use of cryptocurrencies for the everyday investor is as part of a larger, diversified investment portfolio. For those seeking to capture the benefits of this investment opportunity, while keeping their risk profile low, should consider allocation between 2% – 3% of your total investment budget in cryptocurrency. As the crypto market matures, levels out, and becomes more accessible, security should improve and federal protection may catch up. 
Cryptocurrency is here to stay. As an investment opportunity, it’s worthwhile to consider growing your wealth while still managing your risk responsibly.