Is ripple a bubble

Why Ripple is worthless (and some other coins either)

Ripple is currently the third most valuable cryptocurrency after Bitcoin and Ethereum. The currency with the symbol XRP is a token from the company Ripple Labs. Anyone who bought Ripple for 100 euros on January 1 of last year could look forward to 36,000 euros on January 1, 2018. The sum of all Ripple tokens has a market capitalization of 89 billion US dollars. The founder was at the top of the list of the richest people at the beginning of this year.
Are these tokens worth 89 billion? Certainly not. But what is their real value? I think: 0. Here is my argument.

What Ripple should do

When banks transfer money across borders, they use Swift's service (and technology). This is a log from the early 1970s. It enables the digital transfer of money between banks without having to send real bills back and forth. Swift is one of the cornerstones that made today's globalized money economy possible. Swift is expensive, slow, and cumbersome. On the other hand, it has been working for four decades with a permanent increase in money transfers.
Ripple Labs has now invented a protocol based on blockchain technology to replace Swift. If it is rolled out across the board, it will replace Swift and all of its drawbacks. There is a great need for and interest from the banks. If money transfer costs almost nothing, the institutes save billions. If Ripple Labs catches on, the company will be worth billions of dollars as well.

XRP is not Ripple Labs

If you own Apple stock, you own part of the company. You are (sometimes) entitled to a share of the profits in the form of a dividend. Or even a voting right on the fundamental direction of the company. Similar to all forms of investment, the value of the share is based on belief in the future profitability of the company. However, this is supported by ownership and the rights associated with it.
Ripple's XRP token, like practically every other crypto token, is not tied to company capital. Whoever holds XRP owns ... nothing but the token. No property, no dividends, hardly any rights. The price of XRP hardly correlates with the company Ripple Labs, but only with the buyers' expectation of a higher sales price in the future. That may increase the price, but not the value.

Utility is not a value in itself

Crypto tokens can be divided into three groups: currencies (such as Bitcoin, Dash, Monero), investments (such as stocks or bonds) and utility tokens. The latter are used to pay for a service. In the casino you buy a few tokens with euros, which you then use to play. In the crypto world, you buy ether to pay for the use of the Ethereum supercomputer. Or just XRP to pay for the money transfer. Utility tokens are a currency used to pay fees.

XRP has no value

Ripple is accused in the crypto scene of not being a real blockchain. Because it is centrally controlled, non-transparent, has no mining and is controlled by a company. But that's not bad for the purpose. After all, banks have been living very well with a centralized Swift for 45 years. But the problem lies elsewhere: XRP is only used by banks. But the token can be traded on public exchanges. This is pointless because I personally have no need for Ripple other than for speculative purposes. Speculation means price fluctuations and that is a horror for banks. Imagine a transfer from Vienna to Timbuktu costs 3 cents today and 25 euros tomorrow. In order for XRP to be used as a utility token, it must disappear from the public market. And with that, the price drops to its real value.

No utility token is an investment

Our economic system has been based on this principle since industrialization 200 years ago at the latest: The more of a product is produced, the cheaper the unit price. The more a service is used, the cheaper the individual use.
But how do crypto tokens work? The more they are used, the greater the demand. The greater the demand, the more expensive the price. The token principle is at odds with our economy.

What is the bottom line

So that the token does not get stuck in this contradiction, it must not be used for the service. There are already many blockchain projects that have two tokens. One to collect money (speculative) and a second, stable one to use the respective platform.
With such a solution, the XRP token would be decoupled from its original use. All that remains for him is the company's value. But wait: there is no such thing. And in terms of value, it gets even more uncomfortable. If a public company wants to issue new shares, the current shareholders must vote on them. Because with new shares, the value of each individual share is diluted. It's not just that with XRP the company decides on it, but they haven't put more than half of all XRP on the market. The value of XRP is therefore not in the hands of the market, but can (and is) manipulated by Ripple Labs.
All of this happens while Ripple Labs owns the company. You can now go public on a conventional stock exchange at any time and issue real shares with ownership rights. So you can raise capital a second time and only give shares once for it. Then XRP owners are clearly looking through the fingers.

This applies not only to Ripple Labs, but to any crypto token that has no currency function.
Hence, I think XRP has no value. And neither do most tokens. However, I am open to discussion.


Also published on Medium.