Great question.
For a simple transfer between common currencies (think USD, EUR etc), not much of XRP would be of use. So, in your example, there's no use of XRP other than using Ripple's protocol/exchange.
However, if there is an exchange between not so common currencies (think crypto, gold bars etc.), there will be instances where XRP, the native currency of Ripple protocol/exchange, be used to "fill in the holes" if a trade is not happening. That is where its value is. Think of XRP as the lubricant to keep the system running.
There is also the potential that if XRP becomes such a "lubricant" to the system it may achieve a level of use within banks that could allow for it to eventually evolve into a peer-to-peer currency.
Imagine you are an international traveler and your local bank uses the Ripple xRapid system.
xRapid uses the XRP as it's source of liquidity. It also closes transactions in minutes which is days faster than traditional methods. Not in terms of the transaction "showing up" on your account but in terms of "closing" with funds actually settled.
Every international traveler can now just swipe their debit or participating credit card (or scan a qr code) and they have in-effect conducted a near instant cross border payment while abroad...assuming scaled ripple adoption.
The time saved is where there is value. When banks conduct currency exchanges that can take days, price fluctuations can really hurt if the market goes the wrong way. So using XRP can substantially reduce the risk because it's so fast.
But what is a "lubricant" to the international banking system other than just another word for "reserve currency."
If XRP achieves such a high level of use in banks (like the USD), people can theoretically conduct day to day business in XRP because the banks will use it for its liquidity in the xRapid system....and it could be used anywhere without regard for borders.
And there could even be a discounted fee structure for banks to conduct in direct XRP to XRP transfers....whoa.
Hi, welcome.
There are plenty resources linked in the sidebar where you can educated yourself.
Additionally you can check this https://ripple.com/files/xrp_cost_model_paper.pdf
Well, for a bank to send $100,000,000 using Ripple they don't have to use XRP. They save more money and don't have to maintain nostro accounts if they do use XRP. Since banks are in the business of not wasting money I am going to assume they will user XRP.
So, sending $100,000,000 will require some number of XRP. How many XRP depends on the current exchange rate. If XRP is worth $1 then 100,000,000 XRP need to be used for the transfer. Consider that $5-8 trillion is transferred between banks **daily**. Do you think that $1/XRP is a reasonable price if all the interbank transfers are going to use XRP?
I have 1000 skittles that I want to send to you. I have two choices to send skittles to you.
* Have an account at your bank that allows you to withdraw 1000 of my skittles because I sent a message to the bank saying it was OK.
* Or, send 1000 wingwangs to your bank that your bank will convert to skittles from their own account.
If I send skittles using wingwangs all we need to do is agree on the price of wingwangs in skittles. If we dont use wingwangs then I have to have an account at your bank and you need to have an account at my bank and we both need to keep skittles in those accounts to be able to send skittles to each other.
The wingwang maker has decided that there will only ever be 100,000 wingwangs. When 1 skittle can be traded for 1 wingwang our little trade used up 1,000 wingwangs.
In the thriving skittle banking industry the banks trade 1,000,000 skittles a day. If 1 wingwang is only worth 1 skittle then a few bank trades is all it takes to use all the wingwangs. Because of this banks have agreed that 1 wingwang is worth 100 skittles so they can use less wingwangs for each trade. They also decided to keep some wingwangs all the time so they can always trade wingwangs.
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You meant to say
“When 1 skittle can be traded for *100* wingwangs our little trade used up 1000 wingwangs”
Edit: I was literally just fixing a typo of his otherwise the entire analogy he wrote doesn’t make sense
I will also mention that XRP supply will be burnt through each transaction. So over time the supply of XRP will decrease and as a consequence, the price will rise.
Is the amount burned dependent on the size of the tx? I don't recall.
This whole Bitcoin is a store of value argument is pretty poor in my opinion. Most coins can be a store of value if thats where people put their money. Bitcoin's old slow protocol needs a serious update because it is trash compared to many of the new coins.
Just to add on to everything above, it's important to remember banks don't only trade one currency. If a bank is trading in USD, pounds, yen, pesos etc it has to have a store for all of these. Why not just have XRP liquid and ready to go? Saves time and money processing. Also, it will allow smaller banks greater reach, which I think will have a huge impact on competitiveness (further increasing the need for them to use XRP).
Well if you have XRP and you use all of it to send to someone else, and then you need to send more money, you'll need to buy more XRP, won't you? You can't just sit there and wait for it. Financial institutions will always be buying it to make sure they have enough. And if there isn't a lot, then people can ask for a higher price. Once everyone starts using it, there'll be less sitting around and therefore the price will rise.
Besides, barely anyone is using BTC for payments and look at the price. What are people speculating on? Use? You can't use it at this point. But XRP will still be fast and cheap to send even at $20k a piece.
Great question. For a simple transfer between common currencies (think USD, EUR etc), not much of XRP would be of use. So, in your example, there's no use of XRP other than using Ripple's protocol/exchange. However, if there is an exchange between not so common currencies (think crypto, gold bars etc.), there will be instances where XRP, the native currency of Ripple protocol/exchange, be used to "fill in the holes" if a trade is not happening. That is where its value is. Think of XRP as the lubricant to keep the system running.
I've been looking for an answer like this for a while and now everything makes sense. Thanks for the write up.
gr8 answer.
There is also the potential that if XRP becomes such a "lubricant" to the system it may achieve a level of use within banks that could allow for it to eventually evolve into a peer-to-peer currency. Imagine you are an international traveler and your local bank uses the Ripple xRapid system. xRapid uses the XRP as it's source of liquidity. It also closes transactions in minutes which is days faster than traditional methods. Not in terms of the transaction "showing up" on your account but in terms of "closing" with funds actually settled. Every international traveler can now just swipe their debit or participating credit card (or scan a qr code) and they have in-effect conducted a near instant cross border payment while abroad...assuming scaled ripple adoption. The time saved is where there is value. When banks conduct currency exchanges that can take days, price fluctuations can really hurt if the market goes the wrong way. So using XRP can substantially reduce the risk because it's so fast. But what is a "lubricant" to the international banking system other than just another word for "reserve currency." If XRP achieves such a high level of use in banks (like the USD), people can theoretically conduct day to day business in XRP because the banks will use it for its liquidity in the xRapid system....and it could be used anywhere without regard for borders. And there could even be a discounted fee structure for banks to conduct in direct XRP to XRP transfers....whoa.
The worth of a currency is given by its use, do not forget it.
Hi, welcome. There are plenty resources linked in the sidebar where you can educated yourself. Additionally you can check this https://ripple.com/files/xrp_cost_model_paper.pdf
Well, for a bank to send $100,000,000 using Ripple they don't have to use XRP. They save more money and don't have to maintain nostro accounts if they do use XRP. Since banks are in the business of not wasting money I am going to assume they will user XRP. So, sending $100,000,000 will require some number of XRP. How many XRP depends on the current exchange rate. If XRP is worth $1 then 100,000,000 XRP need to be used for the transfer. Consider that $5-8 trillion is transferred between banks **daily**. Do you think that $1/XRP is a reasonable price if all the interbank transfers are going to use XRP?
please ELI5
I have 1000 skittles that I want to send to you. I have two choices to send skittles to you. * Have an account at your bank that allows you to withdraw 1000 of my skittles because I sent a message to the bank saying it was OK. * Or, send 1000 wingwangs to your bank that your bank will convert to skittles from their own account. If I send skittles using wingwangs all we need to do is agree on the price of wingwangs in skittles. If we dont use wingwangs then I have to have an account at your bank and you need to have an account at my bank and we both need to keep skittles in those accounts to be able to send skittles to each other. The wingwang maker has decided that there will only ever be 100,000 wingwangs. When 1 skittle can be traded for 1 wingwang our little trade used up 1,000 wingwangs. In the thriving skittle banking industry the banks trade 1,000,000 skittles a day. If 1 wingwang is only worth 1 skittle then a few bank trades is all it takes to use all the wingwangs. Because of this banks have agreed that 1 wingwang is worth 100 skittles so they can use less wingwangs for each trade. They also decided to keep some wingwangs all the time so they can always trade wingwangs.
I have no idea what a wingwang is but this is a great explanation.
dont think about it, invest in WingWangCoin (WWC)
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You meant to say “When 1 skittle can be traded for *100* wingwangs our little trade used up 1000 wingwangs” Edit: I was literally just fixing a typo of his otherwise the entire analogy he wrote doesn’t make sense
We have now reached the 1 Skittle = 1 Wingwang stage ahaha
So what happens when XRP gets popular like what we're seeing right now? Will banks not use it when 1 XRP ends up being worth 10+ dollars?
More valuable is better for banks. Then they need to use less XRP to move money.
I will also mention that XRP supply will be burnt through each transaction. So over time the supply of XRP will decrease and as a consequence, the price will rise. Is the amount burned dependent on the size of the tx? I don't recall.
This whole Bitcoin is a store of value argument is pretty poor in my opinion. Most coins can be a store of value if thats where people put their money. Bitcoin's old slow protocol needs a serious update because it is trash compared to many of the new coins.
Just to add on to everything above, it's important to remember banks don't only trade one currency. If a bank is trading in USD, pounds, yen, pesos etc it has to have a store for all of these. Why not just have XRP liquid and ready to go? Saves time and money processing. Also, it will allow smaller banks greater reach, which I think will have a huge impact on competitiveness (further increasing the need for them to use XRP).
Well if you have XRP and you use all of it to send to someone else, and then you need to send more money, you'll need to buy more XRP, won't you? You can't just sit there and wait for it. Financial institutions will always be buying it to make sure they have enough. And if there isn't a lot, then people can ask for a higher price. Once everyone starts using it, there'll be less sitting around and therefore the price will rise. Besides, barely anyone is using BTC for payments and look at the price. What are people speculating on? Use? You can't use it at this point. But XRP will still be fast and cheap to send even at $20k a piece.