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Why Ripple will fail.

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17 hours ago, ScottChamberlain said:

Great thread. Thanks for starting it, Zaki.

Crypto is forcing everyone to reconsider assumed concepts like money value taxation and role of government. That is a great thing. As a significant but recent hodler of XRP, I don’t want your argument to be right. So after I quelled my cognitive dissonance, I thought about it a bit, and came up with this…

As I understand the argument, Ripple won’t succeed because:

1.       Ripple sells to banks;

2.       Banks won’t survive crypto; and

3.       XRP will have no use without banks.

No one would argue with point 1. It is demonstrably true. But, point 2 is debatable, because the role banks perform won’t vanish in a crypto world, just change shape, and I think point 3 is probably wrong because banks are not Ripple’s only target, nor XRPs only users.

Unpacking point 2…

The argument here is that banks won’t survive crypto because:

1.       Banks rely on deposits from users;

2.       Users deposit into banks to store and access funds;

3.       Crypto doesn’t need to be kept in banks to be stored and used;

4.       Users only need banks if they need fiat;

5.       Crypto will be so useful fiat won’t exist so there will be nothing to deposit anyway

I don’t think anyone would disagree with points 1 and 2. Point 3 is also true. It highlights that crypto is like cash – stored under a mattress or in a wallet without anyone telling you you can spend it.  But I don’t think points 4 and 5 are necessarily valid.

Here’s why.

As to point 4, every market needs liquidity and a role naturally emerges for liquidity providers. That is the role banks provide. They put people who have money in touch with people who want money. That pooling is a scarce and valuable service – hence the fees banks can charge. Even in a crypto world there will still –presumably - be borrowing and credit – and therefore pooling of crypto for lending. That service will be provided by things that look remarkably like banks.

Would you horde your crypto, like cash under a mattress, or would you make it available to be lent out at a profit…? See, it has to be lent out if it is not spent otherwise the economy grinds to a halt. This was the original innovation of coins – taking horded golden treasure and melting it down into golden coins – that made the Lydian kings of old so legendarily rich. Velocity of money/value is important. There must be transactions for wealth to be generated.

So banks, or something like them, would exist, even if there was only crypto. Peer-to-peer will work to a point, but there will ultimately be pooling. This is, after all, the function crypto-exchanges perform. Imagine banks as crypto-exchanges…

As to point 5, this is difficult to unpack, but is related to 4. Countries going digital doesn’t mean the end of fiat. Fiat is just unbacked money. USDTether is really the first crypto-fiat. So countries turning their currency into a digital form doesn’t prevent printing. Without Proof of Work or similar, they are just digital fiat, not a mathematically controlled, trustless, unforgeable means of storing value.

The point is, each country will maintain its own currency. It has to, or it loses control over fiscal policy. Lack of a fiscal policy is currently crippling Greece, for example. That means there will continue to be many digital fiats/currencies. And they will exist on separate blockchains (or possibly just centralised databases!). I don’t think any country would place its fiscal policy at the mercy of bitcoin’s miners, for example.

As long as there are multiple stores of value/means of exchange, someone or something is going to sit in the middle and make the transfer happen. Unless there is one crypto to rule them all, which seems unlikely.

But people will mine their own crypto and ignore State cryptos, you might say. True, but crypto relies on fiat for its “value”. Or rather, it relies on fungibility. One bitcoin is only worth one bitcoin, unless there is a means to exit the ecosystem. Bitcoin is only worth anything in USD because USD can enter and exit the ecosystem. It is the advent of digital exchanges and the flow of huge amounts of fiat money into the crypto world that have caused crypto to spike in value, not its intrinsic worth. Without fugibility you’re back to 10,000 bitcoin for a pizza.

And that requires a bridge. This is what Ripple is trying to create – the internet of value. And XRP has been designed as the best vehicle for transferring value across that internet. Even if there is a digital form of USD (XUSD) and a digital form of AUD (XAUD), you can pump in XUSD, but I want to be able to pull out XAUD.

Peer-to-peer will only go so far, here. I don’t want to have to take your XUSD and find someone to swap it for the exact amount of XAUD I require, and I certainly don’t want that to take time which increases risks and holding costs and the need for hedging.  The natural emergence will be liquidity providers who will take XUSD and give me XAUD. And RippleNet and a liquid market for XRP solves this problem, regardless of whether the value being converted is represented in paper or digital form.

Now, Ripple might not succeed. A different asset might become the bridge between different value systems. But, I think something like XRP will be necessary even in a 100% crypto-world.

This leads us back to the final claim – without banks XRP will have no use. I think this is wrong because Ripple is trying to do more than just work with banks. Xcurrent is its bank-only solution. Its other solutions - XRapid and XVia – are for banks, corporates, payment providers and digital exchanges. There is also xPool, which has a yet to be revealed purpose, but could well be an exchange/nascent cryptobank. Further, there is nothing to stop anyone from providing XRP related services, especially for consumers.

The more successful Ripple is at growing the RippleNet the more likely it is the XRP will have a role even if banks die. And even then they have at least as much time as necessary to establish the network before the host banks succumb to crypto-geddon.

Have at it. I'm just a blind man describing the sun. What do you see that I don't..?


Edit: And so there's this: 


In my humble opinion, this has been the best "rebuttal" to my initial post. I still stand by my point of view, but this was well argued.

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18 hours ago, noncomittal said:


Ok, guys I am going to be leaving this thread. Thanks for all of you who took part, whether you agreed or disagreed. And thanks for this great xrpchat forum, it has taught me a lot and will no doubt continue to do so going forward.

I am not intending on leaving, as some of you seem to think.  Indeed I will be following Ripple and many other interesting crypto protocols going forward. This is an exciting time and I am convinced this technology in its various forms will impact life on earth for generations to come. 

Good luck to all - and remember that, whether you win or you lose, it won't matter in the end. Thankfully, in life there are far more important things than money. :-)



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On 07/12/2017 at 1:05 AM, Zaki said:

But with cryptos, we can safely store our money on the blockchain and pay peer-to-peer online without the use of a bank.

Safely store? Where are you planning to store it? Do you think every child and grandparents will be able to do the same?


One of banks' purpose is to keep people's money safe. Even if you keep your money in Ledger Nano S, there is a good chance it is not as safe as placing money in a bank.


Perhaps you might be able to find a new blockchain institution that will take custody of your crypto coins for you... but guess what it will then be called? ... A bank - by definition.


Edited by Streamliner

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On 12/7/2017 at 1:20 AM, noncomittal said:

Sure, we are still in the early stages of this new crypto world and using cryptos require more attention to security than storing your money in the bank since we have to be our own bank, when we use crypto. And yes, you are right, elderly people will not understand how to do this  (just as they were suspicious of credit cards when they first emerged and might have difficulties using computers). So the infrastructure is not in place yet for this to work for everybody, just as there were not roads and no gas stations when the car was first invented. Guess what happened back then? Someone build that infrastructure. And the same will happen now: Right this moment, some of the brightest people in the world are working full-steam to implement this infrastructure to solve this particular problem, too.


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I can't help thinking that with so much money at stake will SWIFT try to create their own system and knock Ripple out of the game.

Swift already has a captive customer base and will not want to lose out on the money it makes each year.

Will they create something new or join/swallow up Ripple.

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But banks (especially big  banks) do a lot more than take in deposits. This is ignores corporate & investment banking,  wealth management and financial services. Maybe in this scenario you lose a few smaller local banks but I'm not even convinced of that. People and corporations will still require access to leverage (mortgages, credit cards etc). As long as we have a consumer economy, I dare say we will need banks

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