Chat: Possible failure scenarios

[Banjo]

Hi Bob!

In the interests of navigating Falsifiability and testing our biases, could you please expand on some potential scenarios in which Ripple's vision for XRP might fail? Or perhaps list some assumptions (on which the success of XRP hinges) that may be incorrect?

I'm confident in the strength of my investments, and new to the forum, so I'm happy to take the hit in reputation to post this. I think there's always benefit to exploring a contrarian position, especially when it comes from someone with as much knowledge and insight as yourself.

Thanks again, and sorry if this offends or upsets anyone!

[Guest]

14 hours ago, Banjo said:

so I'm happy to take the hit in reputation to post this.

Unless the forum loses its mind you shouldn’t lose any reputation points by asking a good intelligent question like that one.

Thanks for asking this.

[zerp4eva]

Perfectly valid request.  If we are privy to the potential pitfalls, and we see that Ripple is dealing with them properly; we will feel that much more secure in our investment.

[XRPHornets]

Thank you OP. As investors we should always be stress testing our investments by taking the contrarian view. All the major cryptos have at least one major red flag. Anything outside the top 10 has at least several.

So,  perhaps we should all be discussing this as a collective brain, as well as Bobs input.

The only red flag I can see on XRP is the velocity of money or token velocity argument that has taken hold over recent crypto economics and is  based on the 'Equation of Exchange " theory where price is described by the equation MV=PQ. As described here . https://en.wikipedia.org/wiki/Equation_of_exchange.

In summary the theory states that if a commodity changes hands very quickly from one asset to another,  then its price will experience minimal upward  pressure in opposite correlation to its velocity of exchange.

So if XRP is only used as a medium of exchange that happens in just seconds then demand for it will be never be high because the total supply has only ever decreased momentarily .

 

[dr_ed]

This is the risk side, as I see it. Or at least one thing that should be on the list of possible problems.

But that argument is strictly a nuts and bolts approach to computing price, and it ignores the kind of market forces that often push price. XRP price has been about 10X higher than now, and neither then nor now has the price been a function of the velocity of the use case. Adoption hasn't happened, and it's unlikely that in the near term future (like this whole year, perhaps) that we will have price discovery based on bank utilization. In the long run it matters a lot, I think.

My view is that DEMAND is key. See your same wiki page a bit further down where they reference Keynes. My very long term view is that the driver for XRP price appreciation will be demand by savers....but for this to happen XRP has to be regarded as a store of value. BTC already is...and BTC is quite flawed and inferior...but the public has to see the price of XRP at least stay stable or increase.....it has to become....MONEY. It has to be perceived as a strong currency compared to sovereign fiats.

Nobody I've ever read or heard ever gave me a decent explanation for the 100B supply. It is a large supply, perhaps it needs to be large...but there is as of yet zero proof of that.

For that reason I expect it will take some time for XRP to find its own price, and that it will be bought by institutions on spec, because it's a top five coin by market cap, and because XRP is being used by Ripple (and R3) and it might be viewed as a play on Ripple. If Ripple were to go public, that would change, of course.

The very worst case is that what you alluded to turns out to be true. That XRP is a very fast, fungible token that turns out to be worth......a dollar. 

I don't know if the theory of exchange developed by John Stuart Mill in the mid 19th century applies to digital assets. We badly need better tools...but I doubt we get them before they can be developed empirically. Things are happening in real time, and few academics are up to speed.

 

Edited March 14, 2019 by dr_ed

[DividendGamer]

Just have to understand how the durable competitive advantage of Ripple and XRP makes it so difficult for any other company to compete with long term.

 

Understanding the moat of the business that lends to them being very difficult to take down.

 

You may be unfamiliar with the work of Benjamin Graham and Warren Buffett, but this is what it takes for companies to remain on top.

[XRPHornets]

I believe there has to be use cases for people/companies to hold XRP, rather than just access it temporarily through market makers.

One reason is that banks may hold it so they can take both fees/spreads in payment processes.

Dr_ed , I agree with your point that the 2017 volume spikes led to a 3 dollar price which kind of discounts the velocity of money argument...but perhaps this was because speculating involves holding the token for a period of time , even by short term traders.

Anyway, good to have a contrarian discussion, everytime I’ve tried it before I’ve been shouted down by the Hopium Addicts .

Edited March 14, 2019 by XRPHornets

[dr_ed]

7 hours ago, DividendGamer said:

Just have to understand how the durable competitive advantage of Ripple and XRP makes it so difficult for any other company to compete with long term.

 

Understanding the moat of the business that lends to them being very difficult to take down.

 

You may be unfamiliar with the work of Benjamin Graham and Warren Buffett, but this is what it takes for companies to remain on top.

That, unfortunately, is an argument for owning Ripple. Not for owning XRP. I argue with Susie on that one. Like I told Bob, don't sell the Ripple stock, if you have some. I can't buy Ripple or R3 or I would. If they go public, I'm on it.

Do you really think that if I know who John Stuart Mill is, that I don't know who Warren Buffet is? I hate Buffet. Such  a tool. Don't even get me started on him. Graham I like better, but the truth is that the Buffet/Graham investing paradigm is not nearly as apropos as it once was. Misleading.  It works here because cryptos are a nascent market that will build for many years. 

[VanGogh]

If XRP succeeds at all in becoming the world's bridge asset then it will also likely be used to some degree as a currency. Think of all the work in this technology being directed at the underbanked alone. There are roughly 8 billion people in the world. One hundred billion / 8 billion = 12.5 xrp/person. Subtract perhaps half of that due to people and businesses who hold xrp. That drops it to 6.25 xrp/person. I think the future looks very bright if XRP succeeds first in achieving their primary goal of being the default bridge asset.

[Guest]

This is a great thread. I think XRP chance of failure could also be an issue of the fractional reserve system failure having already happened resulting in XRP being in a zero-sum game now with the fractional reserve system. This is a good read: https://www.academia.edu/10988781/Fractal_Versus_Fractional_Banking_System 

Hi @BobWay Given the fractal nature of the bear market in 2018 (and thus far in 2019), what type of danger could you foresee to the entire XRP ecosystem if XRP maintains fractal vulnerability; basically if XRP saw adverse price movement over a certain period of time, how much damage would that do to the diverse applications built on top? 

Edited March 14, 2019 by Guest

[ixb2454]

 

Here is what i find as a threat to xrp:

1) I am afraid if ripple long term strategy was the right one in terms of developing it only as bridge currency since it was superior to btc. 

Without infrastructure and legal framework it does not work... As infrastructure develops, there might be better, faster, more decentralized coins than xrp

2) xrp Distribution, ripple is keeping too much of xrp and creators individually as well... Xrp needs more purposes than serving only as bridge currency

3) competition and Jed Mccaleb especially 

4) settling remittances with stable coin makes much more sense 

5) xrp has already served its purpose for ripple and founders, 20 bn usd in escrow is more than enough money for whatever you want to do in future... I dont believe you are motivated as you used to be before... 

6) i dont expect another bull run for speculation. People have learned the lesson (i have not lol)... And we are far away from utility

 

Edited March 14, 2019 by ixb2454

[goldstar111]

@BobWay I am sure you are aware that IBM has come up with "block chain world wire" which currently uses XLM for settlement and in the future is open to using XRP. I figure this is IBM's version of RippleNet/xCurrent to enable cryptographic atomic fiat to fiat payment with eventual digital asset based settlement ( right out of Ripple's play book) . I am not sure how far along they are compared to  xCurrent but my fear is that if we have a prolonged bear market and liquidity and volumes for xrapid don't increase fast enough we might have a competing network to xCurrent.  I see this as a legitimate threat to Ripple's plan to bootstrap the network. would love to hear your thoughts on this threat vector.

Obviously Personally I believe that the Ripple folks have a head start , live partners over multiple years from whom they have already learnt lots of tricks of trade and encoded it in their software. You are probably in a better position given the fact that you were a integration engineer to say how much of a proprietary advantage you think ripple has with xCurrent. 

Also I think Ripple by attacking the crucial remittance corridors like MENA, South east asia, Mexico/Latam  and Brazil have plucked some of the low hanging fruits but would be interested to hear your view.

Also Bob my thought has always been that since digital assets are taxed like an asset and don't have the tax advantage of fiat currencies in their respective home countries, Bridge currency or cross border payments are the killer app given the current tax/regulatory outlook for mass adoption of digital assets. The fact that IBM caught on to this use case nevertheless little late means at some point there may be two networks.

So to summarize :

How much of a proprietary advantage does xCurrent have with respect to codifying KYC/AML and other aspects of client side integration across multiple jurisdictions. If IBM or a similar large corp like Visa or Mastercard allocates significant developer/resources can they duplicate xCurrent given sufficient time ( 1- 2 years)?

Update:

Upon further reading it appears World Wire is more similar to xRapid and not xCurrent so maybe not a threat but still would be interested to know from @BobWay how easy it is to replicate xCurrent.

Edited March 15, 2019 by goldstar111

[Zerp_Legend]

18 minutes ago, goldstar111 said:

@BobWay I am sure you are aware that IBM has come up with "block chain world wire" which currently uses XLM for settlement and in the future is open to using XRP. I figure this is IBM's version of RippleNet/xCurrent to enable cryptographic atomic fiat to fiat settlement with eventual digital asset based settlement ( right out of Ripple's play book) . I am not sure how far along they are compared to  xCurrent but my fear is that if we have a prolonged bear market and liquidity and volumes for xrapid don't increase fast enough we might have a competing network to xCurrent.  I see this as a legitimate threat to Ripple's plan to bootstrap the network. would love to hear your thoughts on this threat vector.

Great question, I would also like to hear Bobs opinion about World Wire.

But according to the website world wire is currency agnostic, only using the protocol of stellar, but not the crypto itself.

[spiras]

1 hour ago, ixb2454 said:

https://www.cnbc.com/video/2018/06/04/ripple-ceo-expect-dozens-of-banks-to-use-our-cryptocurrency-next-year.html

Before xrapid release, Mr. Garlinghouse made few statements that were actually deceiving xrp community and investors.

For these statements and acts i wish crypto was regulated and then he would have to answer some question about it... 

I am a big fan of xrp and do not agree with forbes analysis but some poins in the article make sense, picture diagram as well. 

Huge changes take time but in my opinion xrp investment is the bet of the century, changing the unchangable... 

Here is what i find as a threat to xrp:

1) I am afraid if ripple long term strategy was right one. 

I have read and believe that xrp technology is years ahead others but if you dont know what to do with it, how to use it, it is a huge problem... As infrastructure develops, there might be better, faster, more decentralized coins than xrp

2) xrp Distribution, ripple is keeping too much of xrp and creators individually as well... Xrp needs more purposes than serving only as bridge currency

3) competition and Jed Mccaleb especially 

4) fixing remittances with stable coin makes much more sense 

5) xrp has already served its purpose for ripple and founders, 20 bn usd in escrow is more than enough money for whatever you want to do in future... I dont believe you are motivated as you used to be before... 

6) i dont expect another bull run for speculation. People have learned the lesson (i have not lol)... And we are far away from utility although BRAD GARLINGHOUSE LIES ABOUT IT. 

I hope that i am not fool to ignore all of my criticism and keep investing in xrp

 

I think you read the FUD too much.  All of your points above are inaccurate.

First, Brad has consistently said 3-5 years.  Recently he was on panel (davos I believe) where he again stated 5 years.

1. I think Ripple's long term strategy is the best one.  However, everyone wants to make Bank in the short term.  Ripple is trying to change the payment world.  Give it time.  Even the Internet and smart phones didn't take off right away.  Years.

Further, Ripple doesn't own XRP or the XRPL.  It's not theirs.  Sure they own a lot of XRP, but not the network.  It's distributed.  They are only one player in the game.  Don't want to wait on them, then what about SBI?  How about R3?  They are players too.  Why not follow them?  Why not start your own project instead of waiting on Ripple to make you rich?

2. Ripple owning a lot of XRP allows them to help build the ecosystem.  Brad had said it many times.. they see themselves as a custodian.  There are ways to change the distribution of XRP, and the more people that have an ownership or a stake in it, the greater the value will be.  But as Bob said, giving away free money in a 'fair' way is not as easy as it seems.  As David Schwartz said, when they have given away XRP, they find that it's not long before that XRP ends up consolidated into smaller amounts of wallets.  

Once Ripple decides how to distribute it in the best way to build the ecosystem and provide liquidity at the same time, without tanking the price, then I'm sure they will do what they need to.  If they just give it away to make the retail speculators happy and don't do it the right way, they can't get it back.  Years.

3. Jed is in control of MORE XLM than Ripple is of XRP but they don't publish it.  In addition, XLM is inflationary increasing the supply a couple of percent per year. Also, Jed has been known to dump and tank markets.  Documented.  This isn't to say that XLM won't have some success, but I believe XRP has more of an upside.  Invest in both if you want.  They're both cheap right now if you are unsure..

4. stable coins dont make more sense.  They are pegged to something giving risk.  Think of it this way.  If a coin is pegged to USD, every single time the US government prints more money, they are stealing from everyone who has money invested in 'stable coins'.  The value will decrease.  This is constant downward pressure on VALUE even if it is still worth $1 USD.  This is important. The US government is not going to stop printing money, with a 1T deficit and 21T+ debt.  Investing in stable coins guarantees you will lost money.  And yes, someone had to hold stable coins for market making. Someone is going to lose.  And this doesn't even touch the fact that not everyone wants USD or MXN or whatever your pegging the coin to.  You still need to be able to trade it.  Also, if money goes through US, there are additional AML and KYC laws that prevent trading between partners.  In short, stable coins are NOT a viable solution.

5. What?  Why do you think your know their motivation?  This is simply an opinion you have based on your own perception.  Ripple is not a singular person.  It's hundreds, thousands of people in the organization and investors and their organizations.  Who knows how many.. and they are all represented in varying levels of stake.  Ripple is a business.  Businesses don't think like individuals.  They are always motivated to make a profit or even to make a dent in the universe.  If an individual had enough money to 'not be motivated' and money is their only motivation, I would suggest that they would likely retire/quit and then the next young and upcoming buck (or buckett) would step up with drive.  

6. Who knows about another Bull run.  However this cycle has repeated itself at least 6 times since BTC started.  Each cycle drawing in more speculators and far surpassing the previous cycle after massive pullbacks.  Is it going to stop at 6?  Why would it?  If you walked up to 20 random people that you don't know and asked them if they've ever heard of XRP, probably 19 of them would say no. That's 95% of the population that hasn't even heard of the world changing potential.  How many of those 19, if you could spent the time to get them to fully understand how the world of finance works and exactly what XRPs potential is, would be interested in investing. 5? 10?  Who knows, but clearly the general population is oblivious the the world of digital assets.  When you are able to walk up to random people on the street and have intelligent conversations about digital assets just as you would about the Internet or their cell phone, then you might be at the point of a saturated speculative retail market.  At that point, you would probably be looking exclusively at utility to drive price action.  We are a LONG way away from that.  Go test it out on 20 people and come back and tell us what you find.

Yes, we might all be fools for investing in XRP.  We might be wrong, maybe Chain link or XLM will change the world.  Who knows.  

But for my money, I'm betting on XRP. 

If I'm wrong, sure I lose money - no big deal. 

But If I'm right, the world changes and I get to be a small part of it.  Oh yeah.. and I retire.

You make your decision.  But stop listening to the haters. Many have their own personal financial agendas in action.

 

Edited March 14, 2019 by spiras

[HereIAm23]

@spiras I would like to add to your post above.  To add my two cents to No. 2.  Your statement about what David Swartz said reminded me that 20% of the Population owns 80% of the Assets.  I don't recall the name of how this works, however, is has been proven before, that when Money or Assets are redistributed evenly, within a couple of Years, the top 20% will again hold 80% of what ever was distributed.  (Kinda proves David's Point).  My only concern is, not if, but when the Institutional Investors and the general population jump into this new asset class with both feet, I am in the upper 20%, and not wondering why I was left in the dust.

No. 4--No matter what fiat a stable coin is tied to, with inflation of the fiat, the Stable Coin will lose its value also due to inflation.  There is not a single country out there that does not have inflation.

No. 6--How many Bull Runs have there been in the Stock Market.  Yeah, there have been some real hard Market Crashes, however there has always been a Bull Run afterwards.  Now the Market is at an all time high.  As your example, every time BitCoin has had a Crash, the next Bull Run has resulted in a higher price for BTC.  I surmise we will see a new high in the next Bull Run.