Answer: Possible failure scenarios

[BobWay]

There is SOO much good discussion in this thread. I'm sick to death that I've failed to lay the groundwork knowledge of Banking systems, rippling systems, cryptocurrencies, market dynamics, etc that I would really like to refer back to in my answers. But let's see what I can do with what I've got so far.

On 3/13/2019 at 5:56 PM, XRPHornets said:

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 .

I'm not going to argue with fancy math that I can't say I completely grok (the wiki page). But I can summarize what I think people are trying to get at.

The postulation seems related to this logic:

• The price of XRP is related to supply of XRP vs demand for XRP.   This is of course relative not absolute. Clarifying below:
  • The price of XRP is related to the current supply of XRP for sale in the market vs the current demand to purchase what is in the market.
  • The absolute supply of XRP in existence has little effect in the price of XRP at any given instant.
• So if more people NEED (not WANT) to buy XRP, but the market supply is fixed, the price will go up.
  • IMPORTANT NOTE: The underlined phrases tend to throw off many people's analysis, mostly because,
  • Lots of XRP that is "in the market" to be sold is actually invisible.
  • The $3 price I'd like to sell at is technically "in the market". If you will give me a $3 price today, I will sell to you. But I have no open order in any visible marketplace. So if you are analyzing chart data. My information is invisible to you (and so is many others). This tends to lead to price over estimates when anticipating future supply.
  • The big mistake comes when people hear that the total supply of XRP is fixed and they associate that with the supply vs demand logic above.
• It is really clear to most people that if I get paid once a month on the first and MUST pay my bills once a month on the 30th. That most of your money is just going to be sitting on your counter (or in your bank for 30 days). This would be considered "low velocity" money. And if everyone was on the same schedule, then clearly there would be vast piles of currency sitting on counters across the country most of the time.
  • But it is not in piles on counters for the most part. It is actually in bank ACCOUNTS. But in actuality, the currency isn't actually in the bank. It is put back into circulation as soon as possible. There is no profit in a bank keeping piles of currency in their vault for 30 days. So even in this extreme case, velocity is not as low as it might at first appear.
• "High velocity" money might be seen as a similar situation, where you get paid on the first, but pay your bills on the second. It is easy for people to visualize that, those piles of currency (the apparent demand) seem to disappear. They tend to conclude this means less demand. Which might be true, but much less dramatically than most people presume.
  • The money you (and everyone else) paid on the 2nd instead of the 30th just went to someone else's bank account, where it got recirculated as well.
  • This recirculation often happens though lending, which is in effect new money creation, even though it isn't new currency creation (which gets a knock on your door from the secret service). This new money increases velocity as well.

The biggest problem in relating this argument to XRP is that the math seems to presume a single universal currency that everyone NEEDS to use.

Clearly, XRP isn't there yet. XRP is in a WANT to use situation right now. As the RippleNet ecosystem build, more and more people will NEED to use XRP and that immediacy absolutely does increase demand. And to me, there is a virtually unbounded amount of value held by value holders that current don't WANT of NEED to own and hold XRP. (truly a head exploding amount of value if not strictly speaking "unbounded"). So to me, changes of value holders perceptions from don't want to NEED has orders of more effect on pricing than this argument ever would.

 

On 3/13/2019 at 7:20 PM, dr_ed said:

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.

Absolutely agree with you, "demand is key" when talking about trying to increase the prices of XRP.

Absolutely agree but I'll say it in the reverse order. XRP MUST become money in order to be regarded as a store of value. Which is an absolute precursor to generating demand from savers. It doesn't become money until it is liquid. Meaning you can trade it for whatever you want. Trading it for fiat is the first step. But if you don't perceive that you can trade it directly for a car. Is it really money? Not really. It is a commodity like gold, silver, lead, helium, coal, etc. You normally have to trade commodities for money before you can trade for what you really want.

When measured in "drops" vs "satoshis" there are roughly the same amount of smallest increments or XRP as there are of BTC. The only difference is where people chose to put the decimal place.

In the first year of Bitcoin, the vast majority of BTC was in escrow. Otherwise know as being "un-mined". The coders of Bitcoin set a prescribed distribution rate and mechanism for taking the BTC out of escrow and putting it into circulation. At the moment we are approaching BTC being 75% out of escrow and in circulation. However, probably 99% of the worlds value is NOT circulating through BTC. So obviously the presumption that, the people holding 99% of the world's value WANT to give a giant share of their value to the relatively few people currently holding 75% of the world's BTC, seems silly at face value. The question is can the Bitcoiner persuade them that the NEED to make that value transfer.

Clearly XRP has a reasonably describable NEED proposition. As a bridge currency. But if that NEED proposition fails for some reason. Interest in XRP could wain.

Interestingly Stefan taught me a valuable lesson. The price of XRP cannot go to zero, so long and someone or group values XRP. It can only go to zero, if everyone forgets about XRP. So interestingly, you can't destroy XRP by calling attention to it. Because obviously you are perceiving it as valuable enough to waste your breath on.

On 3/14/2019 at 2:40 AM, 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.

Not sure if this is a threat, question or an affirmation of XRP's value.

Edited March 20, 2019 by BobWay

[BobWay]

I think the next two are related to what I paraphrased above.

49 minutes ago, BobWay said:

XRP MUST become money in order to be regarded as a store of value. Which is an absolute precursor to generating demand from savers.

See above for context.

On 3/14/2019 at 3:16 AM, XRPHornets said:

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.

Yes, absolutely that is one reason. It could also be the first reason.

On 3/14/2019 at 10:58 AM, VanGogh said:

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.

Couldn't agree more. As XRP becomes a bridge currency, that will make it more and more liquidity. Is its liquidity grows, BOTH its utility as a currency AND its utility as a store of value grow with it. More liquidity to more regions = more places to spend your currency. No sense using a store of value that you can't get the stored value back out of at a moment's notice.

 

On 3/14/2019 at 10:34 AM, dr_ed said:

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.

Interestingly Ripple Stock and XRP liquidity go hand and hand mathematically. And it may come as counter intuitive.

Last I checked, when pricing Ripple stock, the market valued Ripple's XRP holdings at about $0.03. So 3 cents. This is because the 55 billion XRP isn't seen as liquid. Meaning if Ripple tried to trade it for USD they would get about 3 cents an XRP. Now that is a bit depressing for me isn't it. Because my stock is 1/10th as valuable as people might think by the back of the envelope.

So curiously, Ripple could give away/sell/disburse 9/10ths of the XRP reserves in order to increase liquidity. Given the distribution caused the market to view the remaining 5.5 billion as 100% liquid. That is independent of any increase in XRP price. So specifically, if the price of XRP stayed the same over the (X) years that Ripple disbursed 49.5 billion XRP. Then the market cap of the company would remain exactly the same.

But say the price of XRP hits my target $3 at the end of the same period. Then the market cap of Ripple has gone up 100 fold, while distributing 90% of their XRP holdings. If they can make $3 price and a 100% XRP liquidity evaluation while distributing less. Then all the better for Ripple's stock value.

So a bet on Ripple Stock is really a bet on Ripples ability to deploy its XRP holding IN ORDER TO increase XRPs liquidity.

As stated above, this added liquidity makes XRP much better as money AND as a store of value. Both putting upward value on price.

So in my mind. XRP liquidity to other fiat currencies is key to both payments and XRP value appreciation.

 

[BobWay]

On 3/14/2019 at 11:48 AM, 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 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.

I have so much to say about World Wire that I think it is best for me to say nothing about it. But I can't so I'll say as little as possibly can.

1. I find it boring. It is a less feature full version of RippleConnect 2.0 (XRPL version) That makes it a close kin to xRapid but missing important features.
2. Last I checked, Stellar is missing features (they hated) that Ripple added to XRPL just to support the World Wire style use case.
3. World Wire's use of in-band signaling is going to turn out to be a mistake.
4. 5 of the 6 "banks" they listed were, pending regulatory approval in their respective countries. (that's not a lot of fun)
5. The remain bank isn't a bank at all. It is a newly created USD issuing company. (I don't know much about them)
6. IBM wants to take an additional fee on every transaction. And obviously from their material charge for integration, maintenance and hosting.

I could give more details, but I'm in public and they might be reading. So I won't.

On 3/14/2019 at 12:09 PM, Zerp_Legend said:

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.

Like the XRP Ledger, Stellar is currency agnostic. But in contrast, all of the currencies listed here and more, already trade every day directly on the XRP Ledger. I know because I'm pretty sure I still hold some USD myself somewhere. I you look closely, you'll see you can trade Stellar Lumin (XLM) directly on the XRPL.

What world wire is hoping to add over time is "payout destinations". That is exactly what xRapid has been doing since launch.

There really isn't anything in their release, that wasn't in a Ripple release a year+ ago.

Edited March 20, 2019 by BobWay

[BobWay]

I'm tired of failure situations for now. I'll look at the remainder of the list as time permits.

[BobWay]

On 3/19/2019 at 7:42 PM, BobWay said:

When measured in "drops" vs "satoshis" there are roughly the same amount of smallest increments or XRP as there are of BTC. The only difference is where people chose to put the decimal place.

I got a question on how accurate the above statement was so I'm posting the answer I gave here so all can see.

Quote

I always thought of XRP as a suitcase full of 1,000,000 drops and a Bitcoin as a suitcase full of 100,000,000 satoshis.

In this case, the overall core units for Ripple system must be 100,000,000,000 XRP multiplied by 1,000,000 drops and the overall core units for Bitcoin system must be 21,000,000 bitcoins multiplied by 100,000,000 satoshis. Both results are apparently different or I am not thinking clearly here?!?

They are different, I wrote about why 100B XRP was chosen somewhere. But really to a computer person they are 64 bit integers underneath which are both the same size.

•      21,000,000.000,000,00 = 50 bits used
• 100,000,000,000.000,000 = 55 bits used

Switch the decimal to a comma and there really isn't that much difference in quantity. Satoshi just chose not to use as many bits as Ripple did. But in the end it's only about 2 bits different.

• There are 4,761.0       times as many XRP as BTC.
• There are      47.61     times as many drops as satoshis.

With numbers of that scale, it is hardly worth arguing over.

Edited April 17, 2019 by BobWay
Changed BTC from 9 decimal places to 8 decimal places