Brad Garlinghouse Is Right: It's About the Use Case

Hodor

Hodor

I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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The famous quote from George Santayana is:  "Those who cannot remember the past are condemned to repeat it."   This aphorism seems to hold true as we watch world events unfold even today.   The concept can also be applied to economic cycles of boom and bust, and of the rise of entirely new industries or asset classes.

In the dotcom boom from 1998 to the spring of 2000 two years later, the only thing a new company had to do to access enormous capital was to indicate they were building something using Internet technology, and then 'do an IPO' (Initial Public Offering).   The entire industry grew quickly, with no obstructions, and benefited from unhindered access to traditional finance, institutional traders, and retail investors.

Joe Nocera from Fortune magazine provided the best summation of what happened:1

"What is the reason that you have an IPO?"

"It's to put money in the coffers of the (issuing) company.  That's the reason you do it.  When you have a situation where it's going up 300 percent on the first day, that's 300 percent that the company is not getting.  It's going into the pockets of investment professionals...  

They don't care if the company goes out of business the next day, as long as they can flip their IPO and take their profit.  The dereliction of duty that went on here is just appalling."

This commentary may remind you of the new phenomenon of Initial Coin Offerings, or ICOs, for short.  

This new, democratized and decentralized method of raising money is a great innovation, but it has also been abused by those looking to cash in on the unbridled enthusiasm around blockchain technology and their associated cryptocurrencies.   Yes, ICOs have the potential to raise money across borders - and quickly.   And in other cases - probably much more common - a coin exists solely to fund the project or enrich the project's creators.   So more commonly, it's not that the project is fraudulent, but it results in a lack of utility for the underlying token.

In many recent examples, I've noticed that these ICO tokens provide very questionable value for owners, other than to be sold where ERC-20 tokens can be exchanged.   ICOs have resulted in an explosion of new cryptocurrencies, but most of them have no utility-related value, and others that do serve a purpose are usually traded quickly for other digital assets that have better liquidity.

Some analysts have predicted a 'culling of the herd' when it comes to cryptocurrency, and even though some of these cryptocurrencies will, by definition, exist indefinitely, I think the analysts are correct;  in the future, unless an ICO organizer can truly indicate where, how - and why - a token would ever be desired by others in the open cryptocurrency market, I predict they'll struggle to find investors.

Now consider XRP.   Before the advent of initial coin offerings, it was created in 2012 by a small group of individuals.   They then gifted most of these coins to a company established with a comparatively limited budget provided by angel investors like Google Ventures.  2

XRP's value rests on its core use case;  to serve as a bridge asset when converting currencies from one to another.   It solves problems that the current cross-border technologies have struggled with;  while SWIFT cross-border transfers take days, XRP can do it in real-time, and can settle immediately.   And it does so at a cost savings of between 50 and 70 percent over current methods.   One of Brad Garlinghouse's quotes on the matter:

Brad Garlinghouse Tweet

XRP's value rests on saving banks money, providing instant transfers for customers, and supercharging the global economy by lowering the transaction cost to an undetectable level.

General Crypto News

In a recent blog, I covered a story that profiled how an XRP Community member started an online effort to promote XRP as a base pairing for the world's largest exchange, Binance.   That effort led to an interaction with Changpeng Zhao, or 'CZ' as he's known in the crypto world, and an XRP Community member who then asked the CEO of Binance if he'd consider XRP as a base currency.  

The part of the story that may not have been apparent, was that the occasion for the interaction was the unveiling of CZ's new crypto-to-fiat on-ramp exchange called the "Liechtenstein Cryptoassets Exchange" or LCX for short.   This Liechtenstein-based exchange's purpose is to support direct fiat-to-crypto conversions between the Swiss Franc (CHF) and the Euro (EUR).  3

Notably, the Prime Minister of Liechtenstein, Adrian Hasler, provided the following comment:

“We are confident that Liechtenstein’s existing and future legal framework and practice provide a robust foundation for the Binance LCX...”

When a country's prime minister makes his opinion known about a new business deal in crypto, it's wise to pay attention;  this particular deal is considered quite major within the industry due to Binance's involvement.  

This announcement follows on the heels of Binance opening an African fiat-to-crypto exchange based in Uganda.  4  There has been no official, comprehensive list of which cryptocurrency pairings will be supported at launch for LCX, however, and XRP fans are hopeful that the initial roll-out will offer XRP-to-fiat pairings.  

Ripple News

The 'Ask Me Anything' (AMA) session between Cory Johnson, Ripple's Chief Market Strategist, and Brad Garlinghouse, Ripple's CEO, took place on Wednesday, August 22nd and lasted for approximately twenty minutes:

The AMA session took place at Ripple headquarters in San Francisco, and covered a variety of topics, including a few introductory questions posed directly by Cory Johnson.   I won't repeat the entire transcript, but here are a few of my favorite questions & responses:

Question (Cory Johnson): You get the sense that some of the major institutions are kind of 'lurking;' when I go to these conferences and events, and I see all these Wall Street people talking about wanting to be more involved in the space, talking about custody, some of the major financial institutions talking about crypto in ways...  that are very different than how they talked about it a year ago: Polar opposite.  
(Partial) Answer (Brad Garlinghouse): One of the things that I will tease for a future announcement;  we'll do the Q3 XRP Markets Report - in which we always share where we're seeing institutional participation in buying XRP: Q3 will definitely be a record of institutional participation in buying and interest in holding, XRP.  

Question (Cory Johnson): One of the interesting things that's different about digital assets, is that people, the average person, has been able to make some investments on a technology, but I think some 'quote-unquote' journalists, who have bought a piece of the technology, and therefore have an inherent bias against other new technologies.  
(Partial) Answer (Brad Garlinghouse): As we talked about, we're at the toddler stage;  I think as we grow, it all comes back to 'are we solving real problems for real customers.' And I'm guilty of this;  I get caught up in these, almost-esoteric debates.   Look, at the end of the day, are we solving a customer's problem, and are we bringing the right technologies to bear to do that?   Ripple's going to continue to focus on 'are we solving real problems?' We want to make sure we're creating the most transparent XRP ecosystem as possible."

Question (Cory Johnson): Do you see a typical kind of customer for xRapid that's more likely to use it than others;  is it more remittance companies...  is it more banks...  is it more big companies than small companies...  is it that existing corridors are efficient...or is it inefficient corridors where there's less volume?
(Partial) Answer (Brad Garlinghouse): Clearly, the opportunity with xRapid is in corridors with less efficiency.   I don't think that xRapid solving a dollar to Yen problem is going to be a short-term corridor.   And that's not to say it won't be;  but simply what we're seeing and what we've talked about with coins.ph is that going to the Philippines...  going to Mexico...  those are corridors that we see the demand and we see it solving a real problem.  

Question (Cory Johnson): What great leaders have you seen that inspire you, or that you've witnessed do great things?
(Partial) Answer (Brad Garlinghouse): I'll highlight two for slightly different reasons.  

One - I don't know if he knows this - but I think incredibly highly of Reid Hoffman.   I think he has been a stalwart guy of Silicon Valley.   His product is demonstrative of big-heartedness.   He is a connector and a networker...   Founder of LinkedIn, now on the board at Microsoft, and also a partner at Greylock Partners...I think incredibly highly of him as a leader.  

He hasn't run as large of organizations...  he handed off the reins to Jeff Weiner to run LinkedIn;  another leader who I have a lot of respect for is Sheryl Sandberg.   Certainly Facebook's had a complicated 2018, and I think the grace and execution there is...the results are astounding.  It's astounding.  

And as a bonus for one XRP fan in particular - @CrypToe_Man - Brad Garlinghouse displayed his Ripple socks:

Ripple socks screen shot

NOTE: You can order your own pair of XRP socks (or Ripple socks) at his site on Etsy: Etsy XRP Socks

As expected, Brad Garlinghouse did not fall into the trap of giving any precise date for the xRapid production roll-out other than to say it will happen by the end of the year, which is consistent with other comments on the topic from those at Ripple, including Asheesh Birla.  

One thing I really enjoyed was Cory Johnson's signature conversational style of discourse that tends to draw out more thoughtful comments from other individuals that he interacts with - and this AMA session was no exception, with Brad Garlinghouse providing his sharp perspective on the market.   While Cory Johnson is a master communicator and strategist, Brad Garlinghouse is a master tactician and organizational leader;  watching the two together provides not only ample material to digest for XRP holders, but also for banks and other financial institutions that may want an insider's viewpoint on the market.  

This was a great session and provided some nuggets of information that we didn't previously know.   Before SWELL, I predict that there will be more of these types of social media interactions leading up to the high-profile conference.  

The Inherently Decentralized Nature of XRP Ledger

From the moment XRP entered the crypto market, early Bitcoin investors and others that make their living off of mining proof-of-work systems were very fearful of the new entrant.   It represented forward progress for cryptocurrency, and demonstrated conclusively that wasteful mining - in which massive amounts of worldwide electricity is used - is not necessary.

Since then, some of the brightest minds in crypto have also joined ranks in their criticism of how incentivized proof-of-work mining is a risky approach to securing a cryptocurrency network.   It leads to vulnerabilities due to its increasing centralization over time, and a recent blog by David Schwartz - a contributor to the Bitcoin code - profiles just how dangerous the situation has become for proof-of-work systems.   Here is one excerpt from his latest blog, titled "The Inherently Decentralized Nature of XRP Ledger:"5

"With Bitcoin and Ethereum, a surprisingly small number of miners could collude to disrupt the system.

As of today, four mining groups currently control 58 percent of the Bitcoin network and three miners account for 57 percent of Ethereum’s daily capacity.  Further, 80 percent of the mining on the Bitcoin blockchain is centralized in China, despite the country’s ban on digital assets.  This puts it at greater risk of being manipulated by a single, sovereign government.

Some experts even suggest that in a worst case scenario, miners of Bitcoin and Ethereum blockchains could use this to their advantage — conspiring to rewrite history on the blockchain through a 51 percent attack that results in verified transactions being unvalidated and allows for fraud to occur.

In contrast, the XRP Ledger requires 80 percent of validators on the entire network, over a two-week period, to continuously support a change before it is applied.  Of the approximately 150 validators today, Ripple runs only 10.  Unlike Bitcoin and Ethereum — where one miner could have 51 percent of the hashing power — each Ripple validator only has one vote in support of an exchange or ordering a transaction.

Incredibly, while some crypto market researchers are aware of these problems, new investors continue to throw money at proof-of-work systems - even the oldest and slowest one of all;  Bitcoin.   However, the facts are starting to make their way out, and the truth can only be hidden for so long:

Decentralizatin Comparison Graphic

David Schwartz makes the case very succinctly that the way that XRP is coded will lead to greater decentralization over time, and the facts have clearly borne this out, as the list of validators on the XRP network have become a diverse group of different stakeholders spread across the globe:

"Users on the XRP Ledger select a Unique Node List (UNL), a list of validators trusted by that user to order transactions.  Users can select the specific validators for their own UNL or they can rely on recommended UNLs that have been compiled by other parties.  The network has a number of recommended UNLs, including one list Ripple recommends, and users can choose whichever one they prefer or create their own...

...to increase the resiliency and diversity of the network, more than half of the validators on Ripple’s recommended UNL are operated by people or groups external to the company, and Ripple continues to add even more independent validators to the list.  This further demonstrates that Ripple’s validators do not wield meaningful power over the XRP Ledger."

The point he's emphasizing - and you get the sense from reading his blog that this has been one of those "he's itching to set the record straight" kind of posts - is that over time, Bitcoin and Ethereum will inherently progress to greater and greater centralization due to their fatally-flawed incentivized structure, while XRP will lead to greater decentralization due to its emphasis on non-incentivized, distributed consensus:

Decentralizatin Comparison Graphic

Will the crypto market be progressive enough to turn away from Bitcoin in advance of these problems growing more profound, or will early investors, using their social media influence, be able to keep the public marching in the wrong direction?   I believe that if we work to make sure these facts are known in the greater crypto market, and also among the public, that we can change the current, flawed thinking about proof-of-work systems and its centralization-enhancing, incentivized 'mining.'

The crypto market - including large investors that may have made the mistake of taking a large Bitcoin position based on limited knowledge - should take a moment to think about how the future of crypto depends on the right choices to bring it to a new level - both of actual production use in real-world business applications, and in overall market capitalization.  

This will not happen if the market continues to blindly support the 'model T' of crypto;   while Bitcoin may have been the first cryptocurrency, it most certainly is not the best.   Market leaders need to leverage their influence for XRP to lead the new industry of digital assets forward.

Quidax Tweet

Quidax is a Nigerian exchange that supports XRP trading pairs, and specifically, supports trading against the Nigerian Naira (NGN).   Because of this, an XRP Community member, @LeoHadjiloizou, broached the topic with the exchange about the possibility of becoming an xRapid partner with Ripple.

Quidax question by Leonidas

For new readers that may not know it already, xRapid is Ripple's solution for sourcing liquidity across borders using XRP.   Instead of dismissing the idea, they instead sent out the following tweet in response:

Quidax response tweet

xRapid is starting out with the largest remittance corridors in the world, which is the preferred strategy, but as its reach extends globally, I foresee that Ripple will want to build additional diversity into the network;  this may include Nigeria.  

Coil News

Berkeley College is close to Ripple headquarters in California, across the Oakland Bay Bridge.   Within that university, "Blockchain at Berkeley" is: 6

"...a student-run organization at UC Berkeley dedicated to serving the Berkeley and greater East Bay crypto and blockchain communities.  Our members include Berkeley students, alumni, community members, and blockchain enthusiasts from all educational and industrial backgrounds.

Our team consists of undergraduates from a variety of backgrounds: Electrical Engineering and Computer Science, Economics, Business, and more."

The organization is sponsoring a technical meetup with the team from Coil:

Coil Meetup Tweet

The fact that Coil is reaching out to the newest entrants to blockchain technology - the students who will be comprising the future architects and developers in the space - demonstrates the depth of their planning for when Web Monetization enters production usage.   The description of the event highlighted Coil's vision for the new version of an Internet where content creators can be paid automatically: 7

"During this interactive workshop the team will be explaining how to use Interledger with Web Monetization in order to get automatic payment from visitors on your website.  You can use this to replace ads, replace paywalls, or to create new types of tools and webapps that never could have existed before.  Additionally, the Interledger Protocol (ILP) means that you're not tied to any currency, token, or single company.  We're going to start off with background on Interledger and Web Monetization before diving into how to use it yourself."

Hopefully we can access some of the video content from this presentation at Berkeley, and then share it throughout the cryptoverse.  

XRP News

On July 9th, my blog covered the news of Wirex, a United Kingdom-based business that handles a multitude of financial services for crypto investors.   It's a:

  • Crypto Wallet
  • Payment (remittance) Platform
  • Currency Converter
  • Debit Card Provider

Wirex added full support for XRP on July 3rd of this year.  8   This combination of services is proving to be a huge motivator for its customer base, and has been attracting crowds of additional users.   On its Twitter page, Wirex claims to have 1.5 million current customers in the UK and Europe, and also to have handled 1.5 billion transactions across 130 countries.

The latest news is that Wirex was recently granted an e-money license in the United Kingdom, which is similar to a New York State BitLicense.  9 10  Gemma Doswell, an author for Wirex, indicated that this license, granted by the UK's Financial Conduct Authority, or FCA, exists to: 11

"...protect consumers, enhance market integrity and promote competition, and has strict requirements for companies looking to qualify for their licences...."

She went on to indicate:

"...The FCA licence underscores the integrity, compliance and professionalism of Wirex and helps to bring cryptocurrencies into the mainstream.  Wirex users can be confident that they are dealing with a company that meets the same regulatory standards as traditional payment platforms...

...gaining the FCA licence will open up a much broader market, allowing us to create e-money accounts in over 25 different currencies.  We’re in the process of developing offerings in Asia (including Singapore and Japan) and North America in order to deliver a comprehensive service to our global users, with access to our full array of industry-leading features."

Wirex's target market seems to be retail end-users that wish to quickly transfer money and integrate their personal finances with a crypto wallet hooked up to a bank account.   It handles direct purchases, transfer, and the funding of debit cards.   Their initial user base may be impressive, but if this latest statement of their expansion plans is followed through with effective action, Wirex may grow by multiples in the coming months.  

XRP Tip Bot Updates

The XRP Tip Bot is a phenomenon.   It started out as innovations always do;  it was met with some initial use on its first platform, Reddit.   Then its sole developer, WietseWind (Twitter handle), expanded it to integrate with Twitter.   Once it hit Twitter, the application seemed to gain traction:  He continued to extend support to other platforms as well, including Discord.

Soon, the tip bot became one of the hottest social media applications, especially on Twitter, and its overall balance of XRP is now measured in the tens of thousands.  12

Its use was extended to raise money for charitable causes, and recently WietseWind added an exciting new feature.   At first, I didn't know what he meant by the name of the enhancement, called 'multi-tipping,' but it soon became intuitively apparent that he had again stumbled onto a popular application feature:

Wietse Wind tweet about multi tipping

In the course of 24 hours after his announcement, my Twitter stream was inundated by XRP community members activating the feature to extend their appreciation of others on Twitter, and the zerps (XRP's nickname among some in the community) continued to fly back and forth faster than I could track:

XRP Tip Bot

In addition to multi-tipping, WietseWind indicated that he has another amazing enhancement in the works;  however, I don't want to issue any spoilers, so until he makes a formal announcement, just be sure to follow him on Twitter at: WietseWind.  

Indonesian Exchange: Indodax

One exchange you may not have heard about - I know I missed it - was an exchange based in Indonesia that recently decided to add support for XRP in March of this year.   It's called Indodax, and its volumes are steadily increasing over time, and although moderate, it adds another potential corridor for the XRP Ledger's growing global reach:

Indodax Twitter Account

The key point here is that it supports direct IDR (Indonesian Rupiah) - XRP trading.   This is one more example among dozens of global exchanges adding direct fiat support directly for XRP.  

While 2017 saw a large expansion of worldwide exchanges for XRP, 2018 is a multiple of that trend, along with the additional twist of adding more direct fiat pairings.   As a cryptocurrency investor or researcher, it's a key point of comparison to other investments in the space, and make no mistake that other major institutional investors will be looking at these key liquidity metrics.

It's Always About the Use Case

In your own portfolio of cryptocurrencies, what coins do you own?  Take a look at each one, and then ask yourself, what problems is it solving?   If it does solve problems, does it solve those problems the best?   Why or why not?

As the crypto market matures, it will go through phases of change where those cryptocurrencies with real utility and solid use cases are elevated above those that are based on flawed design.   Ignore the temporary noise in the market and do not doubt your critical thinking.  

Brad Garlinghouse was right;  the use case matters above all other concerns, even first mover advantage.

Its been made crystal clear now that the production version of xRapid will happen by the 'end of 2018.'  XRP's volume increases won't happen all at once, but innovation adoption has a tendency to surprise all concerned:  The use case for cross-border value transfer is super-massive and will only grow as its transactions are made real-time and the cost drops to near-zero through usage of XRP.   It's a network effect that may truly be extraordinary to watch in its early stages, and only those clever enough to realize its potential will participate and fully enjoy the victory that is almost at hand.
XRP Symbol
Sources and Credits:
Cover Art: Thank you to chuttersnap

  1. https://www.pbs.org/wgbh/pages/frontline/shows/dotcon/thinking/stats.html
  2. https://en.wikipedia.org/wiki/Ripple_(company)
  3. https://finance.yahoo.com/news/binance-lcx-collaborate-launch-fiat-211727999.html
  4. https://ethereumworldnews.com/binance-to-launch-its-first-fiat-exchange-in-africa/
  5. https://ripple.com/insights/the-inherently-decentralized-nature-of-xrp-ledger/
  6. https://blockchain.berkeley.edu/#team-id
  7. https://www.meetup.com/Berkeley-Bitcoin-Meetup/events/253695048/
  8. https://www.xrpchat.com/topic/25052-wirex-adding-xrp-3rd-july/
  9. https://ambcrypto.com/after-xrp-listing-wirex-now-acquires-e-money-license-next-step-in-mass-adoption/ https://en.wikipedia.org/wiki/BitLicense
  10. https://www.fca.org.uk/publication/finalised-guidance/fca-approach-payment-services-electronic-money-2017.pdf
  11. https://wirexapp.com/what-the-fca/
  12. https://www.xrptipbot.com/stats

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Hodor

Hodor

I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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