Lots of XRP owners know immediately what I'm talking about when I say "zerp."  It's an affectionate phonetic term for my favorite crypto holding, XRP.Lord_of_the_coins

When I first began to blog about XRP and Ripple in the summer of 2017, I stumbled across a document that was overlooked by most.1 It was an impressive find, and I wondered why it hadn't received even more attention from fellow XRP holders on XRPChat or Reddit.  Perhaps it had to do with its heady title: "Implementation of real-time settlement for banks using decentralised ledger technology: policy and legal implications"

I admit, I skimmed through some of the beginning, not so much because I wasn't interested, but because I was attempting to arrive at a high-level summary of the document's purpose and conclusions.  In doing so, I ran across a small part titled "Prosperity."  My pulse quickened a bit as I read through the comparisons contained within this section.

The Network Effect

I had to give the concepts introduced in this section a name as I read through it and then subsequently described the concept to others.  I used the term (probably incorrectly) "Network Effect" to label the idea.  Let me describe it to you:

Before the advent of email, sending 'snail mail' required a postage stamp and a trip to the post office.  Because of this centralized nature of communication in the physical realm, it's relatively easy to obtain some statistics from the US Post Office about how many pieces of mail were sent using this method in 2001:

103.7 billion letters per year

That's a lot of paper.  Now consider how many emails were sent globally, on average, every day, using data compiled from 2014:

190 billion per day

Granted, we are using postal statistics from one country (United States), but I think you'll agree from the stark differences in numbers that's it's a sizable, measurable phenomenon.  So what lesson can we draw from this comparison?  Here's what Karen Gifford and Jessie Cheng concluded:

"A parallel evolution in the financial world would imply an increase of several orders of magnitude in the global number of financial transactions."
It was a different and intuitive way of helping the reader see the concept without getting stuck in the weeds, and serves to illustrate the potential of what a real-time payments infrastructure might be able to achieve.

Skeptic's Corner

When you have a doubt or question about claims made in a whitepaper - or even a well-researched document such as the one I just described, it's always a good policy to put it through some analysis.  If you're skeptical of the comparison between communications and payments, I don't blame you - in fact, let's explore this a moment.

Is it fair to compare communications to payments?

For our email comparison, it's probably safe to conclude that as the cost of communicating went from the cost of a postage stamp, down to "near-zero" (nothing is ever really free, right?), it tends to increase the usage of that communication above its previous level. big_screen_tv_woman

This makes sense when we use an example of a big screen television.

What if I told you I could manufacture big screen televisions for the total price of $20?  What would you expect to happen to the demand for big screen televisions?  Would it remain the same, just saving those that wanted a big screen television additional money?  No, of course not.  As soon as we lowered the cost of a big screen television to $20, we'd have one mounted on the walls of individual bathroom stalls!

So our common sense tends to agree intuitively with the idea that "as the cost of something decreases, the demand for that item will increase." In fact, there is an economic name for this concept in college textbooks:

Jevon's Paradox

In economics, if you are the person who discovers a heretofore-unknown correlation that can be tested and confirmed by others, you get to have your name associated with it in perpetuity.  Such is the case for William Stanley Jevons, an English economist that observed something intriguing about coal consumption. 2

In the 1800's, he noticed that:

"...technological improvements that increased the efficiency of coal-use led to the increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological progress could not be relied upon to reduce fuel consumption."
There were two effects warring with each other Jevon's example:  The decreased demand for coal due to increased efficiency in how it was used, and the increase in demand for coal due to the fact that it was now cost-efficient for a variety of other purposes.  When the increase in demand due to these additional purposes exceeded the coal_plumedecrease in demand due to efficiency of coal usage, Jevon's paradox presented itself, and the overall demand for coal increased!

This concept is being studied by environmentalists in the present day, among others, to determine if there are any unintended consequences to innovations in energy production.  In our case, we're more curious about application of this concept to global transactions.

Transaction Speed

In the more detailed economic analysis of transaction costs, economists have noted that cost should not just be measured in terms of money alone, but it should also take into account all sorts of other factors.  The examples each economist uses seems to vary, but one 'cost' that many of us will appreciate is the cost of time. 3

In the case of email, it wasn't just the cost of the stamp that went away.  It was also the cost of stuffing the envelope, transporting it to the mailbox, and then waiting the four-to-six days for a response.  There's a reason it earned the name "snail mail" when people compared it to email. email_symbol1

Email is instantaneous.

This transaction cost, when applied to money, can be extracted from the list of transaction costs and studied independently. In addition to looking at speed as a transaction cost, economists have noted some surprising effects of transaction speed on the overall economy.

Early on, it was noted that increases in transaction speed tend to multiply the money supply of a closed system.  That's an academic's way of saying that "the money supply increases."  This economic principle is known as the "Velocity of Money."

Velocity of Money

The term "Velocity of Money" has to do with how many times the same dollar bill changes hands in one unit of time. 4


Let's say that I have a friend who owns the domain "hodor.com."  I really want that domain name for myself, so I agree to pay him $100 dollars for it on Monday.  He accepts Danearysmy $100, and then later on that same week, he invests that $100 by purchasing another domain name called "Daenerys.com."  (obviously he thinks Game of Thrones is a hot topic)

In our example, that $100 has changed hands twice in one week, essentially representing $200 worth of value.  That's double it's face value.  The resulting velocity of money is said to be "2/week."

Effect on the World's Economy

Why does this matter?  Currently, the payment systems of the world are in need of repair.  Many banks conduct batch processing of transactions in intraday or even nightly cycles, which effectively reduces the velocity of money, all other things being equal.

Real-time payment systems like Ripple are able to provide a significant boost to the velocity of money, essentially increasing the supply without the need for a government to "print more."  This has the potential to avoid inflation, while at the same time realizing all of the benefits from quantitative easing.

Are you starting to see why the International Monetary Fund (IMF) and the Federal Reserve are so interested in achieving real-time payments?

Jevon's Paradox & The Micropayments Mystery

Nobody knows how big the micropayments industry could be.

A "micropayment" is a payment under approximately $10-12 dollars or so.  Depending on which organization or expert you subscribe to, they each have a different upper limit, and some specify finer-grained categories such as micropayments ($1-$5) and small-value transfers ($5-$25).

The margins on micropayment transactions are very small for sellers.

Think about selling a used lamp on Ebay.  Let's say you want to be competitive with others, so you price it at $5.  The problem is that to use PayPal as a payment processor, you are required to deduct their fees as part of the transaction, so you don't actually receive $5 - you receive $5 minus the minimum amount (plus percentage) that PayPal charges.

While PayPal has "special rates" for micropayments to try and encourage the use of its payment system, these fees are still material to the overall amount - they are quite noticeable, especially to the seller of the item. 5

The Micropayments Mystery: Whole New Markets

Today, a new market is starting to develop with the advent of cryptocurrency.

From our previous example, it's noteworthy that XRP can easily beat PayPal for the cost of using its own network.  Right now, the minimum cost for using the XRP Ledger is approximately ten drops.  One drop is one one-millionth of one XRP.  This translates into an almost-undetectable fraction of one cent.

Because of this low cost, we can see Jevon's paradox at work again.  Remember, when the cost of using coal was lowered sufficiently, the greater efficiency and lower cost:

"...led to the increased consumption of coal in a wide range of industries"
When it comes to micropayments, there are entire swaths of markets that could benefit from very-low-cost payments.  This includes ideas like social media and new Internet revenue models.

Sick of YouTube Ads?

Are you sick of seeing advertisements online?  You are not alone; our Internet experience at major websites like Twitter, Facebook, and YouTube has become polluted with advertisements.  I've lost track of how many times I've become angry when wanting to immediately watch a video, only to be obstructed by a required ad like some child that netflixcan't have his toys unless he cleans his room first.

This might change if we paid for content.

Just think about it: How did Netflix take over?  It revolutionized the rental industry by changing to a streaming model of content delivery.  Now there are very few people that watch normal television.  For me personally, it is a rare occasion that I watch any traditional content from cable television.  Why would I?  On average, I'd have to sit through fifteen minutes of advertising blight - that's even worse than YouTube.

But ask me if I'd be willing to shell out half a cent for each video, and you'd receive an overwhelming "yes."  I'd love to get rid of those annoying pop-ups.

Nobody Really Knows How Big Micropayments Could Be

This is the big mystery; how big is micropayments?  How many coffees at Starbucks are purchased each day?  How many "pay for content" companies on the Internet are just waiting to be born into the cyber universe?  How many Uber drivers are waiting for payment?

One analyst on Quora provided an estimate for the micropayments industry at between $100 billion and $250 billion.6  But others see estimates based on known use cases as short-sighted.

Micropayments To Save The Middle Class?

One popular author, Jaron Lanier, claims that micropayments might be the solution for saving the middle class from what he claims technology did to the "creative class" - the journalists, musicians, photographers and the like.7  He claims that the impoverishment of this class is due to the general public's expectation that "information should be free,"

Jaron Lanier: Author of Who Owns the Future Jaron Lanier: Author of Who Owns the Future

and he makes the contrarian argument that content should be paid for by those that need it.

He could be right.

While he is clearly a voice in the wilderness, and his message of paying for content goes over like a lead balloon with most listeners, it's intriguing to observe how historically accurate his observations have been about a myriad of supporting topics.

If he's right, then the world will need a payments platform that supports massive levels of micropayment transactions.

XRP Has Competition for Micropayments... and Alliances

It's evident that more than one crypto network is positioning itself to enter the micropayments space.  Some new crypto networks are trying to put the finishing touches on networks with zero fees and horizontal scalability, and others are still in the development stage, signalling their intention to target specific markets such as gaming and entertainment.

Ripple's secret weapon to compete in this space is payment channels. 8 Each of the top three crypto networks (Bitcoin, Ethereum and XRP) has the ability to process "off-chain" transactions and then communicate a summation of those transactions to the native ledger.  XRP's version of this capability is known as "Payment Channels."

XRP Payment Channels will scale horizontally with more computing power, and have been tested at above 50,000 transactions per second.9 10   This is sufficient to process extreme high transaction volume that might be generated from retail transactions or micropayments.

Ripple may have recently unintentionally revealed some of it's long-term strategy recently with reports of its investment in Omni, a household-items-sharing application. 11 This start-up will allow individuals to pay each other small amounts of money to borrow common household furnishings and equipment, such as a stepladder or a roof rake.

While an exciting business prospect in its own right, the investment in Omni may imply the use of micropayment processing between individuals.

Executive SWOT Analysis

There are four major markets for Ripple solutions (and potentially XRP):
  • Domestic Payments
  • Cross-border Payments
  • Micropayments
  • Specialty Token Replacement
Each one of these markets may potentially involve use of XRP if xRapid adoption starts to catch on.  What does it mean for each?

Domestic Payments

In the domestic payments space, there are banking islands springing up to circumvent the slow processing of the correspondence banks.  These banking islands are springing up to address customers expectations for instant payments, but they lack the ability to process payments "outside network."

This concept of walled gardens of banking networks is what Ripple is trying to address with ILP - the Interledger Protocol. 12  It allows banks on RippleNet to communicate with banks - and even crypto networks - outside of RippleNet.

But this brings up an interesting point: Is Ripple really in competition with these major players, or would it prefer to play an "enabler" role of upgrading the plumbing underneath domestic payments?  Ripple's xCurrent solution is not limited to any artificial throughput or speed - it scales horizontally and could easily support multiple payment networks.

Example:  While JP Morgan currently may use The Clearing House,13 14 and has also been seen investing in a private, custom blockchain named Quorum,15 experience could eventually lead them to an ILP-based solution that can easily expand to handle cross-border payments in addition to domestic payments.

Cross-border Payments

This is where Ripple shines like a supernova. world_commerce

It's solutions are geared to make borders completely insubstantial for large businesses.  With xCurrent, xRapid, and xVia, each solution can enable payments to be transferred globally.  Right now, when we look at the competitors for Ripple, there seems to be a vacuum occupied by only the aging dinosaur, SWIFT. 16

Yes, there are some banking islands like the recent VISA B2B application that have popped up to enter the market, but I'm suspecting that Ripple can beat their fee structures easily. 17

The momentum in retail cross-border payments is pushing Ripple ahead like a thousand horsepower engine; American Express,18 MoneyGram,19 Cuallix,20 IDT,21 and Mercury FX,22 have already climbed aboard the train as early adopters seeking to leverage both cost savings and incredible customer service that real-time payments provide.


Evidence is beginning to mount that Ripple is now targeting the "other verticals" that Brad Garlinghouse has mentioned in the past.23 Payment Channels was introduced into the XRP protocol, well ahead of it's competition's versions of off-chain processing.

Combine this with Ripple's investment in Omni, and a possible future market direction can be surmised.

Specialty Token Replacement

I included this as a separate category, because it doesn't really fit into any other.  My thinking around this topic has always existed, but I've always assumed that Ripple would never really recognize this potential as a possible target.

That was, until Stefan Thomas mentioned specialty tokens in a Quora session. 24

What are they?  I won't name names, because I really have no idea what was on Stefan's mind when he made the statement in his Quora response; but each of us within the crypto space is familiar with ICOs or tokens that seek a "niche" market for providing liquidity.  And Stefan's point is valid:  Why would a user prefer a specialty token that they will then just have to trade for one that has real liquidity?  Why not just use XRP to begin with?

Of course, as an XRP investor, I couldn't agree more with him!

The Economics of Innovations

Innovations always face obstacles in their path to mainstream use and adoption - no matter the industry.

We've all seen it firsthand; while some ideas are revolutionary, they have to take hold over time and cannot be forced.  While the concept of a cryptocurrency was first successfully executed in 2008, ten years later it is still met with skepticism because of it's hard-to-shake connection with the dark web marketplaces where it was first used as a medium of exchange on a large scale.

The innovation of cryptocurrency is one that is unlike any other, and even though XRP is unmistakably the strongest contender for speed and scalability, it faces an uphill climb.  While there are commonalities with innovation adoption, there are also key differences that work both for and against XRP's adoption.

There are many financial interests that stand to lose from XRP's wide-scale adoption; there are vested interests that are intent on keeping the "model T" of cryptocurrency - Bitcoin - on the top of the learderboard, for the good or ill of the entire crypto market.

But likewise, there are also over one million XRP holders in the world25 that are hoping that Ripple succeeds - and establishes XRP as the standard for international transfers of value.  ripple-symbol3


  1. https://ripple.com/files/fsr_gifford_cheng.pdf
  2. https://en.wikipedia.org/wiki/Jevons_paradox
  3. http://economistsview.typepad.com/economistsview/2009/10/transaction-cost-economics.html
  4. https://en.wikipedia.org/wiki/Velocity_of_money
  5. https://www.paypal.com/uk/webapps/mpp/micropayments
  6. https://www.quora.com/What-is-the-total-addressable-market-TAM-for-micropayments-in-the-US-Europe-and-worldwide-Why
  7. http://www.niemanlab.org/2013/05/jaron-lanier-wants-to-build-a-new-middle-class-on-micropayments/
  8. https://ripple.com/build/payment-channels-tutorial/
  9. https://ripple.com/xrp/
  10. https://www.cryptocoinsnews.com/ripple-claims-transaction-thoroughput-now/
  11. https://techcrunch.com/2018/01/16/ripple-turns-investor-omni/
  12. https://interledger.org/about.html
  13. https://www.jpmorgan.com/country/US/en/cib/treasury-services/real-value-real-time-payments
  14. https://www.theclearinghouse.org/about-tch/tch-owner-banks
  15. http://fortune.com/2016/10/04/jp-morgan-chase-blockchain-ethereum-quorum/
  16. https://www.quora.com/Who-are-Ripple%E2%80%99s-competitors
  17. https://www.pymnts.com/news/b2b-payments/2018/visa-b2b-connect-unionbank-blockchain/
  18. https://www.cnbc.com/2017/11/16/american-express-santander-team-up-with-ripple-on-blockchain-platform.html
  19. https://www.pymnts.com/news/2018/moneygram-ripple-cryptocurrency-blockchain-alex-holmes/
  20. https://www.financemagnates.com/cryptocurrency/news/cuallix-uses-ripple-cross-border-payments-u-s-mexico/
  21. https://www.crowdfundinsider.com/2018/01/127610-mercury-fx-idt-sign-ripples-xrp-program/
  22. https://www.coinspeaker.com/2018/01/25/idt-corporation-mercury-fx-test-ripples-xrp-xrapid-pilots/
  23. https://www.cnbc.com/2017/09/11/ripple-ceo-brad-garlinghouse-on-bitcoin-and-xrp.html
  24. https://www.quora.com/What-is-the-future-for-Ripple/answer/Stefan-Thomas-1?srid=5Ojt6
  25. https://xrpcharts.ripple.com/#/accounts