Own Your XRP

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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Does this seem like redundant advice to you?

After all, don't we all 'own the XRP' that we've purchased?   As it turns out, some of us don't.   And it's this crucial importance of crypto ownership that should transcend all tribalism between cryptocurrencies.  

It was pointed out recently in high-profile fashion when there was a recent series of exchanges between one of the largest crypto trading platforms and some members of the XRP community during the month of December.  

The issue was this:  When people trade on an exchange, does the exchange actually settle the trades at some point during the day or night by actually transferring cryptocurrencies around?   Some exchanges readily admit that they merely use their own internal accounting during active trading, and then settle at a later time, or even defer settlement to the time of withdrawal.   For those exchanges that do not have their daily volume reflected in the online activity of a blockchain, it's no mystery about why this might be the case during active trading.  

If a person using an exchange actually had to wait for each trade to settle on the blockchain, trading would grind to a halt.   Or else their 'available amount' to trade would be whatever they deposited minus the amounts still waiting to settle.  

I remember that even the mainstream financial platforms had this requirement a long time ago when I tried my hand at stock day trading with some (very) small amounts just to learn about it.   My trades for the day would need to 'wait for settlement' even after they'd completed, tying up my capital until the next day.  

But crypto trading platforms are in heavy competition with each other.   Customers want to be able to execute trades and then use the proceeds immediately to make more trades in minutes (or even seconds) after the current one.  

Only XRP can settle this quickly, so what have some of the crypto exchanges done?

They typically use their own internal accounting, and then go through some process to settle the trades later, either on a timed batch process, nightly, or some may even delay it to when the trader decides they are going to withdraw their money (or crypto) from the exchange.  

The "point of settlement" is when the transactions must, by definition, be reflected on the blockchain, either in summary fashion, or individually at a granular level.  

My guess is that a small number of unscrupulous exchanges only reflect this change in ownership on the blockchain when the coins are withdrawn.   This is the last possible point where the exchange must make certain that they have enough XRP on-hand to cover these withdrawals.   It forces them to actually make the purchases of the underlying crypto being traded to cover this liability.

In the case of XRP, this has caused some concern, because the thought is that the demand for crypto is not being reflected, or felt, until the 'ownership' of the coins actually transfers, not when the trading is done.  

Here's where it gets interesting!

So basically, even on very hot trading days, exchanges may actually be just 'hoarding' your crypto in a bucket - cold storage or their hot wallet - while they move ones and zeros around on their own private ledger to support high-speed trading of 'claims' on that bucket.  

This should, in theory, be okay, because the demand is still reflected in price, and a responsible exchange will have purchased enough XRP to cover additional claims on it resulting from trading.   This accounting approach takes the heavy trading loads off of the blockchain and places the burden on the exchange.  

Win-win, right?

Well, only to a point.   If the exchange is legitimately keeping track of ownership claims on that 'bucket of crypto' that was initially deposited, then the demand for that crypto should be reflected one-to-one on its supply at the point where the crypto owners decide to withdraw their tokens.  

But this is where crypto has now 'gone wrong' in some cases.   Retail investors, used to dealing with trustworthy mainstream investment houses for years when it comes to traditional securities, have become comfortable with 'leaving their stocks' or even fiat money on an exchange.   Sure, there were some high-profile failures in 2008, but overall, when times are relatively stable, these investment houses tend to value their reputation too much to actually try and steal money.  

Crypto doesn't enjoy such a spotless record when it comes to exchanges, and it seems that some of the newer investors don't understand the importance of not 'leaving your money' on an exchange for too long.  

Perhaps I'm wrong;  perhaps crypto exchanges have cleaned up their act and are now acting with a self-preserving ethos that would preclude any nefarious activity, or fractional reserve practices for assets being traded.;  I personally think that some recent hacks by exchange insiders demonstrate that crypto is not completely out-of-the-woods yet, however.  

In any case, newer crypto owners also don't seem to understand the importance of knowing your own 'keys' to the crypto.   This refers to the secret keys that provide access to your own cryptocurrency.   Yes, most new crypto traders are aware of what a public key is - that's how you send value to and from different wallets;  you share your 'public key' with somebody else.  

But your 'secret key' should never be disclosed by you to anybody, because it is how you access your value on the cryptographic network.   And it's this secret key that is so important.  

When an exchange has your crypto, they are storing it in their own wallet, and you (typically) are not provided a secret key.   In this way, they can control the rate of withdrawals from the exchange.   But it also gives them immutable ownership of your crypto for the time that you allow your crypto to remain on the exchange.  

In 2013, this concept was too much of a temptation for one or more insiders at the Mt Gox exchange in Japan, and a massive amount of Bitcoin was stolen.   All the thief needed to steal that Bitcoin was access to the secret key(s) of the exchange;  once that one fact was known, the Bitcoins were transferred to their own secret key(s) so that they could have total control over the Bitcoins.  

Why am I bringing up Mt Gox?

Most of you know its sordid history already.   Personally, I didn't have any Bitcoin stolen, but I had an account there, and I still receive legal updates from the Japanese trustee responsible for settling the bankruptcy case.  

I'm bringing this topic up because most of us in the XRP Community couldn't miss the recent 'running debates' with one of the largest crypto exchanges and some members of the XRP Community during December, and also because of the "Proof of Keys" crypto event that just took place.  

For those of us that own XRP, the concern is pretty basic:  I don't mind an exchange using their own high-speed accounting system to track trades, but here is my stance:

  • If that same exchange provides a 'wallet,' then after trades settle, the wallet should reflect the new balances.  
  • If that same exchange provides a 'wallet,' then the secret keys to the wallet should be available to the owner of the crypto.  
  • At a minimum, any exchange that doesn't provide a 'wallet' should enable withdrawal of crypto from the exchange according to well-defined rules documented on their site.  

Some exchange operators may look at this with derision, but if an exchange also is promoting a 'wallet' on their site or on their mobile platform, then they are effectively encouraging long-term storage.  

That's okay with me as long as their wallet provides the secret keys to the owner of the crypto, and it's a true 'non-multi-sig' account;  meaning that the individual could at any time generate a new, completely external wallet with that same secret key that allows them 100% access to the crypto.

In this way, the ownership of the crypto will have actually transferred, and will reflect the settlement of the crypto trading that has taken place.  

Currently, people access the XRP Ledger and see massive wallets with loads of XRP at the exchanges:   these massive wallets are actually many different people all grouped together until they decide to withdraw their crypto;  but the danger is that only the exchange owns that XRP until it is withdrawn.  

Eventually, custody solutions may make this configuration acceptable.   I imagine some traditional, mainstream stock trading platforms are similar.   However, the concern also lies in the fact that crypto exchanges are currently unregulated.   They have been hacked.   Recently.  

Yes, bad things can happen in crypto, and we've seen behavior from some exchange operators recently that betray a shocking immaturity with regards to their attitudes towards their customers.   Until the industry matures, I would advise new traders - and those that own XRP - to store their XRP safely using a solution where only they know their own secret key.  

The demand and ownership of XRP should, ultimately, be reflected and felt on the network.  Right now there are approximately 1.5 million wallets on the XRP Ledger;  because many traders keep their crypto on exchanges, however, we really don't have any good idea how many people actually own XRP until they withdraw it to their own private wallet.  

Is it 2 million?   3 million?   We won't know unless XRP owners worldwide decided that controlling their own XRP is important enough to take action.  

Ripple News

Cornell's latest Entrepreneurship Summit in NYC took place at the Times Center, and featured a discussion between Scott Belsky, entrepreneur and author of 'Making Ideas Happen,' and Cory Johnson, Ripple's Chief Market Strategist.   The 'Entrepreneurship at Cornell' group released a video of the event on January 2nd:

The twenty-minute conversation & ten minute Q&A covered a lot of ground, and Scott Belsky was able to get Cory's take on Ripple, its software, XRP, and what the future holds for the Silicon Valley company.   Here are a few of my own favorites from the conversation:

"...  we can look at the $23 trillion dollars that are laying around in nostro - vostro accounts that are, sort of, set up, waiting for pre-payment, because money is so slow ...  

Amazon: Probably the most capital-efficient company in the history of the world, has a billion dollars laying around in accounts to pay employees somewhere, or to pay a vendor somewhere, because the system of moving money is so slow.  

So...  I can analyze all that and figure out what that looks like.   I can't imagine what a world looks like in ten years when you can employ that worker in Bangladesh here from the states.   Or a Thai nanny can send money home from Japan to pay her family;  to have her family have a truly better standard of living.  

In places where an extra $5 a month is a life - changing difference.   I can't really imagine that, but I'm pretty stoked about it."

And my favorite - and concise - quote from the Q&A after his discussion:

"Ripple is meant to be a replacement for SWIFT, and the messaging system those banks use.   And other things like ACH that the banks use to settle transactions.   XRP is meant to be a digital way to move value ..."

The video was a great way to kick off the new year, as Cory Johnson always does a superb job of clearly and effectively communicating the strong points of Ripple's value proposition for financial institutions and banks;  and in this video, he interwove personal observations and stories in a fantastic way that conveyed the near-term strategy of Ripple in a way that most viewers can understand.  

XRP News

The XRP Community API is a project that was unveiled by an XRP fan on December 12th, to serve as an aggregator website for various XRP-related exchange-submitted data.  

This includes data that most exchanges now make available in standardized formats via APIs.   The XRP Community API will then take this data and allow any end-user to configure the website to return more specific cross-sections of data, for specific exchanges and currencies;   the data is refreshed every thirty seconds, approximately:  1

"The data returned by the API is updated automatically every 30 seconds, so the information returned will always be that offered by the marketplace just seconds apart."

When the site first debuted, it contained data from a large number of exchanges - 27 in all - and the developer published instructions for anybody to utilize his public-facing (REST) API that wished to include calls to the site.  

On January 3rd, the developer behind the site announced that, in addition to data from an additional 11 exchanges (for a total of 38 now), he'd added a 'Price Watcher' component as well, which can now be used to see daily trade volume associated with each pairing:

XRP Community API Tweet

I tried it out and it's very simple and intuitive to use;  if you haven't tried it out already for yourself, I advise you to do so;  every XRP researcher should have a set of links that they refer to for up-to-the-minute information, and the XRP Community API is definitely one such site.  

In addition to being available directly to end-users, the site's creator has also indicated that he would like to see other developers utilize his public-facing APIs.   In addition, if a commercial site would like higher-speed access to his APIs, or just general help, they can contact him directly for more information here:   XRP Community API Contact Information

Coinmetro

Coinmetro is a crypto trading platform with offices in Estonia, Hong Kong, Mexico, and Australia.   The company is based and headquartered in Estonia, and offers crypto trading services, as well as a crypto wallet application.   They support direct fiat on-ramps via a credit card or bank deposit.  2

The team behind the platform recently announced that they'd be adding support for XRP trading:

Coinmetro

They are promoting a directly Euro-XRP trading pair for users, which is a great addition to the assortment of exchanges that provide opportunities for crypto investors to use their Euros directly for purchasing XRP.  

Welcome to the ecosystem, Coinmetro.  

Bitrue Adds New Base Pairs

Bitrue, a Singapore-based crypto exchange that opened in mid-2018 using XRP as one of its base currencies, has decided to add to its collection of XRP pairings.   On January 3rd, the exchange sent out the following tweet:

eTotor message

It was a positive, formal communication of Bitrue's intent to add five more pairings to their collection of XRP markets, and would put the total somewhere around 18 total currency match-ups.  

Already, Bitrue has committed to expanding the coverage of XRP, and has indicated its own interest in becoming an eventual Ripple xRapid partner;  it's obvious the CEO of Bitue has very high opinion of the exchange volume that may result from increased XRP trading.  

Although Bitrue had hinted at these changes to its exchange, its great to see the end-result of its latest efforts.

Treat Your Secret Key Like the Ring of Power

2019 holds much potential for crypto, including the maturation of the entire industry and the recognition of the increasing importance of customer-friendly, and customer-respectful exchange practices by large operators.  

Custody solutions that effectively reduce risk to a negligible level, enough for banks and large corporates to easily step into the crypto space, are either already in existence or are rapidly being developed and deployed.   The connections to mainstream finance are now growing for the cryptomarket, and we will see additional levels of capital flow into the space in 2019;  this is reflected by the world-wide increase in crypto exchanges, wallets, services, and hybrid financial companies that have sprung up to offer their own creative solutions for customers.  

As early crypto advocates, XRP owners can vote with their feet.  

Our numbers in the XRP Community give us power;  make no mistake about the importance of a unified community.   While large financial companies may 'generate a ticket' and provide a means of feedback for single individual customers on their platform, they tend to listen much more closely when tens of thousands of onlookers are trying to piece together whether a platform should be trusted or not.  

In addition to supporting combined actions by the overall XRP Community to reward ethical business practices, there are things you can do as an individual:

  • Research which exchanges respect your ownership rights to your crypto-assets
  • Research the security and reputation of any exchanges you use
  • Understand why knowing your own private crypto keys is so important
  • Help other newbies in the space understand about public-private keys

We are all 'still early' to the crypto space, and the entire world is still learning how to approach crypto-assets;  until that point, it's still important to handle the custody and security of your crypto.  

Just as you would safely guard a large stack of physical cash if you were responsible for it, you should also safely guard your secret key(s).   Some people prefer a hardware wallet, and some prefer other means of securing this information;   do your research and make the effort at taking control of the crypto you've purchased on an exchange.   Research whether your exchange allows you to know your secret keys.   If they do not, I'd advise you to remove your crypto when not actively trading.  

Those that do not are essentially ceding their power and authority to the exchange, when in reality, each of us should have an equal say in the cryptographic networks represented by our purchases.  

As fellow XRP owners, both you and I should actively control our own XRP;  we should make an effort to take control of our money and ensure that our voice is heard in direct proportion to our ownership.   Manage your own crypto, and your own XRP.
Part of what makes crypto-assets such an amazing innovation is this very concept;   if you know your own secret key, there is no power in the world that can take it from you.  

Keep it secret.   Keep it safe!
xrp symbol
Sources and Credits:
Cover Art: Thank you to Matt Artz

  1. https://api.xrpcommunity.pw/Default.aspx
  2. https://coinmetro.com/

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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.

Read More