XRP has been considered by some as a potential bridge currency due to its fast transaction speeds and low fees. Ripple develops global financial products like the XRP Ledger and RippleNet, which are designed to streamline intra-bank transactions, which could help XRP become a global bridge currency.
In this article, we are going to examine what a bridge currency is, whether Ripple and XRP could become the go-to bridge currency solution down the road, and what XRP’s investment prospects are.
Key takeaways:
- A bridge currency acts as a go-between for currencies or financial systems, smoothing transactions when direct exchanges between currencies aren’t feasible.
- Ripple, via its XRP cryptocurrency, is aiming to harness blockchain for financial solutions, specifically focusing on bridging financial institutions, currencies, and systems. Leveraging the ISO 20022 standard helps it provide a common language for financial data exchange.
- XRP’s potential as a bridge currency within RippleNet lies in its ability to facilitate faster and more efficient cross-border transactions between various fiat currencies, although not all transactions on RippleNet involve XRP.
- While XRP holds promise as a crucial asset in the financial landscape, dubbing it as the next Bitcoin might be a stretch. XRP’s current market cap and potential, including its partnerships and pending IPO, contribute to its appeal but likely won’t be enough to surpass Bitcoin.
What is a world bridge currency?
A bridge currency is a type of intermediary currency that facilitates transactions between two different currencies or financial systems. It serves as a medium of exchange to enable smoother and more efficient transactions when direct exchange between two currencies might be difficult or impractical.
For instance, if two countries have their own currencies and want to trade but don’t have a direct currency pair, a bridge currency like the US dollar or a widely accepted cryptocurrency could be used as an intermediary.
A bridge currency can help make transfers between different systems more efficient, faster, and secure. Ripple – with its suite of financial solutions powered by the XRP cryptocurrency – is aiming to leverage the power of blockchain technology to provide a bridge between various financial institutions, currencies, and systems.
One of the ways Ripple is actively pursuing the role of a world bridge currency is through the implementation of the ISO 20022 standard, which is an international standard for financial messaging that provides a common language and structure for the exchange of electronic data between financial institutions, including blockchain projects.
Will XRP be used as a bridge currency?
Whether XRP will eventually be used as a global bridge currency depends on the adoption of Ripple’s services in products, primarily the XRP Ledger (XRPL) and RippleNet, a global network for banks and payment providers.
So what are XRPL and RippleNet, and how do the two products interact? Let’s begin with a simple description of each before we proceed:
- RippleNet is a network designed to facilitate seamless and quick cross-border payments for financial institutions, banks, and other payment providers. It uses a set of rules and protocols to enable these entities to conduct transactions efficiently, reducing both the time and cost involved in cross-border transfers.
- XRP Ledger is an open-source blockchain that serves as a decentralized ledger that supports the digital asset XRP. It’s not limited to Ripple’s use but is open for anyone to build upon and utilize for various applications beyond just payments.
The connection between RippleNet and the XRP Ledger lies in the potential use of XRP as a bridge currency for cross-border transactions within the RippleNet network. While not all transactions on RippleNet necessarily involve XRP, XRP’s speed, and liquidity can be leveraged as an intermediary currency to facilitate faster and more efficient cross-border transactions between different fiat currencies.
In short, RippleNet provides the infrastructure and framework for financial institutions to connect and transact, while the XRP Ledger and its native asset, XRP, offer the potential for increased liquidity and cost savings within this network.
A graphic showing how the current intra-bank communication works (on the left), and how XRP could act as an intermediary that drastically reduces the scope of bank interactions and transactions. Image source: Ripple
Is XRP the next Bitcoin?
XRP has a lot of potential to become a very important asset in the future, not just within the cryptocurrency space but also within the broader financial landscape. However, “the next Bitcoin” is a very tall task to clear for any project, and, frankly, we can’t see XRP displacing Bitcoin as the world’s leading crypto asset in terms of market cap.
Even if XRP succeeds in becoming a bridge currency that financial institutions around the world are using for their intra-banking transactions, it’s hard to envision that XRP would surpass Bitcoin. While not a perfect analogy, we can take payment companies like Visa and Mastercard as an example. Between those two, more than 100 million merchants worldwide are using their products and networks, and they currently have about the same combined market cap as BTC (about $868 billion).
Also, XRP is already the 5th largest cryptocurrency in terms of market capitalization, controlling a nearly $35 billion market share. The currency reached its ATH of $3.92 in early 2018. At the moment, XRP is trading at about $0.62 per coin, over -84% removed from its peak value. If XRP were to revisit its previous ATH, it would have a market capitalization of $211 billion, which is (very roughly speaking) in the same ballpark as the market caps of Visa and Mastercard.
A likely catalyst that could help XRP revisit its previous ATH is the potential Ripple initial public offering (IPO), which Ripple’s CEO Brad Garlinghouse said the company would pursue once the lawsuit between the SEC and Ripple is completed.
Is XRP a good investment?
XRP is trading significantly below its ATH, has real-world utility thanks to Ripple’s partnerships with large corporations, and could benefit from a successful resolution of the SEC case; all these factors speak in favor of XRP being a good investment. Let’s explore each of these reasons in more detail:
- High-profile partnerships: Companies like Santander, Imperial Bank of Canada, Central Bank of Georgia, and over 100 other firms are members of RippleNet, a global payments network that supports XRP.
- The SEC lawsuit: Earlier this year, Ripple won an important victory in its case against the regulator, when the presiding judge ruled that XRP sold on exchanges to retail investors is not subject to securities laws. The ruling opened the door for a successful resolution of the whole case and the potential Ripple IPO.
- Trading far below its ATH: XRP had shown the ability to trade over +500% above its current price levels when the cryptocurrency market as a whole was smaller, constrained by worse liquidity and fewer capital inflows. If XRP were to mount a significant rally going forward, XRP could easily surpass its previous ATH and potentially even surpass $10 down the road.
- High-speed, low-cost transactions: Given its focus on cross-border transactions, it’s no wonder that Ripple is one of the fastest and cheapest crypto networks in the space. An XRP transaction on the XRP Ledger takes 3-5 seconds and costs just a fraction of the cent, giving it a solid advantage over most crypto projects and virtually all traditional payment protocols.
How high can XRP realistically go?
According to our XRP price prediction, XRP could experience a strong rally to $1.65 by June 2024, about 2 months after the next Bitcoin halving. After that, the algorithm expects the price of XRP to move in a negative direction before a major spike in 2028 could see the currency reach $2.90 per coin.
For an even longer time scale and different pricing models, check out our XRP price predictions for 2040 and 2050.
The bottom line
Whether XRP can succeed in becoming the world’s leading bridge currency hinges on Ripple’s ability to attract new partnerships and position its XRP Ledger and RippleNet products as a viable alternative to traditional payment systems.
It is worth noting that XRP is one of the most popular cryptocurrencies out there, distributed among over 4.8 million addresses. To learn how XRP is disturbed and who are the biggest owners, check out our XRP rich list.
