As the new year begun, 500 million XRP tokens went back to an escrow account for 55 months. Why did that happen and why does it matter? Well, it’s a bit of a long story but bear with us and will explain it all to you.
Some time ago, Ripple committed to putting 55 billion Ripple’s XRP in an escrow account in order to ensure certainty of XRP supply and stability at any given time. The account is there and it’s releasing a billion XRP into the market every month, and whatever is left after selling tokens to Ripple’s customers goes back into a new escrow account and it’s kept there for 55 months.
Keeping the XRP’s lion’s share secure in escrow allows people to figure out exactly the maximal market supply the token can have. Ripple still owns most of the world’s XRP supply which makes the company the token’s steward.
It’s shown to be a competent guardian with a track of investing and backing the XRP environment. The escrow lockup ensures that Ripple can’t speculate and change the assets’ price by flooding the market. It would make no sense for Ripple to do that since it would be the most affected party in that kind of scenario, but with the escrow contract, everybody can be sure about it without the need to trust Ripple’s good faith.
The lockup also ensures the community about Ripple’s commitment to build XRP’s liquidity and keep the market healthy and trustworthy. The coin’s price will be determined by demand and utility in the long term, and not by sheer speculative forces, which remain dominant in crypto.
And that matters a lot because unlike those other assets drove purely by sentiment and speculation, real institutional customers are already using XRP because they find it has real value. Moreover, central banks, regulators and governments are coming to realize that this is a cryptocurrency that could play a role in the global economy.
XRP can do something that Bitcoin does well already: to store value. But it takes things a step further by delivering transactions speeds an order of magnitude higher than BTC or ETH. It’s the fastest, most efficient and scalable digital asset in the world, which makes it suitable to process payments of all kinds the world over.
Here’s how the Escrow works: parties involved in a transaction can secure a number of XRP tokens for a fixed amount of time until some particular conditions are met. Until such conditions are cleared, the tokens remain cryptographically secured. That’s known as a smart contract.
Ripple created 55 contracts worth a billion XRP that will expire on every month’s first day for 55 months. As each contract expires, the blockchain firm behind XRP, Ripple will have a billion tokens to use to sell its clients or to offer into the market, but so far they’ve privileged the option of making the asset available to institutional clients.
At the end of each month, some of the currency will be unused and it will go back into escrow (a different one). For instance, if 500 million XRP remain available by the time the next contract is due, those 500 million will go back into escrow as the new contract delivers another billion. And that’s exactly what happened today.
Ripple has sold 300M XRP on average for several months, so December was a good month for XRP, which is now the world’s second largest cryptocurrency by market capitalization.
Ripple’s vision remains the same – to enable the Internet of Value in which money moves like information moves today – and XRP is at the heart.
Image courtesy of PixaBay.