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This Cryptocurrency Wants to Go Public Through an IPO

This Cryptocurrency Wants to Go Public Through an IPO
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Typically, when you hear about a cryptocurrency company that raises funds, they do so through venture capital and private funding, or through an Initial Coin Offering (ICO), which is when the company raises funds specifically to create a new token. But now, Ripple, the company behind the token XRP (CRYPTO: XRP)The original token on the XRP Ledger is seeking to reverse the trend and eventually return to its IPO through an initial public offering (IPO).

While the company didn’t provide a registration statement or anything, Ripple CEO Brad Garlinghouse has said several times that the company could look to go public, a somewhat unique game in the crypto space. Let’s take a look at what the XRP token could mean.

What is XRP and why is it different?

XRP is currently the 5th largest cryptocurrency with a market capitalization of nearly $46 billion Bitcoin (CRYPTO: BTC) And other cryptocurrencies, it is a peer-to-peer network that is primarily seen as a way to make more efficient payments globally, but there are actually several big differences that distinguish XRP from cryptocurrencies like Bitcoin.

While Bitcoin uses blockchain technology, XRP Ledger uses a different type of “mass ledger” technology to validate transactions on the network. All of this can get very complicated, but both methods are distributed ledger technologies and both methods rely on nodes on the network, which are devices such as computers that host the network and are interconnected, to agree on and verify transactions. With Bitcoin and the blockchain, miners verify transactions. But in the XRP Ledger, a much smaller set of nodes verifies transactions and these nodes are predetermined by Ripple. This, in essence, makes Bitcoin truly more decentralized because there is no single party behind or managing it. Ripple is a private company that manages certain aspects of the network.

Image source: Getty Images.

Another major difference is that the XRP Ledger does not rely on mining to create new tokens like Bitcoin and Ethereum, which can be considered a positive at the moment, as cryptocurrencies have come under fire due to the amount of energy used in the mining process. Ripple has “pre-mined” its own XRP tokens, 100 billion of which, and then periodically releases new tokens, and the concern behind this is that if Ripple suddenly releases a large number of tokens at once, it could severely impact supply and demand. On the other hand, Bitcoin has a fixed supply of 21 million tokens.

While Bitcoin was created more as an alternative for people to pay for things, the XRP Ledger is more efficient at clearing and settling payments because it is faster and cheaper than Bitcoin and most other crypto networks. That is why it has received more attention from financial institutions, with more than 40 well-known banks partnering with Ripple Labs. The XRP Ledger can process 1,500 transactions per second, compared to a maximum of 7 Bitcoin transactions per second.

IPO Journey

Garlinghouse has been talking about a potential Ripple IPO for a while, and also said he believes there will be more crypto IPOs in the future, which we’ve seen with companies like Silvergate Capital (NYSE: SI) and Queen Piece (NASDAQ:COIN), although not specifically with companies that developed cryptocurrencies, as far as I know.

But Ripple was embroiled in a lawsuit with the Securities and Exchange Commission (SEC) that slowed the process. The lawsuit alleges that Ripple and its co-founders illegally raised more than $1.3 billion in an “ongoing unregistered securities offering of digital assets.” The SEC claims that Ripple raised this money starting in 2013 through the sale of XRP tokens, and allegedly provided billions of XRP tokens in exchange for market-making and other non-cash services.

Recently, Yoshitaka Kitao, CEO of Japan’s SBI Group, which is the largest shareholder in Ripple, said in a recent earnings call that once the SEC lawsuit is over, Ripple plans to go public. According to Cointelegraph, he said, “Following the current lawsuit, Ripple will make it public. And the current CEO wants to do that. And Chris wants to do it.”

How will the IPO affect the price of Ripple?

After the news in late April that Ripple planned to go public following the SEC lawsuit, the price of XRP tokens jumped 15%, so the move clearly sparked interest, but there is also a chance that if people have another way to invest in Ripple, it depends more on the Traditional profits, they may stream into that instead of buying actual currency. It’s hard to say now, given that this would be a potential test for other cryptocurrencies interested in going public.

But my guess is that the IPO will improve the visibility of Ripple and XRP in the broader market. It can be very difficult for individual investors to benefit from traditional IPOs, so they may see XRP tokens as a way to invest at a cheaper rate and before an IPO. I also believe that the price of XRP tokens will still depend on their usefulness in the real world and how well they can help institutions like banks improve their money transfer capabilities. If they gain momentum and discontinue the payments system as many believe, I’m sure more people will want to hold both the company’s shares as well as the XRP tokens.

Correction: The original version of this article is called the XRP token Ripple while in fact Ripple is the company that created the XRP Ledger. The XRP token is the original token in the XRP Ledger. We are sorry for the error.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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