XRP- The Genius Behind Pre-Mining Coins
The premine concept
The term pre-mining coins come from premine is one of the many concepts in the cryptocurrency sector. Its a situation where a developer issues a specific cryptocurrency amount before it is made public. One reason for doing this is to pay for various aspects such as hosting of cryptocurrency or payment for core block explorers.
A premining coin is, therefore, is any cryptocurrency used to pay for its development processes; either to developers employed or to for the coin's listing. Cryptocurrencies issued from the genesis block before an ICO pre-sale are also considered as pre-mining coins.
What makes it such an interesting approach is that it can be equated to a situation where someone creates their own money, and that money is used to pay for the process of developing its infrastructure. Therefore, there can be no shortage of revenue to fund the development.
Ripple XRP as premined token
XRP is one of the cryptocurrencies that have taken advantage of the premine idea. Ripple has been one of the most active blockchain projects, particularly because its parent company Ripple Labs has been positioning itself as a currency exchange and remittance service. It even features an RTGS protocol that functions as a distributed ledger across a network of nodes. It has even become a rival to the SWIFT remittance service.
Ripple used XRP in the development process of the network that it uses for the remittance service. The network consists of validating nodes without a Proof-of-Work system. Also, 100 XRP tokens were created when the Ripple network was initially launched. Ripple Labs, the company that is tasked with the development activities on the network retained 60 billion XRP while 38 billion was put in circulation. The rest was distributed to the founders.
Ripple’s incentive program
Ripple has an incentive program whose sole purpose is to encourage more adoption of XRP while attracting more partners onboard. The company launched the RippleNet accelerator program so provide financial incentives to companies or organizations that promote the XRP payment network. Ripple Labs funded the accelerator program through its XRP worth $300 million that it took from its own XRP stash. The program features an adoption marketing incentive and a volume rebate. Ripple could also take advantage of incentive programs to achieve growth by leveraging incentive strategies such as those used by PayPal and Groupon.
PayPal managed to achieve 100 million users through a referral and incentive program that helped it to achieve between 7% and 10% growth daily. Groupon also managed to achieve significant growth through its referral program. Ripple is still in its early stages of development, and so it has an opportunity to leverage referrals and incentives to achieve the desired growth.
The debate on whether Ripple is decentralized is one that has sparked a lot of views. For example, some argue that it is Ripple Labs control more than 50% of XRP. Another argument is that Ripple is not centralized because XRP would continue to function if Ripple was to disappear. In a way, both are right based on the perspective, especially because there is ambiguity in the meaning of “decentralization” as far as cryptocurrencies are concerned. However, it is this ambiguity that makes Ripple work for its intended purpose of remittance.
The supply of Ripple in the market
A look at the XRP charts reveals that the digital coin has grown very little over the past few years reveals that it may not have shot up in value as many investors would have expected. This is especially compared to Bitcoin (BTC) whose value has grown by a huge margin since it was introduced. In fact, XRP’s performance is rather subdued compared to that of Bitcoin (BTC).
Unlike Bitcoin, XRP is not designed as a store of value, and so its price is a bit more stable. The price of Bitcoin has been known to be quite volatile because many people invest in it so that they can take advantage of its growth.
It is in the interest of the Ripple organization to maintain XRP’s low volatility and stable value. This is because more volatility would make it less appealing as a cryptocurrency that facilitates money remittance, which is the target market. This is also the same reason why Ripple developers made sure that they released only a fraction of the XRP coins in the market so that they can control the inflationary levels.
As far as the XRP supply is concerned, the developers released a fixed amount into the market, but that number is expected to dwindle with the increase in demand. Higher demand for XRP will likely come about as the result of more use of Ripple’s platform to facilitate transactions and also with the growing popularity of the currency should encourage more people to acquire it.
Token burning and XRP’s deflationary nature
As noted, Ripple developers made XRP and its platform to facilitate and improve remittance services, and so they have put in place measures aimed at making sure that XRP is deflationary rather than inflationary. This evident Ripple’s price performance, which does not seem to behave like other currencies, especially when Bitcoin is experiencing volatility.
One of the tools that Ripple uses for price control is coin burn. The latter refers to the removal of some coins from the market or from circulation. The XRP burn can be viewed as a transaction cost whose purpose is to prevent transactions from being disrupted by denial-of-service attacks and spam. The burn rate makes sure that a small fraction of XRP is destroyed in each transaction.
The burn rate or transaction cost is designed to increase as the transaction volume on the network increases over time. This means that rather than being pegged on the supply and demand for products, the currency’s value is based on utility in the form of facilitating transactions.
The stable nature of XRP not only makes it deal for cross-border remittance, but it also makes it an attractive currency for online transactions. Ripple is banking on this to boost the adoption of the cryptocurrency by individuals and not just corporates. Other currencies such as Bitcoin are not as attractive for online transactions due to their highly volatile nature.