It can be hard to keep up with all these new cryptocurrencies. It seems every time you wrap your head around one, five more have been created with a primary goal of changing the world of finance and a secondary mission of confusing the heck out of you.
One of the latest cryptos to bend minds to breaking point is known as XRP, a new-ish digital currency created by Ripple. Ripple - if you’re already scratching your head - is a San Francisco-based Fintech company best known as the controlling entity of RippleNet.
Heading further down the rabbit hole, RippleNet is a global payments platform used to transfer money over great distances extremely fast and with basically zero transaction fees.
So, does that make XRP an NFT? Well, to answer your question as simply as possible, no, XRP is not a Non-Fungible Token.
Not satisfied with this basic solution to your query? Don’t worry, crypto chums, I’m going to elaborate in excruciating detail below.
What is an NFT?
Before we can discuss this rather brain frazzling topic any further, we first need to establish a basic understanding of what an NFT actually is.
An NFT or Non-Fungible Token is a form of cryptocurrency that cannot be traded like for like as money or other cryptocurrencies can be. This is what Non-Fungible means. Why can’t an NFT be traded like money? The reason for this non-compliance with typical cryptocurrency behavior is that NFTs don’t have a set value.
This is an exaggerated example of how this works, but imagine you painted a beautiful picture, and you wanted a new wide-screen TV. You can’t take your picture and trade it for a TV because the TV has a set value, and your art is worth what someone is willing to pay for it - It is unique.
Perhaps an even better example is that you cannot trade your painting for another painting because there’s no way to ensure parity in terms of value.
A fungible item, on the other hand, can be traded like for like and everyone involved will come out of the transaction equally satisfied. Money is probably the most universal example of fungible tokens.
Say you had a twenty dollar bill, and you needed to split it, you could trade it with someone who has two ten dollar bills or four five dollar bills, and it wouldn’t matter. You both still have the same amount of money as you did before the transaction.
All other cryptocurrencies are fungible tokens. They have an exchange value with all other tokens and “real” money, so they can be traded just as that twenty dollar bill can.
Another important distinction to make is that an NFT isn’t the asset, rather a deed of ownership of a digital asset. The asset is the file the NFT links to. It could be an audio file from your favorite musician, a JPEG from an up-and-coming digital artist, or, well...anything digital really.
What is XRP?
Simply put, XRP is just another cryptocurrency, but just as NFTs have a special function that helps them stand out in the crypto crowd, XRP is also a unique take on digital finance.
Native to RipplNet, XRP is used as an intermediate currency for global transactions. If for example, a bank in Taiwan wanted to send a vast sum of money to Argentina, literally on the other side of the Earth, they would exchange their capital for XRP, the XRP would then be transferred to the Argentinian bank where it would be converted back into real money.
As an intermediary form of capital, XRP is known as a bridge currency. You can think of it as a neutral middleman in a trade. It’s there to ensure everyone gets their fair share and no one tries to take advantage, especially other middlemen, which brings me to my next point.
What’s the point of using XRP? You can transfer money globally without a bridge currency, right? Well, yes, global currency exchange is already a well-established act, but XRP smooths the process out by eliminating pricey exchange fees and speeding up the process exponentially.
That's not to say that there is no transfer fee whatsoever, there is, but it’s infinitesimal compared to standard rates. The current transfer fee for using XRP is 0.00001 XRP, which is roughly $0.01, per transaction.
In terms of speed, not only is XRP way faster than the four to five business days standard cross-border transfer, at four seconds per transaction, it’s also way faster than all the other cryptocurrencies. Moreover, it can handle 1500 transactions per second. Bitcoin can only handle 7. This means that the XRP system is scalable, able to shoulder the demands of its users.
Much like NFTs, XRP transactions are held on a Blockchain ledger, which is probably why people are mistaking XRP for NFTs in the first place, but Blockchains were never only intended for NFTs. Before NFTs even existed, Blockchains acted as the ledger for all cryptocurrencies.
Why is XRP Not an NFT?
Now we have a basic understanding of what each of these crypto tokens is and what they’ve been developed to do, let’s highlight exactly why they aren’t synonymous items.
Asset vs Assigned to Asset
Remember when I mentioned that NFTs are not the asset themselves but the deed of ownership assigned to said asset such as a song or image? Well, that’s one of the most fundamental distinctions between these two cryptocurrencies.
No matter how you look at it, XRP is the asset. Some might argue that the asset is the original currency that bank A in Taiwan converted into XRP, and now XRP is only representative of that currency as an NFT deed is to its assigned digital file, but that’s not quite true.
XRP isn’t actually a symbolic representation of the original currency, it is its own currency. Once the original sum of money is converted into XRP, it is XRP.
As by now you’re aware, this isn’t the case with NFTs. Sure, an NFT can be sold, they can even be used as collateral in a loan agreement, but they cannot be transferred for a set amount of currency.
Closer to ETH than NFT
XRP actually has much more in common with ETH, the native currency of the Ethereum Blockchain. ETH is currently used to fund the creation or tokenization of NFTs. Unlike NFTs, ETH is a fungible token, as it has a shifting yet comparative value on the exchange rate.
In fact, Ripple is already toying with setting up NFTs on their Blockchain, at which point you’ll be able to use XRP to fund your NFT creation or purchases.
However, there is still one huge aspect in the XRP matrix that separates it from every other cryptocurrency out there: XRP cannot be mined.
No Mining System - Eco vs C02
What exactly is crypto mining? It’s another rabbit hole I’m afraid, folks. Mining is the processing and adding of transactions to a Blockchain. Anyone can do this if their computer is powerful enough to handle the onslaught of transactions being sent through to the Blockchain ledger.
Mining also earns a sum of whatever cryptocurrency is being used to pay for the transaction. It’s a common misconception that crypto mining creates new coins for the miner. In reality, the miner’s profit is drawn from the transaction or gas fees.
Mining helps to control the Blockchain ledger in an entirely decentralized manner, meaning no central authority such as a bank is needed as an intermediary. As the transactions are instead handled by countless computers around the globe, no one entity has too much power, and thus cannot become corrupt. It’s a neat system, but now let’s take a look at how the XRP system functions.
XRP transaction validation can be thought of as a semi-centralized mode of conduct. Using a validation network, when an XRP transaction is broadcast, the computers in this network vote on whether the transaction is valid. If 80% or more of the validators decide that the transaction is valid, the payment goes through without a hitch, and the Ripple ledger is updated.
Unlike Bitcoin or ETH miners, these validators do not receive compensation for their work, helping to keep transaction fees at an absolute minimum.
Initially, the XRP system was fully centralized with RippleNet calling all the shots, but this shift to a network of validators removes their hegemonic presence from the transaction chain, making it a much more trustworthy and stable system.
This zero-mining system is also much better for the environment as it is incredibly energy efficient. As it stands, a single Ethereum transaction (NFT or otherwise) uses 70.32kWh of energy, which is the equivalent of a whole household’s power for two and a half days. This has led to a massive increase in global C02 emissions, and the more popular NFTs get, the deeper this ecological issue becomes.
Divisibility vs Fixed Whole
Another reason XRP could never be considered an NFT is that NFTs are indivisible units, meaning they cannot be broken down into smaller units or shares that can be sold separately. An NFT is an NFT and that’s that. If you wish to sell an NFT, you have to sell the whole thing, or nothing at all.
That’s not to say that one NFT deed can’t correspond to multiple digital items. Just look at the recent auction of digital artist, Beeple’s, work. He sold an entire collection of digital artworks for 69.3 million dollars under a single NFT.
The buyer owns the whole file collection of these artworks, but as one NFT acts as an umbrella deed for all of them, if the buyer wants to put it up for resale, they have to offer every file it came with.
Conversely, as a standard cryptocurrency, XRP is made up of a number of denominations and can be divided into as much as six decimal points, the smallest of which is known as a Drop. One Drop, for instance, would look like this 0.000001 XRP, but to save time and energy you can simply say, “I have one Drop”.
Another interesting thing about XRP is that there is only a set amount in the world. As digital currencies aren’t tangible, hypothetically, there could be an infinite amount of tokens created and passed around.
When RippleNet was created, founders decided that the best way to ensure value is to balance their currency pre-mining with scarcity. In light of this, 100 billion XRP tokens were created, and that more or less remains the amount in circulation and held by RippleNet creators or vaults.
According to Ripple’s own protocols, no more XRP will ever be created, thus ensuring the value of the currency remains at a premium. They even go as far as destroying a small number of transaction fees to slowly reduce the amount of XRP over time, which theoretically, will increase the value of XRP tokens as we move into the future.
Creator Made vs Company Made
Although NFTs are technically a cryptocurrency, they’re not mined and sold in the same way as cryptos such as ETH and Bitcoin. NFTs are rarely passed out into the world by fintech companies.
The vast majority of NFTs are minted by creators of the digital asset on offer. For example, a musician might have a collection of unreleased songs. They can then tokenize them by adding them to a Blockchain, thereby creating the NFT.
Furthermore, there are currently tons of digital artists minting their work and selling them as NFTs. It’s a creator/collector-based system that relies on cryptocurrency but isn’t drawn directly from the same source as the currency itself.
As we’ve already established, XRP, along with all the other cryptocurrencies, was created and proliferated by Ripple themselves. No products or users were utilized to make the 100 billion XRP currently in rotation.
My final bit of evidence that XRP and NFTs are entirely different entities is that, being a semi-centralized system aimed primarily for use by big banking companies, it has a fraud flagging protocol.
The NFT system and in fact all other cryptocurrencies do not have any semblance of central governance, and as such, there is no policing body, leaving them vulnerable to criminal activity such as theft and fraud.