A Beginner’s Guide to Investing in Ripple

While Bitcoin still remains the biggest and most popular of its kind, Ripple is slowly climbing up the ranks. It is third in market capitalization behind Bitcoin and Ethereum as of this writing, with an ever-growing list of merchants that exchange Ripple tokens, or XRP.

This prompts the question: Is XRP a good digital currency to own? And if so, what are the different ways to invest in Ripple?

Ripple is not like the others

What makes Ripple a good investment opportunity is what sets it apart from other cryptocurrencies. It was originally created by Ripple Labs as a global payments solution to be used by financial institutions. The transactions are confirmed within seconds, with lower fees than its predecessors — even with middlemen involved. The goal of Ripple is not to eliminate intermediaries like banks, but to simplify the process of exchanging funds.

This doesn’t come without a cost, though, as XRP is centralized largely by Ripple Labs itself and the financial institutions that back it. This removes the major appeal of cryptocurrencies, which is that no central authority can control it.

You can’t mine XRP.

That said, however, centralization does come with clear advantages that are worth noting. For one, XRP may be less volatile than other cryptocurrencies. This is mainly due to Ripple’s unique mining-free protocol. The platform uses a consensus mechanism to keep records and validate transactions. Using this system, Ripple set the limit of XRP tokens to 100 billion already pre-mined, most of which are owned by Ripple Labs itself. A smart contract releases 1 billion XRP monthly and redirects the excess to an escrow account to ensure that unused funds are not misused. That means that the amount of XRP in circulation is already set, which can contribute to greater price stability compared to other digital assets.

Financial institutions are standing behind Ripple.

Investor sentiment toward Ripple is also very positive, as made evident by its current share of the market. One of the reasons for this is Ripple’s clear selling point as a payment solution that everyone, not just investors, can benefit from. Financial institutions are gradually warming up to Ripple’s potential to improve the process of exchanging assets. In fact, RippleNet, Ripple’s network of payment providers, is now over 300 strong. These include big banks like Standard Chartered and Santander, as well as small to medium-sized providers scattered all over the world.

That said, investing in Ripple can be a good idea as banks and merchants become more and more accepting of the platform. XRP is also a more affordable option than others, so if you want to explore the cryptocurrency space, it is a good place to start. As the value of XRP gradually increases, you have the potential to generate huge profits later on.

Buy XRP to hold or to trade it

The simplest and most direct way of investing in Ripple is to buy XRP tokens. There are two ways to profit from this approach: holding your coins long-term as the value appreciates, or actively trading them over shorter periods of time.

To start collecting XRP, you need to create an account on an exchange platform that supports XRP, like Coinbase or Kraken. After your account is verified, all you need to do is deposit fiat currencies like USD to your account, which will be used to purchase XRP. You can start trading once you have the funds, and then profit by selling XRP higher than when you bought it. Alternatively, you can hold these funds long term for a more passive approach. In either case, keep your coins in a cryptocurrency wallet for greater security.

Trade Ripple CFDs to speculate on price movements

If you’re unsure of purchasing coins as an investment, you can learn to trade contracts for difference (CFDs) in cryptocurrencies. Trading Ripple CFDs is a short-term investment that lets you invest without actually owning XRP. When trading CFDs, investors make predictions on the price movement of an asset like XRP, which can be positive or negative. If, for instance, you predict that the value of XRP will increase over a specific amount of time and it does, the profit you earn is the difference in its value. Conversely, making the wrong prediction means losing the amount equivalent to the price change.

Compared to buying the asset itself, a Ripple CFD will give you leverage, which effectively allows you to trade more than you actually have. You can potentially multiply your capital even if it is limited to begin with. But as with any form of investment, Ripple CFDs are not risk-free and should be traded with caution.

Invest in Ripple stocks and startups

The third option is to invest in Ripple stocks. Currently, Ripple Labs is not a publicly traded company, though the firm is expected to go public soon. That means you can’t directly purchase shares from the stock market, but through the secondary market.

The big disadvantage of this is accessibility. Buying shares from private investors is usually only available to accredited investors. It’s a special status given to investors who have a net worth of at least $1 million and vast experience in the financial markets. As a beginner, you might not be able to buy Ripple stocks just yet, but you can invest in startups or firms that support Ripple while waiting for Ripple Labs' IPO.