1. At last Wednesday’s Bitcoin, Beer, and Bitstories at the Draper Startup House, Celeste and I hosted a 90-minute discussion on trading and markets. We both had a ton of fun, and I highly recommend dropping by next time if you want to interact with the local crypto community IRL. Unfortunately, due to time constraints, we were only able to handle a few questions from the audience, and one of them stuck with me after the event was over. The question was “Are you bullish on $XRP in light of recent developments in their SEC case?”

2. RippleLabs and its $XRP token has been around since 2013, and you’ll need a ton of context in order to get a full appreciation of their story, but let me attempt to summarize. Ripple’s story mostly begins with Jed McCaleb, who was the principal inventor of the file-sharing network eDonkey in the early 2000s. After barely surviving the music piracy controversies of that era, he became even more well-known as the original creator of the ill-fated MtGOX bitcoin exchange. McCaleb sold Gox to Mark Karpeles in 2011 (long before its record-breaking implosion) and started focusing on a new blockchain protocol that avoided the high-electricity usage of Bitcoin. This eventually became known as Ripple protocol, and he hired Chris Larsen to help him run the business in 2012. Brad Garlinghouse, the current CEO of RippleLabs, didn’t join the company until 2015, years after McCaleb himself had already left to found Stellar ($XLM) … which is arguably Ripple’s biggest competitor. I’ve been in both professional and social meetings with Jed, and have honestly never met a more humble genius, but you also can’t deny that he’s built a lot of controversial technologies throughout his career.

3. In late 2020, the US SEC alleged that RippleLabs had violated securities laws by selling $1.3B in $XRP as an unregistered offering to the public. It’s the classic problem amongst a lot of crypto projects, particularly the ones who ran ICOs in 2017, but RippleLabs is basically the granddaddy of the whole issue. This is why so many legal professionals are watching the US SEC case against them so closely; a negative decision here implies further litigation down the road against many other cryptos that raised money in similar ways. Over the last two years, $XRP’s price has basically been a real-time indicator of the status of that case, and recently it started to climb again because of a minor victory regarding key evidence. I’m not going to comment on the legalities of their situation — I’d say it’s still 50/50 — but I do want to talk about why I’ve avoided investing in $XRP throughout my entire crypto career.

4. When I first started working in crypto in 2014, the main problem I was trying to resolve was how to use blockchain tech to make remittances cheaper. I spent the next 5 years learning as much as I could about the cross-border money transfer industry, and I eventually came to a conclusion that many other wiser founders had already arrived at: You can’t make remittances cheaper with crypto, but crypto will eventually end remittances. That’s a big statement and there’s a lot of facts to unpack, so this is going to be another attempt to summarize learnings that could honestly fill an entire book.

5. When people think about remittances, they imagine money being transmitted across the world from a migrant worker in Saudi, hopping from one operator to the next, until it finally arrives in the hands of that migrant’s family in the Philippines. Of course, that’s not actually what happens. The money itself has never left Saudi, only the “instructions” have. All remittance organizations maintain massive bank deposits in all the countries that they operate in, and whenever they receive an instruction to send $200 to a family in the Philippines, all they do is approve a local bank withdrawal for the equivalent pesos. This is an oversimplification, but hopefully you get the idea: it’s inefficient to move the money itself, so what the traditional remittance businesses do is receive cash in one country, and then release cash in another. When the cash reserves in the Philippines start to get a little low, they top it up by doing a single massive SWIFT transaction.

6. Because of this mechanism, there’s no real cost in sending cash, because there’s no real movement. RippleLabs is attempting to rewire this entire situation. However, they’re fixing the wrong problem. Their pitch to money-transfer operators is that shifting to Ripple will make payments faster and more efficient. But no matter how fast your TPS is, you can’t go faster than when you don’t need to move funds at all.

7. You’re probably wondering, if there’s no real cost, then why are remittances expensive? The truth is, those costs have little to do with the “transfer” and everything to do with regulations. Because remittance businesses have to maintain entire departments dedicated to compliance and KYC and all sorts of government-mandated screening, the cost of remittances can’t go down. These compliance requirements have continued to escalate in the years since 9/11. We’ve felt it even in the crypto exchange industry, where regulators are forcing companies to ask their customers where their crypto originated from, every time they make a deposit.

8. If XRP doesn’t really make a difference in remittance costs, how is Ripple Labs getting away with all these partnerships with names like Santander, Tranglo, and Azimo? Well, most of it has to do with subsidies. Ripple Labs has never had any issues with paying companies to become users of their platform, because they understand that every new press release has a positive impact on the $XRP price. This is not out-of-the-ordinary in the money-transfer world, because in an industry built around the movement of money, marketing and partnership development are basically the same thing. I’ve been on the receiving end of one of these Ripple Labs pitches in the past, and once they realized that I wasn’t going to be impressed by blockchain mumbo-jumbo, they immediately changed tactics and explained that they would be open to subsidizing our transactions for up to a year, in order to get the partnership going.

9. I took me years of trying to use crypto to reduce the cost of remittances before I came to the conclusion that I was solving the wrong problem. I believe crypto will eventually end remittances, and if you really think about it, it’s not hard to see why. Every time I’m paid in crypto, either for consulting work or for an NFTart sale, that’s already a remittance transaction that is happening. Crypto itself is remittance, and it doesn’t care about countries or borders. The only thing that matters is that both the sender and the recipient are on the Internet, and are comfortable using cryptocurrencies. Now, it’s going to take a long time for mainstream society to be comfortable receiving Bitcoin, or even USDC, but crypto is by far the superior technology for sending funds across the world. Cheaper remittances is a by-product of using and understanding crypto, so I shifted to crypto education instead.

10. All this brings me back to why I don’t invest in $XRP. Their main business model involves installing themselves as a global middleman, and using XRP as a network fee. It’s a lot like trying to make the post office more efficient by inventing a new globally-accepted style of postage stamps. Guys, we’ve already got email. It seems to me that society would be better served simply by investing in ways to make sure the more modern solutions are affordable, safe, and easy to use.

See you all next week, cryptofam!

PS. It’s the 100th issue of Cryptoday on October 8th, and I still don’t know how to celebrate :( Open to thoughts from the community on this one!