Ripple does not have a mining rewards system like Bitcoin for releasing new coins into the market, so they’ve enacted a plan to put 55 billion XRP into escrow accounts.
Prior to 2017, Ripple did not offer any guarantees to coin-holders concerning the rate at which Ripple would release XRP coins into the wild, and this made investors nervous. At any moment, Ripple theoretically could have dumped the approximately 60 billion remaining XRP into the market and washed out any value that the investors may have held. To assuage this fear, the folks at XRP have announced their plan to lock up 55 billion total coins using their new Escrow feature, which allows Ripple to establish separate accounts holding 1 billion XRP each with time-specific contracts that will determine when they are available for use again. The plan is for 1 billion coins to be released from escrow every month for 55 months. Currently, this is about twice as much as Ripple has been selling to their clients in an average month, but the plan is to put any amount not sold each month back into escrow.
By contrast, some coins like Bitcoin use mining rewards as the means by which newly minted coins are released into the market. Because mining is designed to take specified amounts of time, and the formula for the mining reward is known to everyone, there is no risk of any central authority manipulating the money supply. Ripple is a different animal because, while its software is open source, it does have a central authority in a way that other large cryptocurrencies don’t, and it also was not built with money supply protections in place. Instead, Ripple owns most of the coins that their code allows for, and they sell the coins in the market to institutional clients who see the benefits of the coin and Ripple’s platform in general.
They may have set Ripple up without money supply guarantees because Ripple is targeting very large clients, like the entire international banking system, who may need trillions of dollars worth of XRP on short notice. Keeping a few extra billion XRP on tap seems to make sense, in that case, the way a reserve bank might. While Ripple’s plans to be the default payment protocol for cross-border transactions may actually be taking shape, it will take several years to pan out, and the investors who have started to store a significant value in XRP aren’t willing to risk anymore without some assurances. XRP just recently began offering the Escrow service on their platform, which allows for payments to be released on certain dates or after certain conditions are met. This should provide a lot of functionality for institutional clientele, and what better way to advertise it than to make headlines by locking up 55 billion coins.
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