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I'm trying to get my head around XRP, "the native currency of the Ripple network".

I understand that it's a currency that's only used within the Ripple platform to allow for transactions and serve as a "currency of last resort".

So I would imagine banks and financial institutions are quite interested in buying XRP so they can join the platform, since it allows them to cut off their operational costs.

However, it seems there is another group of people interested in XRP purely for speculative purpose.

What I don't quite understand here is how those people will actually "use" XRPs since it can only be used within the Ripple platform. Of course they will hold it until it surges in value but that would mean that, during that period, the XRP held by those speculators will not be available within the Ripple platform unless they "use" them in someway within the platform.

However, since those individual speculators aren't banks or financial institutions that are doing transactions with different currencies, I don't see any use cases of XRPs for them other than selling them, which would mean they are basically "hoarding" XRPs while waiting for their values to go up.

So I guess my questions are:

  1. What does it mean to buy XRP as an individual OTHER THAN speculation?

  2. (If investing in XRP could mean something other than speculation) How can we "use" XRP to do something other than speculation as an individual?

  3. How is it possible that the Ripple protocol can operate even when there are many people buying XRP and therefore "holding" it, making it "unavailable" to the rest of the network. (I would imagine there are constant supply of XRP, which is enough to keep up with the "hoarded" XRP)

Any suggestions will be really appreciated.

Thank you.

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What does it mean to buy XRP as an individual OTHER THAN speculation?

You can also use it as a means of payment and as a means of exchange for other assets on the network.

(If investing in XRP could mean something other than speculation) How can we "use" XRP to do something other than speculation as an individual?

You can pay it to other people to settle obligations. You can exchange it for other assets on the XRP Ledger. You can use it to fund transactions on the XRP Ledger to issue, redeem, transfer, or hold other assets.

How is it possible that the Ripple protocol can operate even when there are many people buying XRP and therefore "holding" it, making it "unavailable" to the rest of the network. (I would imagine there are constant supply of XRP, which is enough to keep up with the "hoarded" XRP)

XRP that is held is effectively out of circulation. Taking XRP out of circulation increases the value of the XRP remaining in circulation by reducing the effective supply. This makes it possible to use the remaining XRP for higher-valued transactions because its value is higher.

But even more importantly, speculation creates demand and trade volume. Because there are speculators who buy and sell XRP for US dollars, there is a robust trade between XRP and US dollars. This helps to establish and stability XRP's value and to assure that there are easy ways into and out of XRP for people who use XRP as a vehicle currency.

On one day recently, speculators traded about $1 billion worth of XRP. This helps to provide a reliable and stable measure of XRP's value without which it could not be used as an intermediary asset.

  • Thank you for your detailed answer. It's become much more clear now. Just to make sure I understood correctly, I'd like to ask you a few more questions, which I'll post as another question on this forum. I'd appreciate it if you could answer it as well. – Taiga Oct 20 '17 at 0:01

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