My small journey into cryptocurrency was borne from a different need than most initial investors. I wasn’t motivated by some “get rich quick” scheme. At the seasoned age of 64, I knew better than that. Plus, I had gone to business school, where we were taught about the value of being a patient investor with a balanced portfolio who had their eye on the long term.
Cryptocurrency did not meet that definition, and yet on August 3, 2020, I bought $500 of XRP at my son’s behest. I ran my decision by my husband because we manage our retirement dollars together. Yes, saying “cryptocurrency” and “retirement dollars” in the same sentence is, at best, problematic. At worst, it might be incredibly stupid.
So why did I do it? I did it because my son was highly engaged in a world I knew nothing about, and he had placed almost all his resources in cryptocurrency. I invested this small amount because that was the best way for me to track this market with him and engage in conversation. I had many questions before becoming a “token” owner, which is similar to but different from being a shareholder in the traditional stock market.
Let me walk you through my first round of questions. I knew my son could very well be wrong, though there was also a chance he could be right. But more than anything, I wanted to watch and monitor our investments. As XRP token owners, we could ride the vicissitudes together.
Q1: Why tokens versus shares?
I couldn’t understand the need to introduce the word “tokens” into our investment vocabulary when it seemed like “shares” would work just fine. I learned that at the heart of today’s regulatory battle is whether cryptocurrency is viewed as tokens or shares. If cryptocurrency gets labeled “shares,” they need to be registered as a security. This is the position of the SEC which seeks to control what they perceive as the wild, wild west and reduce investor risk. The SEC is opposed to the CFTC’s (Commodity Futures Trade Commission) view that cryptocurrencies are commodities, though they acknowledge outliers to the classification do exist. Determining cryptocurrency’s designation is still under regulatory review and will have a profound impact.
I learned why crypto developers believe tokens are a better descriptor. Ethereum founders coined the term “utility tokens,” reinforcing the “utility” of tokens to tap into the network— crypto’s crown jewel. Accessing the network allows investors to participate in a large ecosystem that includes payments, NFTs (non-fungible tokens to be explained in part 2), games, online casinos, and many other applications. I was to understand that the network, backed by encrypted blockchain technology, was crypto’s secret sauce that made settling transactions relatively safe.
My son’s further clarification between shares and tokens was as follows. Shares derive value from the efforts of a central group of people. Utility tokens derive value from a network whose worth is expected to increase over time as traditional assets (for example, real estate) get tokenized and placed on the network. If you, as an investor, are a holder of a token on a network that moves more assets, then your tokens will appreciate.
A competitive battle will be waged as to which network(s) will win, but this is unknowable today.
Q2: Why XRP? Why not Bitcoin or Ethereum?
I needed to do my due diligence, even though I reminded myself that this was an investment in knowledge, not returns. While my son was not a big fan of investing in Bitcoin in 2020, I still asked him to make the case.
He argued that Bitcoin is the best-known and earliest cryptocurrency. It has a blue-chip list of investors (think Tom Brady) and feels safer to some people than other options while still diversifying one’s portfolio. My son believes that Bitcoin is not an inspired choice, having already done much of its conquering, but it can be a sensible pick.
Ethereum is another story. I learned that Ethereum positions its technology as being a key differentiator. I was now hearing terms like “smart contracts” (again, part 2), which seemed like an odd personification of a piece of paper (or an e-file). Ethereum also benefited from being the insider club’s choice (e.g., Mike Novogratz), making others flock to invest.
Its problem, though, is network congestion, high fees, and failed transactions, all of which are to be addressed in Ethereum 2.0, which is late (original target 2016 ). This aspect, along with a nagging question about whether Ethereum’s initial sales were legally offered, has my son skeptical. He believes Ethereum has not been sufficiently devalued to make it worth the gamble.
Now comes XRP, a cryptocurrency few know about. I reminded my son that in a world of hype, being unknown is not an asset. He explained that what we care about is transaction costs, transaction speed, and the environmental impact of big server farms needed to confirm these transactions.
Introduce “XRP Ledger,” the payment protocol that backs XRP. Using blockchain, it has established itself as a very low-cost transactor and is international in scope. Whereas early Bitcoin developers wanted to create an internet monetary system apart from traditional financial institutions, the architects of the XRP ledger (they later went on to found Ripple) sought to integrate the promise of blockchain technology with traditional finance. In layman’s terms, it wasn’t looking to unseat key stakeholders from the old world but provide them a way to connect.
Based on XRP’s vision, low cost, and technological edge, I was willing to give XRP a shot.
Q3: Where will I buy XRP, and where will my “tokens” reside?
This was my only easy question asked, and the answer was short. I created an account on Coinbase with a password that would defy Albert Einstein’s intelligence. After that, I secured my XRP tokens. I thought we were done, but then I heard a new term: Cold Wallet.
A cold wallet is an offline wallet not connected to the internet. It is considered the safest way to “custody” (also a new word to me in this context) your crypto instead of relying on a third party or an exchange.
Adopting a cold wallet explains the crypto mavens’ adage, “Not your keys, not your crypto,” which I’ve never used (until now) but is supposedly a common saying.
I had more questions, but this was enough for me to lay down $500 and be a parallel but smaller investor in XRP. I continued asking questions and later invested another $500, making my average token price in the 30-cent range. XRP has been a roller coaster ride, going as high as $1.80 and as low as in the teens. Currently, it is hovering around 40 cents.
I understand why my son believes in XRP. He tells me we are in the 12th chapter of a long novel. He either will or won’t be right, but I am learning all the way and at a cost that I can manage if its hype turns out to be exactly that.
Finally, the MBA in me decided I needed to go to some external sources to validate XRP’s worth. I went to a Ripple report at the time. In writing this piece, I just reviewed their most recent update (May 2022), which aligns with my understanding. In particular:
The XRPL (“L” is ledger) has some inherent advantages for tokenized assets, such as low-cost efficiency (near 0 fees to mint), no smart contract requirements for basic functionality, and was the first major blockchain to be carbon-neutral.
But for the investor just starting, who doesn’t have a 28-year-old son explaining his picks in great detail, I recommend seeking broad-based reports by independent sources. A few that come to mind are:
Bloomberg Crypto https://www.bloomberg.com/crypto
Cointelegraph https://cointelegraph.com/
Coindesk https://www.coindesk.com/
Think of this as a managed journey, heeding the risk, moving one step at a time, eyes wide open, and learning every moment.
Note: Do not consider my investment an endorsement of XRP or cryptocurrency. I am only sharing the process of how I ended up with a minute position in a turbulent market.
Jill Ebstein
