Will Ripple Replace SWIFT?

I had the great pleasure of hosting a holiday gathering of almost my entire team this week in person.

It’s a rare treat as many of us are scattered around not just in the U.S., but a couple work internationally as well. And for those who couldn’t attend, we made sure to speak their names as they are greatly appreciated.

It takes a large team of fantastic people to orchestrate all the research and work that we do, and to support our subscribers.

I’m grateful for them as their support allows me to pursue all my crazy ideas and areas of research that simply wouldn’t be possible without them. And I’m also grateful for all of you, both free and paid subscribers. Either way, it’s great to have you as part of the Brownstone universe.

It was a really fun week this week in The Bleeding Edge as we got to explore Hyperloop technology, the latest self-driving software from Tesla, and the huge developments in quantum computing. How could we not all be ridiculously excited?!?

In this AMA, we’ll explore some follow-up questions on these topics, and also revisit one of the most famous digital assets – Ripple – around which there has been a lot of excitement lately.

This is a timely topic not just because of the pro-crypto administration coming into office, but also because we’re gearing up here at Brownstone Research to dramatically expand our research in digital assets and cryptocurrencies.

I can’t wait…

I hope everyone is enjoying their holiday gatherings as much as I enjoyed mine.

Jeff

A SWIFT Replacement

Jeff,
I really enjoy reading your newsletter, special reports, and responses to your subscribers. My question is about your thoughts on XRP taking over the World Widecross border payment system and replacing SWIFT.

– Jack M.

Hi Jack,

Ripple Labs’ XRP token was one of the more successful stories of the 2017–2018 bull market in digital assets that swept over the industry. Many of its early backers purchased the token below a penny and saw one of the most meteoric rises in crypto that allowed holders to realize gains of well over 50,000%.

The token didn’t sustain its elevated levels, but what happened after created what many consider one of the most cult-like followings in crypto to date.

Ripple became a target of an SEC lawsuit centered around a claim by the SEC that Ripple engaged in unregistered securities sales. It was a time when there was a lack of regulatory clarity around digital assets, which worsened further under the Biden administration.

Ripple took the high road, was proactive and professional in engaging regulators, mounted a great legal defense, and became one of the prominent players fighting for more regulatory clarity and a regulatory framework that would benefit the entire blockchain industry.

With the new pro-crypto, pro-innovation, lighter regulations mindset coming with the new administration, I believe that Ripple will ultimately prevail. Its leadership and willingness to fight against Gary Gensler and the SEC is why Ripple gained its cult status.

Ripple’s focus early on was using its blockchain technology to facilitate cross-border transactions with near instantaneous settlement for a fraction of the cost of using traditional payment rails. They secured partnerships with some of the largest institutions around the globe, which gave the impression of widespread adoption of Ripple’s network.

But the truth of the matter is that the network early on favored centralization. There wasn’t a need to hold the token in order to transact on the network in the early days.

Over the last few years, things have changed. You now spend a small fraction of an XRP token when sending payment, there is a fee burn that exists that destroys part of the supply over time, and new applications have sprung up using Ripple.

There has even been a Ripple stablecoin in the process of hitting the market that many are excited about. The token is backed in a similar fashion as Circle’s USDC and Tether’s USDT stablecoins.

Thanks to Ripple’s high-level partnerships the token should be widely accessible across exchanges and various retail apps. These promising developments have refueled excitement over the XRP token.

And while the cross-border narrative is exciting, it seems that adoption has started to spring up in other areas already in stablecoins like USDC and USDT. Combined, there is almost $200 billion worth of supply in the market realizing similar figures in volume each day. These are dominant in the industry.

This means if Ripple looks to compete, it would need to happen within the traditional finance players… Major banks like JP Morgan & Chase with more than 400 member banks have their own JPM Coin that is comparable and already seeing usage in the traditional financial industry. They’ve even conducted various debt and currency swaps onchain via their token, which showcased how their technology spans both public and private permissioned networks.

The competition is fierce right now, and while Ripple has made great progress with financial institutions and even central banks around the world, there is still a lot of resistance to blockchain technology in many areas of traditional finance (tradfi).

It is currently working with the Bank of International Settlements (BIS) on a task force focusing on innovating payment systems, as well as the application of CBDCs by central banks.

One key aspect of Ripple is that is primarily an enterprise blockchain technology. This is demonstrated by the number of senders on the network in 2024 which often sat below 10,000 per day. This is very low for a network with a valuation that high.

If Ripple were a digital asset with day-to-day consumer applications, we’d see a much higher number of transactions.

For example, Bitcoin is often around one million, Ethereum is well into the hundreds of thousands just on its layer-one chain, and Solana is in the millions. This gap in users is a couple of orders of magnitude.

But it’s worth noting that Ripple has one of the largest war chests in the whole industry. They hold over 4 billion XRP in hand and have nearly 40 billion in escrow. Their escrow releases a billion XRP tokens each month, giving the builders/team plenty of dry powder to build and secure top partnerships. For this reason, we shouldn’t underestimate Ripple.

But for them to replace SWIFT, they need to start gaining users that are currently relying on SWIFT. (And as a side note: SWIFT has its own ledger technology, and the BIS is working on its own unified ledger tech… which doesn’t include XRP).

So, it’s too early to say if Ripple will be successful in doing so. It has the technology. And we do have reason to be optimistic now as it appears Ripple will prevail, and the SEC lawsuit will be behind the company soon.

And, to my earlier point, it also has the capital to continue to invest, staff, innovate, and partner to grow the use of its blockchain technology.

Nuclear Waste Storage

Could nuclear waste be stored in mined-out uranium mines?

– Raymond A.

Hello Raymond,

This is a very logical solution. After all, there is radioactive material in uranium mines. And in fact, uranium mines do, in a way, store radioactive waste.

When uranium ore is ground up to extract and process the uranium, a byproduct is produced – called tailings. The tailings still contain some radioactive elements after the uranium is extracted and remain on-site at the mine.

With that said, I believe your question was referring to spent nuclear fuel. While this is possible, it’s very rare for this to occur.

The reality is that uranium mining companies either lease or own the land, and they are in the business of discovery, mining, extraction, and sometimes processing and enrichment of uranium. They don’t have an interest in getting into the nuclear waste storage business.

It’s not just a matter of depositing nuclear waste on-site. A mine would have to be fortified with infrastructure to ensure that mining walls or ceilings wouldn’t collapse. There would also have to be either elevators or a surface road to safely move the containers carrying waste deep into the mine.

That’s not to mention the difficulties of permitting a mine for nuclear waste storage. This would be expensive, time-consuming, and in some cases impossible to do, depending on the location.

That’s a long way of saying that yes, it’s possible, but would be highly unusual, especially in the U.S. market.

Tesla Optimus & FSD Technology

Jeff, thanks for the insight. How much control will Elon Musk have over the proprietary tech in China? Thanks for educating your readers.

– Mary R.

Hi Mary,

It may come as a surprise, but Tesla’s technology has already been stolen. In 2019, a Chinese engineer working for Tesla downloaded Tesla’s Autopilot software – the source code – and gave it to a Tesla competitor in China called Xpeng.

Tesla sued the engineer in 2019 and eventually settled in 2021. Something similar happened to Apple as well with an engineer who left, took technology, and went to work with Xpeng.

What Xpeng has done is egregious. It copied the Autopilot user interface completely and copied Tesla’s website design. And the design of the Xpeng sedans is very similar to Teslas. It’s pretty ridiculous.

But China is a major market for Tesla. It has a large manufacturing facility in Shanghai. Musk knows that China has a long history of not respecting intellectual property rights, and it is almost impossible for a foreign company to prevail in a lawsuit against a China-based company.

That’s why Tesla sued the Chinese engineer in the U.S., as opposed to going after Xpeng in China. And aside from the futility of a lawsuit in China, Musk will not risk running afoul with the Chinese government, which is why he is very careful about what he says concerning anything related to China.

With all that said, it would be very hard for a China-based company to replicate Tesla’s entire artificial intelligence solution for autonomy. Even if the country or a company managed to steal Tesla’s source code, it would still need the hardware system to run the technology.

As a reminder, Tesla’s semiconductors are custom-made to run its neural network. They’re made in Taiwan by TSMC. And I’m almost certain that Tesla will try to have TSMC manufacture those chips in the U.S. once TSMC’s new fabrication plants are in production in Arizona. This would help mitigate risk in the event of China’s inevitable takeover of Taiwan.

One of the key points about artificial intelligence is that the software is closely coupled with the hardware (i.e. semiconductors). And in the case of autonomy, the entire computing system is informed by a range of sensors as critical inputs into the neural network. Replicating the entire system if someone has just one piece, like the software, is extremely difficult.

And one thing that we can be sure of, it’s that when it comes to Elon Musk and his teams, we can expect that every year the technology will change, evolve, and rapidly improve. Musk’s approach to technology is rapid innovation, testing, iteration, and improvement.

That’s why it is so hard for any competitor to catch any of his companies.

Any Updates on Quantum Computing?

Hi Jeff,
I am glad you are back in charge and looking forward to the great research you do to educate us and help our investment. I’m an unlimited member, (originally called Charter Member).

I am writing to request that you publish and educate on quantum computing. And which company is involved in that? When is the time to invest in quantum computing technology?

I vaguely remember reading that IBM is involved in that technology, is that a fact?

Thanks for all the research you do and your passion for Science & Technology.

– Satyan S.

Hi Satyan,

Your question is very timely. It’s been an exciting week of developments in the quantum computing industry.

I’ve written about quantum computing at length in The Bleeding Edge. On Wednesday, I highlighted a recent breakthrough in the industry that came earlier this week in The Bleeding Edge – Google’s Quantum Breakthrough. I definitely recommend reading that issue as we look at the most recent developments at Google’s Quantum AI division and its new supercomputing quantum computer and its semiconductor – Willow.

And just yesterday, in case you missed it, I spent some time putting the sudden interest in certain quantum computing stocks into perspective in The Bleeding Edge – A Quantum Frenzy.

These two issues will get you up to speed on recent developments in quantum computing. And since you’re an Unlimited/Charter Member (thank you for joining so early on), you can get some additional perspective on my favorite small-capitalization quantum computing company, Rigetti Computing. I wrote about Rigetti in October 2021 in Exponential Tech Investor.

IBM has been working on quantum computing, but I remain unimpressed with the company and its ability to successfully commercialize its AI and quantum computing technology despite its resources. It simply isn’t competitive with the best-in-class companies in this space.

Honeywell and Microsoft are two other companies active in quantum computing, but also companies that have had little to show in terms of concrete progress in quantum computing. The companies that I wrote about this week are some of the most prominent companies to follow in quantum computing technology.

What is most exciting about this week however is that Google’s breakthrough on quantum error correction, thanks to Google’s DeepMind team, is going to be a tailwind for the industry.

This will accelerate investment in quantum computing technology as well as the next round of venture capital funding for those companies that are still private.

A universal fault-tolerant quantum computer is the holy grail of computing. And there is a clear path towards getting there. This will definitely be a research topic in The Bleeding Edge, Near Future Report, and, of course, Exponential Tech Investor.

Thanks for all the great questions. My team and I would love to hear more of your thoughts and questions on any of our insights and issues. You can always reach us right here.

Have a great weekend.

Jeff