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Ripple Labs to enable smart contracts functionality — how does it impact XRP?

Ripple xrp
Image by xresch from Pixabay

Yerevan (CoinChapter.com) – Ripple Labs, the San Francisco-based tech company, proposed to use Federated Sidechains on the XRP Ledger (a record-keeping system) to enable smart contracts on the blockchain. Smart contracts will increase the functionality of the ecosystem, but will they affect the XRP token?

In hindsight, a Federated Sidechain entails a parallel blockchain that supports interoperability employing a two-way peg. Thus, it doesn’t function separately from the main blockchain but rather cooperates and supports it.

A Different Blockchain?

David Schwartz, the Chief Technology Officer at Ripple Labs, who also took part in the initial creation of the XRP ledger, shed light on how its blockchain is different from other smart contract platforms like Ethereum, Cardano, Polkadot, or VeChain.

He explained that the “XRP ledger is not competitive.” Blockchains like Bitcoin and Ethereum, and others, use proof-of-work or proof-of-stake protocols that reward miners or validators for their participation. XRP blockchain uses proof-of-concept (the process of verifying that the idea has the potential in a real-world situation).

The Technology Officer stated that transactions on the XRP blockchain take a few seconds only and cost a fraction of a penny. Compared to Ethereum’s notorious gas fees and Bitcoin’s 10-minute transactions, XRP proposes an advantage on both fronts.

El Lee, board member of Onchain Custodian commented on XRP, saying:

“The standard fee to conduct transactions on Ripple is set at 0.00001 XRP, which is minimal compared to the large fees charged by banks for conducting cross-border payments”.

said Mr. Lee

The Decentralized Finance (DeFi) community has been anticipating the smart-contract feature for years, according to Mr. Schwartz. However, introducing smart contracts to the blockchain directly would slow down transactions and raise the fees. Thus, the company proposed to implement Federated Sidechain technology. A “strategy that enables the best of both worlds” will give XRP a chance to maintain the “lean and efficient” feature set.

While the smart contract functionality will expand the XRP ecosystem, it will also affect the native token of the blockchain.

What about XRP?

The XRP/USD exchange rate was 0.86 in the European session Wednesday. The token is still influenced by a resistance margin that prevented breakouts for over two weeks. The resistance bar lies between the $1.03 and $1.10 values and has been relevant since April, acting as both support and resistance. Currently, it is forming a resistance confluence with the 20-day exponential moving average (EMA-20: green wave).

XRP trading in a channel. Source: XRPUSD on TradingView.com
XRP trading in a channel. Source: XRPUSD on TradingView.com

The support confluence on the chart above consists of the 200-day simple moving average (SMA-50: yellow wave) and the $0.78-0.83 price range. The mentioned range kept XRP from falling further down and acted as support for at least two weeks.

Read more: Ripple’s XRP Will Rip Through $1.5, Asserts Analyst

2021 has been successful for XRP, despite the fact that its company Ripple struggled with accusations from the US Securities and Exchange Commission.

The lawsuit was filed in December 2020, when the agency charged the company with fraud, claiming that Ripple sold 1.3 billion worth of XRP as an illegal securities offering, thus violating US investment laws. The court proceedings are still ongoing. However, experts like attorney Jeremy Hogan see the lawsuit ending in settlement soon enough.

Read more: SEC slaps down Ripple’s fair notice defense; What’s next?

Smart contract platforms flourished in 2021. Ethereum’s market cap grew from $23 billion in April 2020 to $281 billion in April 2021. Cardano’s market cap went from $2.2 billion in June 2020 to $49.4 billion in June 2021. According to Forbes, the whole DeFi sector has grown 88 times in the past year.

Considering the growing rates of DeFi, the introduction of smart contracts may bring new opportunities for XRP.

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Lilit Chichyan

Lilit is an enthusiastic writer, skilled in 3 languages, and interested in writing about the tech world, trading, art, and science. She also has a background in psychology and marketing, which helps deliver the right message to the target audience. Lilit is creative and fast and has the experience of writing for both big marketing companies and small websites and blogs.

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