Ripple's XRP Is About to Get a New Upgrade. Here's What That Means for the Price of XRP

XRP (CRYPTO: XRP), the native cryptocurrency of the XRP Ledger, soared to a multi-year high last year after the SEC's lawsuit against Ripple ended. Back in 2020, the SEC sued the fintech company, whose founders created XRP, for selling its own tokens to fund the company's expansion. That lawsuit drove the top crypto exchanges to delist XRP.

When that lawsuit finally ended -- with a lighter-than-expected fine for Ripple and a ruling that XRP wasn't an unlicensed security when sold to retail investors -- the token's price surged. The SEC's approvals of XRP's first spot price ETFs amplified those gains.

Image source: Getty Images.

But without any more major catalysts on the horizon, XRP was cut in half over the past 12 months amid fears of interest rate hikes and competition from stablecoins. However, XRP's blockchain will undergo an upgrade on June 15. Will that update move the needle for XRP?

What is XRP updating?

XRP's latest 3.2.0 update will optimize memory usage, increase transaction throughput, improve network stability, and fix multiple bugs. Its developers claim its server usage could drop by as much as 40% as its nodes operate more efficiently under higher demand. XRP will also rename its ledger from "rippled" to "xrpld" to reflect its growing independence from Ripple's ecosystem.

XRP is primarily used as a bridge currency for cross-border fiat transactions on the Ripple network. By converting both currencies to XRP and back, Ripple can provide faster and cheaper cross-border money transfers than conventional SWIFT transfers.

Therefore, XRP's update could further boost those transaction speeds and make it more appealing to big financial institutions. It's already launched several pilot programs and partnerships with banks in Japan and Southeast Asia. In Japan, its largest market, SBI Remit -- the international transfer arm of Japan's SBI Holdings (OTC: SBHGF) -- has already used Ripple's network to settle more than $15 billion in transactions. Another pilot program in Japan found that cross-border transactions with XRP cost 60% less than SWIFT transfers.

If XRP gains more banking and digital payment partners, it would counter the bearish notion that stablecoins -- which are pegged to the U.S. dollar and also used as bridge currencies -- will render it obsolete. While stablecoins might be more widely used for dollar-based transactions, XRP could carve out a defensible niche in cross-border transactions in other currencies.

Will XRP's update move the needle?

XRP's update supports the bullish thesis, but it probably won't attract much investor attention. It still can't be valued by its scarcity like Bitcoin (CRYPTO: BTC), it isn't supported by a massive developer ecosystem like Ethereum (CRYPTO: ETH), and it needs to stabilize -- not skyrocket -- to attract more banking and payment partners.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.