Is This 1 Looming Threat to XRP a Reason to Sell It Right Now?

As a specialized blockchain catering to banks and currency exchange houses, XRP (CRYPTO: XRP) has a collection of risks that are worth taking seriously.

For some investors, if the coin can't cover its bases with particular risks, it's a sign that it might be worth selling. And XRP is facing one big threat looming in the distance. Here's what you need to know.

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Security is going to get a lot more complicated in the future

XRP's blockchain is intended as a serious platform that financial institutions around the world can use to become more efficient in handling assets transferring money from place to place. That means the system needs to be secure, otherwise its target users will not be willing to use it. After all, while wire fraud is a problem, it's pretty difficult to steal money that's in the process of being wired from one bank to another. So banks don't have much of an incentive to switch to a riskier system even if it offers a lot of other benefits, as XRP does.

One particularly large threat facing XRP's security in the future stems from quantum computing. While quantum computing is still in its infancy, and practical applications of it that might compromise the chain's cryptographic security are probably far off in the future, it's also theoretically true that a sophisticated attacker equipped with a sufficiently powerful quantum computer could wreak havoc on the chain, potentially stealing money and disrupting transactions.

Like all of the top blockchains right now, XRP is not future-proofed in regard to its resistance against potential quantum-based exploitation in the future. Therefore, a significant risk is not addressed. Financial institutions don't face that risk if they stick with their legacy money transfer technologies. So this could actually become a barrier to adoption, provided that the threat advances toward reality as quantum computing technology gains in sophistication.

Ripple, the business that issues XRP, probably is unlikely to be caught flatfooted by an actual quantum computing attack anytime soon. Ripple's chief technology officer (CTO), David Schwartz, is well-acquainted with the risks posed to XRP by quantum computing. His strategy is to monitor basic cryptography research for any signs that quantum-resistant algorithms suitable for blockchain implementations have been discovered. He doesn't see the risk as being relevant in the near term.

Investors should take his sentiment seriously, and breathe a sigh of relief. If that's the attitude of the company's CTO, there's reason to believe that the quantum risk is not any reason to sell XRP or hesitate to buy it whatsoever.

Don't overreact to this threat, but monitor it

In short, Ripple has a huge incentive to develop solutions to risks originating from quantum computer-based codebreaking. It knows full well that financial institutions will accept nothing less than bulletproof security features from the fintech. Likewise, it also understands that the quantum risk is not a problem to worry about this year or next year, but over the five- to 10-year term. That's plenty of time to unearth the solutions the CTO is waiting on, and it's also plenty of time to create a smooth technical implementation of the right resistant features on XRP's blockchain.

Given the knowledge that Ripple has, as well as its incentives to get ahead of the issue rather than fall victim to it, investors do not have much reason to worry about XRP. It's likely going to be a more secure chain than others that don't aim to handle institutional funds as part of their core value offering. And, because it's operated by a company rather than a collective of developers as are other leading chains, it can react much more rapidly to emerging threats.

At the same time, it's important for investors to see at least some kind of progress on the chain working toward quantum resistance during the next few years. If it doesn't happen, the presence of the risk may become a headwind, but it's also key to appreciate that leadership on the issue will increase the chain's prestige with precisely the right crowd of potential users. So there's an opportunity for upside here that's inextricable from the presence of the threat, assuming Ripple is willing to invest in the effort in a timely fashion.

For now, keep an eye on what Ripple says about preparing for quantum computing. The earlier it takes real steps toward hardening the system, the more likely it is that this becomes a driver for XRP, rather than something that weighs it down.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.