What is Ripple (XRP)?

Beginner

5 mins read January 06, 2023

Ripple has retained its status as a leading crypto token and has spearheaded various projects that have positioned it as a bridge between the traditional financial system and the cryptocurrency ecosystem.  

A brief history of Ripple

  • In 2004, Ryan Fugger launched Ripplepay, a secure payment service that led to the creation of the XRP token. 
  • In 2011 developers Arthur Britto, Jed McCaleb, and David Schwartz also began to work on a cryptocurrency inspired by Bitcoin. 
  • In 2012, Fuggar collaborated with Britto, McCaleb, Schwartx, and Chris Larsen to launch Opencoin, which is now known as Ripple Labs. 
  • In 2013, OpenCoin was officially rebranded as Ripple Labs and Ripple by 2015.
  •  By the end of 2017, Ripple had earned a position among the top five cryptocurrencies with a valuation of $73 billion.  

What is Ripple?

Ripple focuses on connecting banks and financial institutions across the globe to enable faster and inexpensive global payments. However, Ripple XRP does not function as BTC or ETH as it cannot be exchanged for goods and services directly. 

In fact, unlike BTC and other cryptocurrencies, all its tokens were minted at once and did not require energy-intensive mining to create new currencies. At its launch, 100 billion XRP tokens were minted and will be released gradually to the public. The smallest unit of XRP is called a “Jed”, named after one of its developers. 

Ripple is also not a blockchain like Bitcoin or Ethereum; instead, it is a payment firm with a token XRP that fuels its cross-border payment protocol that allows for cheaper and faster international payments. Ripple uses blockchain technology to run its cross-border payment.

How does Ripple Work?

Ripple is the bridge that connects other currencies to allow easier global payments. Its protocol doesn’t allow it to differentiate between local currencies such as euros, dollars, or cryptocurrencies. This feature allows easy cross-border transactions and swapping currencies. However, each currency has its unique gateway of the Ripple gateway, e.g. USDsnapswap, BTCbitstamp, etc.

For instance, if you wish to send some pounds to receive dollars in payment, but your client can only pay in BTC, you do not have to own a BTC wallet to get your funds. Your client sends BTC from their gateway, and you receive the funds in USD from your gateway. This means your client saves time and energy from having to convert the BTC to dollars and also sending it via a banking system to you. Direct payment ensures that the process is faster and transaction costs are low as there are no extra charges. 

Ripple does not run on a Proof of Work system or Proof of Stake system but rather on a consensus protocol that validates transactions on its system. Its consensus protocol ensures the system's integrity by preventing double-spending and other dubious schemes. Like validators, individual nodes confirm which transaction was conducted through consensus.

What makes Ripple unique?

Ripple is not only a cryptocurrency but also a global payment platform designed to help banks move funds across borders cheaper and at a faster pace. Transfer from a local bank to an international bank takes days to complete and incurs hefty transaction fees. This is because the money is routed through several partner banks before it reaches its final destination, and each bank it goes through charges a small transaction fee. However, the transaction fee incurred from these banks ultimately sums up to a hefty sum. However, when banks and financial institutions use XRP, the transaction is easier, faster, and less expensive. 

It connects multiple banks via its network and attempts to bridge the gap between cryptocurrency and traditional banks.  In fact, unlike BTC or Visa, which completes seven transactions per second, Ripple can confirm 1000 transactions per second. At the same time, it only takes 3.5 seconds to confirm money transactions. Ripple also doesn’t require mining, and as such, it is more environmentally friendly and does not require extensive energy consumption.

Ripple Praises and Criticisms

Ripple has often been praised for certain of its features, which include: 

  1. Fast and low transaction fees: Transactions on the Ripple network are very fast to complete, and transactions that may take days in traditional banks are completed in days. The transaction fees are minimal and almost next to nothing at 0.0001 XRP, a small fraction of a penny. 
  2. Versatile Network: Ripple network is not restricted to XRP but can be used to facilitate cross border transactions with traditional currencies like the dollar, Euro, and cryptocurrencies
  3. Bridges the gap between Traditional banks and cryptocurrencies. Ripple creates an effective payment gateway for traditional banks and financial institutions. Fifteen out of the biggest bank have implemented Ripple in their banking system. 

Ripple has, however, also been criticised for specific features that may have discouraged some investors.

  • Centralisation: Ripple is largely centralised with a limited list of validators.  And this has discouraged investors who use cryptocurrencies because they are decentralised.
  • Price instability: At the same time, Ripple XRP tokens are pre-mined, which means that although most of the tokens are not held in circulation, large quantities may be released at certain times, which might impact their value. 
  • Pending lawsuits: In 2020, the United States Security and Exchange Commission filed a lawsuit with Ripple that is still pending. SEC filed a lawsuit because Ripple did not register as security, even though it has the power to decide when XRP tokens are released to the market. The lawsuit prompted several crypto exchanges to suspend the sale and trading of XRP tokens. 

How to buy Ripple (XRP)

Ripple has proven itself a viable investment, and notable investors like Andreessen Horowitz and Google Ventures have invested in the firm.  Ripple cannot be exchanged directly for goods and services like BTC but can be easily purchased via a crypto exchange. To buy XRP;

  1. Open an account with an exchange of yours. You may be asked to provide some personal information or provide an identity document depending on the policies of the crypto exchange.
  2. Deposit funds in your local currency
  3. Search for XRP on the exchange platform
  4. Click the buy option and input the amount you wish to buy. 

Conclusion

Ripple is a privately held firm that developed the XRPL distributed ledger, which is open-source. This means that anyone can contribute to the code, and the XRPL will survive even if the company fails. Ripple's vision is to help transfer funds in the banking industry as easily and quickly as sending a text. The platform's primary goal is to recruit all of the world's central banks.

XRP can be used for payments or as a potential investment like any other cryptocurrency can. Ripple has received some criticism, particularly in light of its lawsuit, but it has shown to be an efficient payment option and investment. Ripple can transform the traditional banking system by bridging the gap between traditional finance and digital currency.

Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.

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