Ripple is a money transfer network designed to meet the needs of the financial services sector. XRP is the native cryptocurrency of the Ripple network and consistently ranks in the top 10 cryptocurrencies by market capitalization.
What is Ripple
Ripple is the company behind XRP and is a payment system and exchange network that can process transactions worldwide. “Ripple was designed from the beginning as a replacement for SWIFT (the leading money transfer network) or as a replacement for the clearing layer between large financial institutions,” said Pat White, CEO of Bitwave.
It serves as a trusted agent between both parties in a transaction, as the network can easily confirm that the exchange has gone through correctly. Ripple can facilitate exchanges for various fiat currencies and cryptocurrencies such as Bitcoin to name one example.
Every time users make a transaction with the network, the network deducts a small amount of XRP, a cryptocurrency, as payment. “Ripple’s standard transaction fee is set at 0.00001 XRP, which is small compared to the enormous fees charged by banks for making cross-border payments,” said El Lee, board member of Onchain Custodian.
What is XRP?
XRP is a cryptocurrency that runs on the XRP Ledger, a blockchain designed by Jed McCaleb, Arthur Britt, and David Schwartz. McCaleb and Britto will further explore Ripple and use XRP to facilitate network transactions.
You can buy XRP as an investment, as a crypto to exchange for other cryptocurrencies, or as a way to spend on transactions on the Ripple network. In particular, the XRP blockchain behaves differently than most other cryptocurrencies. Some cryptocurrencies open their transaction ledgers and verification processes to anyone who can quickly solve complex comparisons. But transactions are safe because most leaders must agree to be verified to add them.
Ripple’s XRP network is somewhat object-oriented and uses a consensus protocol: While anyone can download software to verify it, it maintains unique lists of nodes that users can choose to verify—their transactions based on what participants think are they like, they are the least likely to lie. As new transactions are entered, validators update their ledgers every three to five seconds, making sure they match other ledgers.
If there is a mismatch, they stop to find out what is wrong. This allows the network to verify transactions securely and efficiently, giving it an advantage over other cryptocurrencies such as Bitcoin. “Bitcoin transactions can take minutes or hours to confirm and are often associated with high transaction costs,” Lee said. “XRP transactions are confirmed in about four to five seconds at a very low cost.”
How to ‘Mine’ XRP?
“Mining” is a distributed verification system used by most blockchain-based cryptocurrencies. It facilitates both transactions and provides a mechanism by which new currencies are introduced into the cryptocurrency system – usually as a reward to validators for their work supporting the network.
For example, Bitcoin has a maximum supply limit of 21 million tokens, which are continuously released as more and more transactions are verified, XRP, on the other hand, is “preloaded”, meaning that the XRP Ledger has created 100 billion units, which are then published regularly.
Ripple has a share of XRP in circulation and this is an incentive for it to help the cryptocurrency grow and succeed over time. Another portion of XRP is reserved for regular marketing via trade. Understandably, this led to concerns that more XRP could be released at once, diluting the value of other XRP already in circulation, as part of what gives any currency its value is its relative scarcity.
“The company is trying to reduce uncertainty by implementing multiple mechanisms (trust, predictive release, etc.),” said Tim Enneking, head of Digital Capital Management. This difference in mining and pre-mining could also lead to its 2020 dispute with the US Securities and Exchange Commission (SEC).
How to Buy XRP?
XRP is one of the most popular cryptocurrencies on the market. You can buy it on almost any crypto exchange you want, including Bybit. Please note that with Bybit you must first buy BTC/USDT before you can exchange XRP on spot/derivatives.
Please note that the payment method for XRP may vary from site to site. However, if you choose to buy from a major crypto exchange, you can easily use your credit/debit card, PayPal, Skrill, or direct bank transfer to make your purchase.
How is Ripple different from Bitcoin?
One of the main differences between Bitcoin and Ripple is the consensus protocol they use. Bitcoin uses the Proof of Work (PoW) algorithm. In contrast, Ripple uses the XRP Ledger Consensus Protocol, where the transaction ledger and transaction record are maintained by validators, not miners.
Bitcoin also runs on a permissionless network of nodes while Ripple runs on a permission network of nodes. While Bitcoin is completely decentralized, Ripple is managed by a private company.
Advantages of Ripple
Confirmation of transactions is extremely fast. They typically take four to five seconds, compared to the days it takes banks to complete a transfer, or the minutes or perhaps hours needed to verify Bitcoin transactions.
Very low fees:
The cost to complete a transaction on the Ripple network is only 0.00001 XRP, which is a fraction of a penny at current prices.
A multilateral exchange network:
The Ripple network does not only process transactions using XRP. But it can also be used for other fiat currencies and cryptocurrencies.
They are used by large financial institutions:
Large companies can also use Ripple as a transaction platform. Santander and Bank of America are among the few to use the network, indicating that they are adopting a larger institutional market than most cryptocurrencies.
Disadvantages of Ripple
It is somewhat centralized:
One of the reasons cryptocurrencies have become popular is that they are decentralized and take control of big banks and governments. The Ripple system can be fairly centralized with a standard list of validators, which goes against this philosophy.
Huge pre-mined XRP offer:
Although the majority of Ripple’s non-circulating supply is held in escrow, more may be introduced at inopportune times, which may affect the value of XRP.
SEC action against XRP.
In December 2020, the SEC filed a lawsuit against Ripple, saying that since it can decide when to issue XRP, the company had to register it as a security. The company denies the allegations.
The XRP blockchain is centralized with the company as the central authority. This is done to provide greater control and accountability. Its main objective is to provide cost-effective real-time fund transfers to financial institutions and companies worldwide.
Proof of Correctness is a consensus algorithm used along with a proprietary hash function called RPCA (Ripple Proof of Correctness Algorithm). It works by using validators that determine the order of transactions and thus prevent duplicate spending. Since it is not mining, no blocks and new XRP coins will be issued based on the smart contract valid since the launch of the network.
There are three types of nodes in the Ripple network:
Common Nodes – Support the network by storing a local copy of the blockchain
Validators – responsible for certifying transactions and securing the network. All can be one, but other nodes create groups of trusted validators
Gateway nodes – You need network permissions to be one of them. These types of nodes interact with networks outside the blockchain and are typically financial institutions, exchanges, traders, and other companies.
Ripple’s main competitor is Stellar. Stellar founder Jed McCaleb was also a co-founder of Ripple but left the company in 2013 due to disagreements with the rest of the leadership team. Both projects specialize in cross-border payments and have the same architecture.
However, the Stellar Foundation is a non-profit, while Ripple is a for-profit company. The overall mission of each project will also vary slightly. While Ripple is focused on helping giant banking institutions, Stellar is aligning itself with the little guy to bring bankers to the unbanked.
What is Ripple Used for?
You can use XRP just like any other digital currency, for transactions or as a potential investment. You can also use the Ripple network to process other types of transactions, such as currency exchange. For example, if you want to exchange US dollars for Euros, you can first exchange your US dollars for XRP on the Ripple network and then use it to buy Euros, rather than directly exchanging money with a bank or money exchanger. This can be a faster and cheaper method compared to paying the high fees that banks and remittance organizations may charge.
Ripple derives its value from the Ripple Transaction Protocol, which binds payment agents to facilitate cross-border payments. The Ripple algorithm detects a reliable path for transactions in a centralized network node (UNL list). It is easy to integrate with any traditional payment provider with existing infrastructure, banks, or other institutions where a third-party agent must act as an intermediary between intermediaries.
In Ripple, agents are called “gateways” and are usually banks or other places that accept deposits for money transfers. Finally, XRP’s centralization makes it less resistant to censorship than open-source blockchains like Bitcoin and Ethereum. Therefore, XRP is used to facilitate faster transactions as there is no mining involved in the transaction process. Validators who verify transactions without the promise of a reward are tested and trusted by Ripple, and this trust is required in the design of XRP to prevent double-spending.
Things to Consider while Investing in Ripple
Ripple’s success ultimately depends on the number of RippleNet partners (which has been growing steadily over the past year), how many people use Ripple’s products, and how efficient XRP is. Ripple seems to be doing well locally, however, it is important to note the increased supply of XRP in the market (total supply of 100 billion).
If that’s not a difficult pill for investors to swallow, Ripple currently has around 59 billion XRP (~59% of total supply). This means they can put a technically large amount of their XRP into the market to control the price and keep it low. Beyond investment metrics, however, it’s important to understand Ripple’s (XRP) position.
Is XRP a Good Investment?
In a word, yes! At a time when new cryptocurrencies are emerging almost every day, very few cryptocurrencies have been able to stand out by providing real solutions to real challenges. Of the cryptocurrencies that have received hype, none have succeeded better than Ripple, which carved out a niche in the market and dominated it.
As the world continues to embrace cryptocurrencies and embrace them more and more, XRP has placed itself squarely at the center of the global financial system. Although XRP’s long-term success remains unclear, one thing is certain: its future depends in part on whether banks and financial institutions want to use Ripple’s products or sell their own. Regardless, Ripple already has a significant competitive advantage as a “first mover” and Ripple Labs products have already been field tested. So you can use it with peace of mind.
Ripple focuses on the banking sector and wants to replace the current system with a blockchain solution. Those behind Ripple see two possible scenarios for how the world of banking will develop in the future. In both cases, Ripple can play an important role and as such should not be underestimated as it will help pave the way forward. In the end, it’s only fair to see how the game develops in the crypto ecosystem and make up your mind.