What is Ripple?
- Ripple is a real-time gross settlement system (RTGS) and currency exchange, which is managed by a network of servers that validate and compare all transactions. Unlike bitcoin which uses a proof-of-work model that requires high computing power and energy, the Ripple platform has very low energy needs. The servers that make up the network are distributed across the world and can belong to individuals and companies. The integrity of the network is ensured through a consensus process between all the servers involved in validating the transactions.
- Many believe that Ripple is just another cryptocurrency, but the truth is that Ripple is a complete protocol for fast, secure and low-cost money transfer across the world. Its token, called the XRP, is a tradeable cryptocurrency but the Ripple protocol doesn’t rely on XRP to validate and process the transactions. All types of currencies can be send through the protocol: fiat currencies, commodities and even airline miles.
- The Ripple network mostly caters to companies who send large sums of money, since the Ripple protocol can handle transactions of any size in a fast manner. That’s a major advantage of Ripple, and many financial institutions have recognized its potential and started to cooperate with Ripple Lap, the company behind the Ripple network and its XRP token. Names such as RBC, Santander, Standard Chartered, Credit Agricole and American Express are testing money-transfer services based on the Ripple network.
Who’s Behind Ripple?
- Long before Ripple was introduced in 2012, a web developer from Vancouver named Ryan Fugger, developed Ripplepay in 2004. Fugger planned to create a decentralized monetary system which would allow individuals to exchange and even create their own money. Based on this concept, Jed McCaleb, Arthur Britto and David Schwartz started developing a payment system where transactions will be verified by independent servers, rather than through the process of mining as is the case with bitcoin.
- The team founded OpenCoin Inc., which began to develop the Ripple protocol based on Fugger’s ideas. The protocol, which forms the cornerstone of Ripple, allowed for the instant exchange of money between two parties. OpenCoin also developed the XRP toke to allow financial institutions fast and low-cost money transfer.
- In September 2013, OpenCoin Inc. changed its name to Ripple Labs, with Chris Larsen as the CEO. Chris Larsen had previously founded E-Loan and Prosper, and joined the Ripple team in August 2012. One month later, in October 2013, Ripple Labs partnered with ZipZap to create a potential competitor to Western Union.
Since then, Ripple’s team focuses on increasing the market share in the banking industry, signing dozens of agreements with major financial institutions. In 2015 and 2016, the company expanded and opened new offices in Sydney, London and Luxembourg.
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The Difference Between Ripple and Bitcoin
While bitcoin’s purpose is to take advantage of the blockchain technology in order to offer a decentralized and anonymous payment protocol out of the reach of regulatory bodies, Ripple is different in the way that many operations are centralized and overlooked. Banks and Ripple Lab have a control over the servers that validate the transactions, and can restrict certain activities or even freeze accounts if a transaction seems suspicious. In fact, Ripple has updated its policies in 2013 to only allow payment gateways that are in compliance with financial regulations, following a FinCEN violation that year. Many supporters of blockchain’s decentralized nature are criticizing Ripple for this centralized approach and regulation, but this property of Ripple may be one of the major reasons why so many banks are adopting its technology.
The second major difference between Ripple and Bitcoin is in their tokens. Bitcoin relies on thousands or even millions of miners who provide their computational power to validate bitcoin transactions, creating new bitcoins in the process. XRP, on the other hand, can’t be mined. Ripple Lab has published 100 billion XRP tokens, and according to the company, this is the total number of XRPs that will ever exist. However, there’s no guarantee that Ripple Lab won’t release additional XRPs later on. The fact that XRPs aren’t necessary for the Ripple network to function and that they can’t be mined is a major point of criticism for Ripple’s opponents.
Ripple and Financial Institutions
While XRPs haven’t found their place among financial institutions yet, the underlying technology behind Ripple has. According to Ripple Lab, more than 100 institutional customers are using Ripple’s network and more than 75 of them are deploying it commercially.
Unlike traditional payment methods which are slow, expensive and with high failure rates, Ripple’s network provides instant settlement via its independently verifying servers, real-time traceability of funds and low operational costs.
To increase the presence of XRP in the traditional financial industry and to minimize liquidity costs, Ripple introduced the xRapid payment system. xRapid circumvents the need for pre-funded local currency accounts when sending payments into emerging markets, which significantly lowers the capital requirements for liquidity. When a bank sends funds to an account in another bank, xRapid uses XRPs to offer on-demand liquidity and real-time settlement in emerging markets. Ripple’s token can handle up to 1,500 TPS (transactions per second), compared to ethereum’s 15, and bitcoin’s 3-6 TPS. XRPs are scalable to handle up to 50,000 TPS if needed – the same throughput as Visa.
Still, the centralized nature of Ripple’s nodes which are handled by financial institutions and Ripple Lab doesn’t differ much from the traditional banking industry. The servers simply validate the transactions, which is pretty much the same as traditional banks do. Whereas bitcoin wants to replace banks and financial institutions, Ripple tries to facilitate them in the era of blockchain and internet.
What is XRP?
XRP is the name of the token behind Ripple’s network, just like in the case of ethereum, where the token is called an “ether”. However, unlike ethers and bitcoins, XRPs can’t be mined and they’re not necessary for the Ripple’s network to function.
There are currently 100 billion XRPs in existence, with 60 billion owned by Ripple Labs. The company promised that it will not create additional XRPs, but there’s no guarantee for that. Furthermore, Ripple Labs are able to sell up to 1 billion XRPs per month, in case it needs additional funds for new projects or acquisitions. However, as this practice would likely put significant downward pressure on the price of XRP, there are no hints that Ripple Labs is going to do so anytime soon.
The current price of an XRP is around $0.55, bringing the total market capitalization to respectable $22 billion. This makes XRP the third largest cryptocurrency in terms of market cap, only behind bitcoin and ether. During the period of the crypto-hype in late 2017, XRP reached its record-high of $3.30.
Since Ripple is all about fast and seamless money transfer across the world, it’s no surprise that payments in XRPs settle in only 4 seconds. Compared with ether’s 2 minutes, bitcoin’s 1 hour or traditional payment systems that take up to a week, this speed is a major advantage of XRP.
How to Buy XRP?
The whopping rise in price of many cryptocurrencies in December 2017 caused a massive influx of investors who didn’t want to miss the bull market. Bitcoin reached $20,000, ethereum doubled, and investors turned to other lower-priced cryptocurrencies to enter the crypto-market. Ripple was a popular coin to buy at that time, jumping tenfold in price from $0.3 in the beginning of December to $3.30 only a few weeks later.
Rumors that Coinbase was going to list XRP on its exchange also fueled the jump in price. However, Coinbase denied that the exchange made a decision to add additional assets, which in turn caused a dramatic fall in XRP’s price. Still, there are dozens of other crypto-exchanges which offer XRP, and an updated list can be found on Ripple’s website (https://ripple.com/xrp/buy-xrp/).
If you still want to buy XRPs, you can do so at one of the following exchanges: BITSTAMP (XRP/USD, EUR), Kraken (XRP/BTC, EUR, USD), coinone (XRP/KRW, BTC), and Coincheck (XRP/JPY, BTC), to name a few. The coin will also be available soon on SBI and Satoshi Citadel Industries exchanges. Simply open an account at the listed exchanges and verify it. Once the verification process is complete, you’re able to buy XRPs which will be credited to your XRP balance.
Criticism of Ripple – The Good and The Bad
There has been much criticism of Ripple in the crypto-world. Supporters of the decentralized blockchain-based cryptocurrencies, such as bitcoin or ether, state that the inability to mine XRPs is a major disadvantage of the coin. All coins were distributed directly by Ripple Labs, and the fact that the founders retained a large percentage of them is also being criticized. However, more than 50% of all XRPs in existence are held in escrow and are released periodically at a mediated rate by the company, which settled much of the controversy. Many of the coins held by the founders have also been donated to various charities, such as the Computing for Good Initiative, which in turn started to offer XRPs to its volunteers.
Critics also say that Ripple is not fully decentralized, since the company or regulators could potentially interfere in the network and restrict certain transactions. This goes directly against the main benefits of blockchain, such as the inability for third-parties to interfere and change the network’s operations. The fact that Ripple’s nodes doesn’t perform proof-of-work but are merely validating the transactions is also being criticized. On the other side, this leads to a significant reduction in energy consumption as compared to bitcoin’s network for example.
What is Ripple ?
Now you know what is Ripple and how it works, it’s time to conclude our article. Ripple’s platform offers many advantages compared to traditional payment methods. It’s fast, secure, and the transaction costs are only a fraction of a regular wire transfer. The network is based on independently verifying servers which validate each transaction and keep a record of all transactions in a public ledger. All transactions can be traced, and UNLs (Unique Node Lists) ensure a high security of the protocol.
Since large sums of money can be exchanged in a few seconds, Ripple caters mostly to enterprises and has reached agreements with dozens of financial institutions including American Express, Santander and UniCredit Bank. Many other banks reported that they’re experimenting with Ripple’s protocol for their services.
Its token, called XRP, can’t be mined like bitcoins or ethers. Instead, Ripple Labs created 100 billion tokens that, according to the company, is a fixed supply. Out of the total amount, 40 billion is distributed, 8 billion is held by Ripple Labs and 52 billion are held in escrow. The founders can decide to distribute additional 1 billion coins per month, in case the company needs funds for projects or acquisitions.
Although its concept is quite different than bitcoin’s, there is no doubt that Ripple’s platform has the potential to revolutionize the way how we exchange money today. Ripple Labs was recognized by the Massachusetts Institute of Technology as one of 50 Smartest Companies in 2014.