Worldwide transactions can be handled by the currency exchange network and payments settlement system known as ripple. The idea is that because the network can quickly verify that the exchange went through properly, Ripple acts as a trusted middleman between two parties in a transaction. Exchanges for a range of fiat currencies, cryptocurrencies like Bitcoin, and even commodities like gold can be facilitated by ripple.
According to Pat White, CEO of Bitwave, “Ripple was designed from the ground up to essentially be a replacement for SWIFT [a leading money transfer network] or to otherwise replace the settlement layer between major financial institutions.”
Every time a user uses the network to conduct a transaction, the network deducts a small sum of the cryptocurrency XRP as a fee.
According to El Lee, a board member of Onchain Custodian, “the standard fee to conduct transactions on Ripple is set at 0.00001 XRP, which is minimal compared to the large fees charged by banks for conducting cross-border payments.” The XRP price was $1.38 as of the end of April 2021, making the transaction fee only $0.0000138.
With considerable cost savings, the cryptocurrency token XRP was created to move transactions away from closed infrastructure and financial institution-controlled central databases. Cross-border transactions benefit from the trustless, quick, and affordable nature of XRP transactions.
Cryptocurrency, which was introduced in 2012, has one of the most expansive objectives in the cryptocurrency industry. The XRP Ledger, the software that makes it possible to use XRP, presented a new approach to running blockchains that supporters think is better suited for transactions.
Anyone may contribute processing power, verify transactions, and protect the software of the Bitcoin blockchain. On the other side, the XRP Ledger restricts who may contribute to transaction validation and network security. These members, collectively known as the Unique Node List, number over 150 in the network (UNL).
100 billion XRP tokens were pre-mined at launch and then given out as gifts and prizes to selected people, organizations, and the general public. Concerns about the move’s decentralization arose at the time since a small number of businesses held a substantial portion of the currency supply.
The fact that XRP’s market participation depends on the for-profit corporation Ripple, which continues to play a major role in the XRP ecosystem, further adds fuel to the fire. Ripple is a prominent XRP token holder and contributes to the upkeep and development of the XRP Ledger.
The creation of the majority of cryptocurrencies may be attributed to a single person or organization. The creator of Bitcoin (BTC), for instance, goes by the alias Satoshi Nakamoto. The history of XRP is complicated since several people were involved in developing both the technology and the commercial companies that supported its development.
XRP is frequently ascribed to OpenCoin co-founders Chris Larsen (who created multiple fintech companies), Arthur Britto (who assisted in developing the XRP Ledger), and Jed McCaleb (who also founded Mt. Gox). Even though they were well-known figures in the area, other people were also participating.
These people include Stefan Thomas, a previous chief technology officer of Ripple, and David Schwartz, who co-authored the initial Ripple whitepaper and currently serves as Ripple’s chief technology officer.
Knowing the Difference Between XRP and Ripple
Frequently, Ripple and XRP are used interchangeably in certain stories and publications. It’s crucial to realize that they are distinct entities: XRP is a cryptocurrency, whereas Ripple is a for-profit organization that aids in the development and promotion of XRP, the software that powers it (the XRP Ledger), and countless other transaction-focused initiatives. The business is insistent that the two companies are distinct, though.
On its website, Ripple claims that XRP is “faster, less expensive, and more scalable” than every other digital asset. It “powers breakthrough innovations throughout the payments arena” using the XRP Ledger. According to the company, their connection with XRP is as follows:
“Ripple is concentrated on developing technologies to help unlock additional usefulness for XRP and change global payments,” the company’s website states. Other XRP-related use cases are also being pursued by third parties.
One year after the XRP Ledger project had begun, Ripple was established in September 2012 under the moniker OpenCoin. Before settling on Ripple in 2015, OpenCoin changed its name in 2013 to Ripple Labs. The Ripple open payments system was the original name of the XRP Ledger, which then changed to the Ripple Consensus Ledger before becoming the XRP Ledger.
The creators of the XRP Ledger chose to provide 80 billion tokens to a private business that would cooperate with the community to promote the coin when the XRP Ledger was operational. To “incentivize market maker activity to improve XRP liquidity and strengthen the overall health of XRP markets,” this business, Ripple, claims to have been methodically selling XRP.
The ticker symbol for “ripples” or “Ripple credits,” XRP, was first used; but, over time, these designations were eliminated in favor of merely XRP to reduce confusion.
To expand the XRP community’s use cases, Ripple was developed. Over time, it developed a variety of services that made it possible to utilize cryptocurrencies for international transfers. Before their collaboration broke up, remittance behemoths like MoneyGram employed Ripple’s products.
To make moving money faster, less expensive, and more dependable, the business has now combined all of its XRP-related products under the RippleNet service. RippleNet “offers connectivity to hundreds of financial institutions across the world via a single API.”
RippleNet eliminates the requirement to pre-fund accounts using a service called On-Demand Liquidity, which sources liquidity for cross-border transactions using XRP. RippleNet is used by major participants in remittances and banking, including Santander, Bank of America, SBI Remit, American Express, and Banco Rendimento.
The XRP-powered solution from Ripple, in brief, enables network users to conduct payments with real-time settlement and boosts payment efficiency and certainty. The usage of XRP itself allows for on-demand liquidity sourcing and a reduction in the number of Nostro accounts necessary for international transactions.
A software framework called Interledger Protocol, which is funded in part by Ripple intends to make it easier to conduct transactions between cryptocurrencies and bank ledgers. Although it may be connected to the XRP Ledger, the Interledger Protocol does not need the usage of XRP.
Additionally, XRP uses RippleX, which gives programmers and business owners access to tools and services developed on top of the XRP Ledger so they may incorporate blockchain technology into their applications. Like other cryptocurrencies, XRP may also be used on-chain.
The fact that the typical XRP transaction costs $0.0013927 may surprise even seasoned cryptocurrency users. The biggest two cryptocurrencies by market capitalization, Bitcoin and Ethereum (ETH), both have average transaction fees that frequently exceed two digits, with all-time highs exceeding $50.
The XRP Ledger is not a fork of the Bitcoin blockchain ne. Still, itut it makes use of several of its characteristics, such as the usage of public and private cryptographic keys, a public ledger, and the requirement for digital signatures for transaction confirmations.
However, it does not depend on a Proof-of-Work consensus mechanism supported by specialist computer equipment. Instead, it relies on a network of “unique nodes” to effectively agree on which transactions the network can handle. Permissioned servers keep a distinct Node List that aids the network’s Federated Byzantine Agreement consensus method in reaching consensus.
Transactions are effectively verified if 80% of these distinct nodes agree that the terms of the XRP Ledger are met by the transaction. Compared to other cryptocurrencies, the XRP Ledger has a more reliable architecture, which has raised some questions about its decentralization and permissionlessness.
The whole status of all balances on the XRP network is contained in each new “ledger version” on the XRP Ledger, which is comparable to a block on the Bitcoin blockchain. Servers may now synchronize with the network in a few minutes.
By simply setting up a wallet, anybody may use Bitcoin, Ethereum, and many other cryptocurrencies. The same is true with XRP, however, booking requires 20 tokens at new wallet addresses. To save money, it may be crucial for novice XRP users to select only one wallet rather than committing to several addresses.
On the market, a variety of wallets that work with the XRP network are available. The majority of users keep their tokens on the cryptocurrency exchanges where they originally purchased them since the exchanges take care of the 20 XRP fee. However, keeping money on a trading platform has its risks since, occasionally, exchanges may freeze the coins or suffer a hack.
Investors can use a software XRP wallet to keep XRP outside of a cryptocurrency exchange. It is advisable to employ wallets that enable users to manage their private keys for security reasons. Alternative wallets that handle users’ private keys are frequently web-based and charge fees for operations.
You must first obtain your money by purchasing XRP, which is traded on the majority of the leading cryptocurrency exchanges, before transferring it to a wallet. After the U.S. Securities and Exchange Commission (SEC) sued Ripple in 2020 over the purported sale of $1.3 billion in unregistered securities, alluding to the company’s XRP sales, XRP was delisted from several platforms.
On its XRP markets website, Ripple keeps track of the token’s listing locations and trading volume. Users can either maintain their cash on the trading platform after purchasing XRP on exchanges or transfer them to their wallets. On exchanges, especially those with a high trading volume, selling XRP is also simple.
The distributed verification technique that most blockchain-based cryptocurrencies employ is referred to as “mining.” It both makes transactions easier and offers a way to inject fresh money into a cryptocurrency system, usually as compensation for the labor network maintainers put in as verifiers. For instance, the entire quantity of Bitcoin is limited to 21 million tokens, which are gradually distributed as more and more transactions are confirmed.
In contrast, XRP was “pre-mined,” which means that the XRP Ledger first produced 100 billion tokens before releasing them regularly to the general public. As a financial incentive to support the long-term growth and profitability of the coin, Ripple owns around 6% of that. Another around 48 percent are kept as a reserve for routine market release through sales.
Naturally, this has caused some to worry that a large amount of XRP would be issued all at once, depreciating the value of other XRP that is already in use. After all, one of the things that give a currency its worth is its relative scarcity.
Tim Enneking, principal of Digital Capital Management, states that “the firm has sought to lessen the uncertainty by incorporating multiple measures (trust, predictable delivery, etc.).” The SEC may view XRP less as a currency and more as security, similar to a stock, that is subject to separate, tighter regulation, which may be another reason for its disagreement with the SEC.
Appreciating the value of XRP
The XRP Ledger software upholds the pre mined cap of 100 billion XRP, which means no further coins will ever be produced. To finance its technology and growth, Ripple escrowed the majority of the leftover tokens after distributing 55 billion to forum participants.
Traditional transaction fees are not applied to transactions on the XRP Ledger; instead, a tiny amount of XRP must be destroyed by the sender for each transaction. This makes XRP a deflationary currency, although at the present pace of annihilation, “it would take at least 70,000 years to destroy all XRP,” according to the assessment. Additionally, if XRP supply fluctuates, prices and expenses might be changed.
According to several investors, financial institutions using XRP through RippleNet may dramatically increase demand for cryptocurrency. Supporters think that the price of XRP will continue to rise as long as demand increases and supply gradually decreases.
In 2017, when Ripple locked away 55 billion XRP in an XRP Ledger-based escrow scheme, the price of bitcoin reached $3.55. Every month, these tokens are taken out of escrow. There is selling pressure on XRP because of a lot of things that should go away in the future. As a result of Ripple releasing tokens from escrow, there have been XRP sales, which will terminate when Ripple decides to change its business model or if the SEC orders it to.
Another thing to bear in mind is that Jed McCaleb, one of Ripple’s co-founders, received 9 billion XRP in compensation for his efforts in establishing and launching the firm before leaving in 2014 to work on Stellar, a competing cryptocurrency (XLM). The businessman has admitted that he will sell his XRP when he receives it on XRP Talk, a platform for XRP investors.
As the money is taken out of escrow, McCaleb receives his XRP tokens on a predetermined schedule. A portion of his tokens have been donated to humanitarian groups like GiveDirectly and Literacy Bridge, however, he sells the majority of the tokens he receives and drives up their price through selling pressure.