The world of digital currencies and blockchain technologies is constantly evolving and with every passing second, these digital currencies are getting stronger and better. Of all the digital assets that exist in the market, Ripple continues to impress and catch the eye and attention of the average buyer and investor in the currency market. There indeed are other major players in the market namely Bitcoin, Bitcoin Cash, Ethereum, etc. But Ripple is gradually catching up and creating ripples in the market with the hoards of amazing features, benefits, and ease of use it offers.
Ripple, though is a little complicated than other cryptocurrencies and blockchain systems, it is one of the most popular cryptocurrencies that are being used by over 100 companies across the world. This cryptocurrency network is designed especially taking into consideration the needs of companies and banks as a medium of money circulation. Using this technology, you can transfer digital currencies, fiat currencies, and commodities. It has a data structure of a blockchain but uses its own protocols. The Ripple Whitepaper, however, does not talk about block or blockchains; they talk about ledgers instead.
That being some of the basics about Ripple – In this piece, we will find out in detail about every other aspect of Ripple, how to buy Ripple, how does it work and everything else that we can find out Ripple and XRP.
Let’s begin by elaborating a little more about Ripple.
What is Ripple?
The current banking systems use an old and outdated way of transferring money between various institutions. Ripple aims at changing this system through its set of rules and protocols that can be used by the institutions in the financial world to transact and move money as quickly as anything else that moves across the internet.
One needs to understand that Ripple is both currencies as well as a platform. It is, in fact, an open network that facilitates payments and uses XRP as the currency on the platform. This is an open-source and distributed platform. The idea is to allow super-fast transactions at almost zero extra costs or transaction fees.
Ripple since its advent in the year 2012, has seen a massive rise in its users and the volumes of transactions it holds. It is sure to rule transactions throughout the world. In terms of alliances and partnerships, Ripple has appealed to financial institutions across the world about how they can transform the money transfer space and many are already using the Ripple Network. These renowned names include Western Union, Santander, American Express, Bank of England, BBVA and Moneygram. The technology, however, comprises of the following four parts:
1. xCurrent – used in liquid pair transactions.
2. xRapid – used in illiquid pair transactions.
3. xVia – uses xRapid and xVia.
4. XRP – the token or the currency of this platform
Ripple, as we discussed earlier, is built on an open-source protocol over a distributed network. This network is made in such a way that it supports a diverse range of digital assets such as cryptocurrencies, stocks, commodities, flyer miles, etc. The main goal is to facilitate large transactions between the institutions in the banking and financial sectors. The Ripple network connects financial institutions and operates with the solutions developed and deployed by Ripple. So, in these institutions, the medium or network they use is the Ripple Network and the tokens in which the money is stored in the XRP.
The Ripple network supports currencies of two types which include XRP and IOU. IOUs are tokens of debt that means I owe you and these tokens can be exchanged within all institutions. An IOU can actually be issued for all types of assets and not only against currencies.
RippleNet or the Ripple Network as such is a network of banking and financial institutions that use the solutions provided by Ripple to provide a seamless money transfer experience across the globe.
Mr. X from Florida has a box full of chocolates that he does not need and needs a ticket to watch a game of Cricket but does not have money.
Mr. Y from New York can trade in a rare stamp for a box of chocolates.
Mr. Z from Alaska has a baseball ticket and wants a rare stamp.
In the real world of today considering the current systems, all these items will remain items of no value if they don’t meet the intended recipients. But in the world of Ripple, either of the three will just have to ask for what they want and the network will look for the cheapest and the shortest way of making the transaction happen.
And above all the Ripple platform allows the payments to be made in any of the existing currencies including Bitcoin with the least transaction commissions or fees.
That covers pretty much about Ripple as a platform and the network. But before we get into the working of Ripple Network, let us find out more about XRP.
What is XRP?
Simply put, XRP is nothing but the medium of exchange or token that is used by the Ripple network in its ledgers. This represents the value of the transaction and the transfer value across the network. The purpose of using XRP is to create a mediator between the cryptocurrencies and the fiat exchanges. The best way to understand the working of XRP is to think of it as the “joker” from the pack of cards. The card that can become any card when needed.
For instance, you need to exchange dollars to euro, XRP can become dollar when used with dollars and Euros when used with Euros to ensure there is a minimum commission. As such XRP acts as an interim currency that creates a market between two pairs that may not be exchanged directly otherwise. Within the Ripple network, XRP can be traded extremely easily against all other currencies. Unlike many other cryptocurrencies, XRP does not try to establish itself as a substitute currency and instead tries to eliminate the issues that arise when two currencies are traded.
A transaction involving XRP within the Ripple network costs $0.00001, which implies that banks and financial institutions enjoy super-fast transaction speeds at minimum transaction costs.
Unlike Bitcoin, XRP cannot be mined since it uses a protocol known as “consensus” protocol in which the transactions are made public in the network and are double-checked and illegitimate transactions are eliminated. While most cryptocurrencies offer the miners to secure the networks by paying them a fee, this is not the case with the Ripple network. Opening the cryptocurrencies to the miners helps in decentralization. However, it does slow down the network as well.
Since Ripple is more involved in businesses with many financial institutions, it cannot afford to compromise on security by allowing individuals across the world to govern and control the network.
If we talk about the XRP tokens in circulation, nearly 80% of the initial 100 billion was held by Ripple Labs the parent company of Ripple Network and 20% of the tokens were held by the creators. The purpose was to expand and enhance liquidity and strengthen the current market. Because of this reason many influential people in the industry claim that Ripple is not a decentralized system. Many also claim that XRP should not be termed as a cryptocurrency as most of these currencies are held by the company itself.
This, however, is a major reason why many financial institutions now use the Ripple Network. Moreover, the company claims that there is no need for complete decentralization of the ledgers is not necessary for them to achieve the set goals. As such, as a security measure only trusted parties are given the authority to control and validate the transactions.
Now that you know both about the Ripple Network and XRP, it would be easier for you to understand the working of the Ripple network and the currency as a whole.
How does Ripple Work?
Ripple provides a seamless network of people who have an established trustworthy relationship amongst themselves who can trust each other when moving money and cancel any previous debts amongst them whenever possible.
If we consider an example:
- Let’s say that there are four people on a road trip – A, B, C, and D.
- A is the trip organizer and knows B.
- B and C are good friends and know each other.
- D does not know anybody in the group except C.
Now, consider that they have to stop at a gas station to fill gas. B and C have already paid their share to A but D does not have any cash on him so he asks A to pay for it. Supposing the bill was $40. Out of which everyone’s share was $10. Now in the Ripple network, the liability or owner of the debt is the nearest trusted partner.
And hence based on the trust levels between the four the payment agreement will go like this. D owes $10 to C, C owes $10 to B and B would owe $10 to A. Now in this, if there are any outstanding debts, such as if say C already owes $5 to D then D will pay only $5 to C and the rest of the agreement remains the same.
When we look at it from a greater technical perspective, there is an underlying protocol that uses a consensus algorithm that gets applied to all network nodes which aims to preserve the veracity and the arrangement of the Ripple network. In the Ripple network, therefore, unlike many other cryptocurrencies, you will find clients using only a pre-validated and verified list of nodes.
To make it more clear, unlike other cryptocurrencies such as Bitcoin, Ethereum and the likes, the Ripple network does not use the blockchain technology. It might sound quite strange to know that a cryptocurrency system does not work on a blockchain. And that is the reason it uses its own technology known as the RPCA – Ripple Protocol Consensus Algorithm. The word consensus here simply means that every node in the network has to be in an agreement with the others for the transaction to be approved and carried out successfully.
In this network, once a consensus is received, the current ledger is closed and is termed as the last-closed ledger. If the algorithm has been successfully applied, this last-closed ledger shall remain the same for all nodes. After the ledgers are closed all the legal transactions are then made public as a list also known as the Candidate set.
In the end, voting takes place in which the server votes on the veracity of the transactions and out of these only those are sent to the next round which receives a mandatory percentage of approvals. In most cryptocurrencies, a mere majority percentage of votes is required, however with Ripple at least 80 percent of server node approvals are required for approving a transaction.
And hence transactions get added to a ledger only after more than 80 percent of trusted nodes and entities approve the transaction and the ledger state. Anyone can apply to become a validator or a trusted note, or they can even have their own nodes, however, people mostly use the Ripple network’s unique list of nodes.
So to summarize the working of the Ripple network and consensus protocol:
- The transactions in the network are received from many nodes.
- The transactions are deemed to be legitimate are recorded in the ledger.
- The transactions are bundled together and sent forward to all other nodes.
- Once the transactions get 50% of approvals they are pushed for further approvals.
- The transactions are written to the ledgers as soon as it gains 80 percent approvals from all the nodes.
The network holds information about all its users in the ledgers which include name, date of birth and transfer amounts and details among other things.
Ripple – How is it Used?
Ripple is used for many transactions that involve the movement of digital assets and money throughout the network and more.
1. Currency Exchanges – Not all currencies can be converted directly to the other. And, therefore banks need an intermediary currency such as USD as a mediator and conversions. So, when this conversion to the intermediary currency happens you will have to pay commissions twice converting say a currency A to USD and then USD back to B. Ripple does it at a much lesser commission than that of USD.
2. Superfast International Transactions – The average transaction time on the Ripple Network is 4 seconds. The same takes around an hour or more on a regular cryptocurrency such as Bitcoin and a few days on a conventional banking network.
3. Payment Ecosystem – The Ripple network provides for a payment ecosystem. Users and businesses can create their own currencies or tokens that will be acceptable on the platform for purchase and exchange of goods.
Apart from the above the Ripple Network and its use in transferring and sharing of all digital information is being tested time and again. This network is preferred by many banking and financial institutions for the promise of security and trust that it offers. Let’s try and list some of the benefits and advantages of the network.
Advantages of Using Ripple
The main advantage of using Ripple is the fact that it is used and trusted by over 100 companies worldwide. Fater, trusted fund transfers are just the tip of the iceberg and Ripple has the potential to offer much more than that to the market. Let’s list some of the advantages of using the Ripple network:
1. Ripple was designed originally as a regular payment system and so it is far safer than Bitcoin. Also, the transaction costs are much cheaper and quicker than those with the traditional cryptocurrencies.
2. Ripple started with a focus on financial organizations and banks and hence is much more secure than the other organizations. As such, there is no need for multiple regulatory checks unlike in other digital cryptocurrencies.
3. Ripple is an intermediary or a mediator that can be used or exchanged for any other currency or object of value such as gold with a minimum conversion commission.
4. Ripple network does not depend on any central authority. They use network nodes and therefore the transactions get approved quickly and securely.
5. Another huge advantage of using Ripple is their token or currency – XRP. Ripple itself owns up to 60 percent of all the XRP currency that is in circulation and existence, That makes the company stand at a valuation of $20 billion.
6. Ripple is in a powerful position at that valuation and is aiming at revolutionizing the payment transfers space completely.
7. With Ripple, the transaction times have reduced to a few seconds from days in the traditional banking systems and hours in Bitcoin and other cryptocurrencies.
8. The Consensus Algorithms used by the Ripple Network is one of the safest and reliable algorithms in digital currencies space and the ledgers that are used record only those transactions that have higher node approval rates.
9. The Ripple network is aiming at creating an efficient and fast banking system that enables smooth cross border transfers without minimum transaction charges.
As such, there are endless possibilities when we talk about the Ripple in the world of cryptocurrencies. One major part of the network is, of course, XRP and often the terms Ripple and XRP are interchangeably used. But there are differences between the two and in the next section we will point out the differences.
Difference between Ripple and XRP
We have seen and defined Ripple and XRP separately and we now know what both of them are. To rephrase, we can say that Ripple is basically the company and the network that is being used by banks and financial businesses to carry out their day to day operations using the solutions developed by Ripple. XRP, on the other hand, is the digital asset or token, that is used by the Ripple network on the ledgers. People often end up mixing Ripple and XRP as one however there is a difference. They are two separate entities though the founding members of the XRP Ledger used to work with Ripple initially.
The XRP Ledger though can run independently and does not need the Ripple network to run, but it is very much the heart of Ripple. The Ripple Network envisages and aims at creating an Internet of Value, and internet space where value can be transferred and exchanged as quickly as every other piece of information. And that very value is stored into an intermediary or the token of the Ripple platform that is the XRP.
The XRP tokens as we mentioned earlier were created back in 2012 along with the 100 billion tokens and a lot of thought went into the use and utilization of these tokens into the network. That’s because there is no guarantee that people would use something just because they are fast and reliable. So 80% of these coins were gifted to the parent company known as OpenCoin which later came to be known as Ripple.
So back in 2012, XRP was pretty much a worthless thing and nobody knew they would be of so much worth 6 to 7 years down the line. So the original model and thought around giving it to the company was to create a retail adoption but as the company as a whole grew its shifted its focus from making XRP as the currency everyone shall use to creating a world where the issued around cross border payment transfers and movement of money. The aim was to eliminate all issues involved in the transfer and movements of payments rather than focussing on making XRP strongest and the only mode of transfer. Hence the Ripple Network as a whole took precedence over the importance of XRP tokens.
So, the difference is pretty clear – the Ripple Network is a platform that forms the base on which all the solutions are developed and deployed and used by the various banking and financial institutions. The XRP network, however, is the token that stores the values of the transactions and acts as a medium of exchange or the native currency of the Ripple platform.
But though XRP is pretty independent of the Ripple network, the network does have its effect on XRP as well. Let us point out the differences in the next sections
How Does Ripple Effect the XRP?
The performance of the Ripple network does affect the price of XRP tokens. To a large extent, the use of XRP tokens as an exchange medium or a native currency in the network and the performance and the use of the network but of course decides the value of XRP as well.
Ripple as a network has been successful in taking over the SWIFT systems and created humongous payment volumes that account for up to $5 trillion worth of transaction value in a day. This also means that Ripple is more successful in driving the use and rise in the volumes of XRP in the payment ecosystem as a whole. With more and more financial institutions signing up to come on the Ripple Network, the use of XRP ledger is only going to increase. This simply means that the success and expansion of the Ripple network are directly proportional to the volumes and the extent of XRP usage.
So in a healthy payment ecosystem as it is supposed to be – the growth of the payment platform also means the growth of the medium of payment or currency. As such, XRP paves the way to be developed into a timeless digital asset whose value only increases as time passes.
Now, that you have seen pretty much about the differences in the Ripple Network and XRP, let us find out more about some other aspects
Is Investing in Ripple a Good Move?
Whenever you are investing in something, you must know that no investment is 100% safe and every investment has its own set of risks and investing in Ripple is no different as well. To make it easier for you to decide whether to invest or not we have listed some pros and cons of investing so that you have a better idea:
Pros of Investing:
1. As we mentioned earlier – Ripple is not a Blockchain startup but is an official organization that is built over the trust of many trusted banks and financial institutions. So you can say you have minimal risks.
2. There is no chance of inflation in the rates as all the coins are already mined and exist in the payment ecosystem.
3. The value of the XRP directly depends on its usage. More, the banks and financial institutions use the XRP higher goes the value of XRP. If one fine day all the banks decide to switch to XRP, all the early bird investors would make a fortune that will blow their minds.
Having listed the pros you must be wary of some cons as well as a caution:
Cons to Consider:
1. It is too centralized since the tokens are already mined and are totally controlled by the company and the developers. So, it is more and less investing in a centrally controlled bank.
2. The monopoly over this network is enjoyed by Ripple Labs as they hold over 61 percent of the coins. And you never know what happens tomorrow if they decide to sell their stakes.
3. This is available in open source – and say you invest in it and somebody hacks the code – all your invested money would be in jeopardy.
As such when you look forward to putting in your money into buying Ripple be sure to consider these points.
Different Ways of Buying Ripple
So, once you decide that you want to invest in Ripple and wish to buy some – we have listed some simple steps for you to do that which are as follows:
Step 1: Get an XRP Wallet
This is the first step before you purchase XRP. You need to get a wallet where you can store XRP or any other currency. These wallets could be a hardware or software wallets. Choose from wallets such as Ledger Nano X (Hardware wallet), Trezor Model T (Hardware wallet), Edge (Software wallet), Exodus (Software Wallet), etc
Step 2: Find an Exchange for XRP
The next step is to find a marketplace to buy XRP. You can buy XRP using fiat currencies such as EUR, USD, etc or you can invest in XRP through indirect funds.
Step 3: Withdraw XRP to the wallet.
Once you bought them from the exchange, you must withdraw and keep them in your wallets. Once the transaction of the money deposited into your wallet is confirmed, the buying process is officially completed.
Now that we have covered almost all aspects of Ripple and XRP let’s look at some predictions and the way ahead
XRP Predictions – Year 2020
According to industry experts and influencers, Ripple has shown a stellar performance and growth starting from 2018 to 2019 and it continues to impress everyone. The markets are evolving continuously and embracing the Ripple network with the XRP consensus algorithms. This positive change and switching over to ripple has already been observed with many banks such as Santander, Yes Bank, Westpac, Union Credit, Axis Bank, Western Union, UBS, among others.
Having said that, there is also another view that though Ripple is cutting through to climb up the growth ladders, it is still at $ 35 billion in market cap behind Bitcoin and Ethereum so there is still time for it to disenfranchise Ethereum. And most investors seek a cryptocurrency that can be used as Money and not just for investments. So though the growth will be steady, the chances of an astronomical growth are but ruled out.
Ripple is surely one of the largest and the most convenient altcoins that can be used in the cryptocurrency space. Since it is being increasingly used and adopted by banking systems the trust and the security around the network have increased manifold.
As more and more financial institutions come on to this platform worldwide, the globalization of the financial sector will lead to a complete transformation to the ways of currency exchange and money transfer across nations.
The sky’s the limit and the Ocean Waters seem less with the possibilities of using the Ripple Network.