Introduction to Ripple (XRP)
- Ripple is a real-time gross settlement system, currency exchange and remittance network by Ripple
- Ripple’s token, XRP, is the number four most popular cryptocurrency on the market, in terms of market capitalization
- Built for enterprise use, XRP offers banks and payment providers a reliable, on-demand option to source liquidity for cross-border payments
- It’s a distributed, open-source payments system that’s still in beta
- Aims to break down the so-called ‘walled gardens’ of financial networks such as credit cards, banks, PayPal and others which restrict fluidity with fees, charges for currency exchanges, and processing delays
- The goal of Ripple, it says, is to build on the decentralized digital currency approach set by Bitcoin and ‘do for money what the internet did for all other forms of information’
- Ripple is the name for both the digital currency (XRP tokens) and an open payment network within which that currency is transferred
- Mantra: ‘One frictionless experience to send money globally’
What is Ripple (XRP)?
The name Ripple refers to both Ripple’s global payment infrastructure and the tokens (XRP) which are to be used as currency within that network. It’s not decentralized like Bitcoin and many other altcoins and, as such, some altcoin enthusiasts dislike it. This is because Bitcoin, along with many of the subsequently launched altcoins, were created and supported by idealists, often of the libertarian political persuasion, who saw cryptocurrencies as a way of beating the system, so to speak, and putting financial power into the hands of the people. Whilst this is an interesting idea and obviously not without merit, the fact is banks have power, and governments have regulations and, as such, aren’t just going to roll over and let the laws of the land be flouted. Ripple is disruptive in some respects but also works alongside banks and complies with governments; this makes it unique.
As mentioned, the Ripple network relies on XRP tokens as its unique currency. XRP tokens cannot be mined like Bitcoin or Ethereum; instead, upon Ripple’s launch, 100 billion XRP tokens were created by the Ripple team, led by David Schwartz, Chief Cryptographer of Ripple Labs. Now, much like FIAT money, Ripple is centralized (or at least, it’s perceived by many to be centralized and it’s certainly more centralized than the likes of Bitcoin and Ethereum because the creators retain a huge amount of control over the supply and flow of XRP tokens) and, as such, the owner or operator can make as many tokens as they like; however, so far, the number of XRP tokens has been limited to 100 billion XRP.
The Ripple network/blockchain supports tokens representing FIAT currency, cryptocurrency, commodity or any other unit of value such as frequent-flier miles or mobile minutes. Ripple is based on a shared, public database or ledger, which uses a consensus process that allows for payments, exchanges and remittance in a Distributed Agreement Protocol (DAP). Unlike Proof of Work (PoW), which is what Bitcoin and Ethereum use to guard against duplicate payments (via mining; remember, XRP tokens cannot be mined), Ripple relies on nodes to simply agree on which of two or three matching transactions was executed first. According to Schwartz, this system has been very successful, despite early skepticism from critics of the coin.
Ripple claims the network is decentralized; whether Ripple is centralized or decentralized is the source of countless internet squabbles so the best way to understand it is as follows: Ripple isn’t totally centralized but it is certainly more centralized, in terms who controls the majority of the tokens, than Bitcoin and Ethereum, and can operate without Ripple (the company); in other words, it cannot be shut down. Ripple is validated by companies, internet service providers, and the Massachusetts Institute of Technology.
Used by companies such as UniCredit, UBS and Santander, Ripple has increasingly been adopted by banks and payment networks as settlement infrastructure technology, with American Banker explaining that from a banks’ perspective, distributed ledgers like the Ripple system have a number of advantages over cryptocurrencies like Bitcoin, “including price and security”. Ripple does seem to have endeared itself to many of the big-hitters within the financial market which certainly gives it an edge over some of the more orthodox cryptocurrencies, going forward.
What’s Special About Ripple?
There are plenty of things that are special, unique and revolutionary about Ripple, both the infrastructure and the XRP currency. Ripple currently has shown the most real world adoption by banks and this is a very big deal. Up until now, cryptocurrencies such as Bitcoin have been largely viewed by banks variously as a thorn in their side, a passing fad, or just shady, maybe even criminal, back-alley black-market currencies. Many banks are, right now, using the Ripple network to transfer FIAT currency for their customers. Ripple has the most robust compliance controls in place which matters if you want real businesses to use your network. XRP is currently relatively cheap but the price is expected to go up once they finally shut down Ripple Trade and more banks come online later this year (2017). At that time, they will announce an incentive structure for Market Makers to provide fiat liquidity to the Ripple network; this is a very big deal.
Within the fintech industry, we often talk about ‘disruptors’, i.e., companies or new technologies which threaten legacy institutions such as banks or brokerage firms. Ripple is special because, although it is undoubtedly a disruptor, it is selective in its disruption, if that makes sense. So, rather than trying to turn the whole financial sector on its head, which is arguably what Bitcoin and Ethereum are trying to do, Ripple will not only cooperate with banks, it will improve the services they offer (such as international transfers and remittance) and the only companies/protocols likely to be disrupted are things like Weston Union, which is expensive and slow, and the SWIFT system, which is, again, expensive and slow. This means that banks, or at least many banks, are mostly keen to work alongside Ripple because it means they can offer their clients a better, cheaper, faster service, whilst still complying with financial regulations and taxation offices, the world over.
In October 2013, Ripple partnered with ZipZap, with the relationship described as a direct threat to Western Union in the press. If Ripple is able to successfully disrupt the likes of Western Union by providing a cheaper, more efficient means of transferring money overseas, the sky is the limit for Ripple. Ripple’s key advantage is its relationship with banks and financial institutes such as Santander and UBS; no other altcoins can boast this kind of a relationship with legacy financial institutions.
To further illustrate how the Ripple team sees itself, American Banker reported that when Brad Garlinghouse, the CEO of Ripple, explains to his mother, who lives in Kansas, what his company does, he says: “Mom, it’s pretty simple. We sell software to banks.” An oversimplification? Absolutely, but still, it speaks volumes. Bitcoin and other altcoins were created to disrupt the banks; Ripple was created to work alongside them. And as much as this may irritate cryptocurrency purists, this approach is likely to fast-track Ripple to success because God knows the banks won’t go down without a fight.
How Does Ripple Work?
Ripple is somewhat different from many of the more traditional cryptocurrencies such as Bitcoin, Ethereum, and Litecoin. It’s confusing because Ripple’s gone through so much rebranding and mission statement changes, even the people in charge have a hard time explaining how all the pieces come together. However, we will do our best to explain how the system works.
So, Ripple is both a payments protocol and a digital currency. A good parallel is the hawala network – a traditional, non-digital way of sending money from city to city. Hawala has its roots in medieval Arabia, and is still in use today in places where banks won’t or can’t operate.
This is how Ripple works: a person logs on to their preferred Ripple gateway, deposits money to it, and instructs them to release funds to the person on the other side via their gateway; that person then collects their funds in their preferred medium. Ripple can facilitate the transfer of cash, goods, or even services. As Brad Garlinghouse, Ripple’s CEO, put it: “It’s easier to send $10,000 by taking it with you on a plane, than it is to send through the banking system.” Ripple hopes to change this.
The Ripple system is based on trust; it essentially involves the transfer of IOUs rather than actual cash or goods. This is where ‘ripples’ (XRP) come in. XRP is the ‘currency of last resort’ for the Ripple network. All gateways provide a price in XRP of anything they deal in (for example, if a dollar is 200 XRP; one ounce of gold might be 260,000 XRP). You could say USD is the currency of last resort in the USA – that is, everything has a price in USD. This means, within the Ripple network, you can convert anything to a number of XRPs, transfer the XRPs via the trust chains, then convert back at the end gateway, if needed. XRPs serve as a common currency if no other gateway can be established.
As mentioned earlier, the Ripple blockchain relies on a Distributed Agreement Protocol (DAP) which means nodes must come to an agreement on which transaction to validate when duplicates arise; this is based on a first come, first served system which has been successful, so far. Also, transferring XRP is ‘almost free’, meaning that, with each transaction, a very small percentage of the XRP being transferred is docked. These are promptly destroyed by the system. This happens for two reasons: firstly, it’s to stop people spamming the network and, secondly, it helps increase scarcity, and, consequentially, increases the demand for XRP, which, in turn, raises the token’s value.
Ripple maintains the lion’s share of XRP which they were criticised for, at first, but which many now see as a positive move which will help ensure stability whilst preventing volatile fluctuations, protecting against crashes, and controlling the flow of XRP. Ripple is currently being utilised by 100 plus banks, with the firm eyeing up the estimated 8,000 SWIFT enabled banks around the globe. SWIFT is what most people (outside of the EU, at least; the EU are fortunate enough to have access to SEPA, ‘Single Euros Payment Area’, a much cheaper alternative) are forced to use when transferring money overseas. It is slow, expensive and, frankly, outdated. Using SWIFT to transfer funds overseas generally costs between $30 and $50 USD, per transaction! Ripple, on the hand, is practically free of charge.
Where can Ripple be used? Top 3 Sites to Buy Ripple
Ripple can be bought, sold and traded on a variety of platforms. We tend to recommend IQ Option, AVATRADE, and eToro. This site provide detailed guides on how to buy Ripple (XRP) using these three sites. Here’s a bit about each…
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Here’s a list of some of the top exchanges and brokers which support it: