What is Ripple (XRP)?

Ripple is the name of the company that created the Ripple protocol as well as the XRP token.

Ripple’s goal is to build a global, enterprise blockchain solution for handling cross-border payments in a faster, more efficient, and more transparent way than the current banking and finance system allows. XRP is the currency native to the Ripple protocol and was designed for banks, payment providers, and other financial institutions. However, XRP can be a useful tool for anyone looking to transfer wealth in a faster and cheaper way than the current banking and financial system allows.

XRP enables near-instant transaction settlement at a low cost but does so in a way that some consider controversial or even contrary to the decentralized ethos of cryptocurrency systems. For instance, the Ripple protocol nodes are permissioned and there’s no mining. Instead, network validation is facilitated by private nodes called validators, which critics point out is really just a centralized governance system.

Why is Ripple (XRP) important?

To begin with, the Ripple company is well-funded and counts the likes of UBS, Santander, Standard Chartered, UniCredit and others as customers.  

One reason that banks and financial institutions may be interested in using XRP as their primary method to send money — especially across borders — is because the current method of working through financial intermediaries and bank wire transfers is slow and expensive. For example, the current system is so slow, that the fastest way to get money from San Francisco to Berlin is to literally hop on a plane with cash and fly it there. This is because most big banks currently use a standard wire transfer or the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network to make cross-border payments — but making payments via these methods typically takes 3-5 days and comes with hefty fees.

In an era of technological progress that has enabled the rapid delivery of just about everything, it remains difficult to move money from one country to another at high speeds. Antiquated systems have created a need for new, less restrictive methods for transferring funds, and Ripple has developed a solution that addresses this problem and has the potential to optimize the global financial system.

Through the XRP coin, entities can move money from point A to point B even if that means cross-borders at extremely low costs (the average tx fee at press time is $.0005). In addition, transactions are settled within 4 seconds of clicking “send,” and many companies can gain access to new markets in foreign countries through the pool of liquidity and ease of conversion that the XRP coin provides.

How XRP works

The XRP token runs on the Ripple protocol, which is made up of private, centralized nodes called validators. A node is a computer on the Ripple network that is authorized to verify transactions and keep the Ripple protocol up and running. However, this type of architecture is not truly decentralized like Bitcoin’s permissionless, distributed ledger which allows anyone with a computer and internet connection to download and run a node but rather, functions through the collaboration and agreement of validator nodes, held by private institutions like Microsoft and Massachusetts Institute of Technology (MIT). A system with this kind of architecture gives the nodes authority over the network opposed to a decentralized system, where (practically) every participant has equal power.   

Consensus Algorithm

Unlike most blockchain networks, XRP does not use a proof-of-work (PoW) consensus algorithm to secure the network and mint new coins. Instead, XRP uses the Ripple Protocol Consensus Algorithm (RPCA); an exclusive governing body of permissioned validators that can quickly agree on the validity of a transaction.

However, because only permissioned nodes can secure the protocol, this means that consumers and XRP community members can not mine Ripple.

Instead, XRP was pre-mined and is distributed as follows (as of March 20, 2019):

total supply: 100 billion XRP,

total number of XRP in escrow (in Ripple’s control): 51,800,000,013,

total amount of XRP in circulation: 41,666,017,553 XRP,

total amount of XRP in a XRP wallet controlled by Ripple: 6,525,654,653, and

total amount of XRP in an XRP Wallet controlled by a consumer: 35,140,362,900.

What is XRP used for?

XRP is more like a bridge currency, fiat gateway, or liquidity providing tool than it is a decentralized public blockchain network (like Bitcoin). After all, Ripple’s primary use case is a cross-border payment solution. For instance, here is one example of how Ripple intended for the XRP coin to be used,  lets say Alice (USA) wants to send Bob (London) $500, Alice could go to her bank in America with Bob’s account number and his banks information and have her bank do a wire transfer but this process takes 3-5 days from beginning to end.

So instead, let’s say Alice trades her USD for XRP on Abra; once Alice receives her XRP in her XRP wallet, all she has to do is type in Bob’s XRP wallet address and hit send. Afterward, Bob will receive the funds that Alice sent within four seconds. Now, all Bob needs to do is convert the XRP he received from Alice to his native currency the pound sterling at a cryptocurrency exchange or otc exchange that operates in his country.

As you can see, this process is far faster than a wire transfer. XRP transactions settle within four seconds wire transfers settle within 3 to 5 days of being sent. Not only that, but wire transfers are often relatively expensive due to the intermediaries who always take their cut that are required to facilitate the transaction, and that cost being pushed onto the consumer in the form of transaction fees. On the other hand, XRP transaction fees are as low as .00001 XRP per transaction — around $.0005 (March 20, 2019).

XRapid

Although the XRP coin can be used on its own and doesn’t require you to be using a specific service to use or gain access to XRP, the Ripple company does provide a payment bridge/transaction settlement service that leverages XRP.

XRapid is a liquidity service that uses the XRP coin as the entry/exit point for cross-border transactions–similar to our example above where we send money from the USA to London. XRapid disrupts the traditional cross-border transfer solution of Nostro Accounts — when Entity A, has a bank account in Entity B’s country, with wealth in Entity B’s native currency so that entity A can do business and make payments in Country B with less latency. However, XRapid has far less latency than the Nostro accounts that are in use today and provides direct connectivity between transacting parties rather than forcing them to work with an intermediary.

XRP price history

Due to the fact that Ripple is looking to disrupt conventional cross-border methods, The XRP market potential consists of the hundreds of trillions of dollars that move across borders each year. And due to how low the XRP price has always been relative to the other crypto’s that typically top the ten cryptocurrency’s by market cap charts, the XRP price is more often than not a popular topic.  Ripple experienced over 36,000% growth in 2017 as the XRP price climbed from a low of $.006 on January 1st, 2017, to an all-time high on 1/4/2018 when the price of XRP was $3.84 — making it the year’s best-performing cryptocurrency. And twice in Ripples history December 29, 2018, and January 11, 2019 XRP surpassed Ethereum to become ranked 2nd in terms of largest total capitalization.

Why use Ripple?

XRP allows any payment to settle in four seconds, which helps transacting parties to quickly exchange funds between one another and then promptly convert those funds from their XRP wallet to their native fiat currency through an online or OTC exchange.

Using Ripple to make this cross-border transaction is much faster, efficient, and cheaper than the traditional wire or SWIFT transfer and that is one reason why the XRP coin is favored by banks, payment providers, and financial institutions.

Therefore, if you are an individual, institution, or company that frequently sends money across borders, it might be in your interest to use XRP to optimize your cross-border payment experience, cut your transaction fees, and drastically lower your transaction settlement time.