The major question remains: What is Ripple? Is Ripple a cryptocurrency that was created in the image of Bitcoin? The best answer is ‘NO.’ However, it always gets clustered in the same category.
What is Ripple?
The first thing that you should note is that Ripple is both a currency and a platform. The crypto was initially released in 2012 as a subsequent iteration of Ripplepay. It is a real-time gross settlement system (RTGS), remittance, and currency exchange network. The platform is an open-source protocol that is designed to enable fast and cheap transactions.
Ripple uses a common ledger that is operated by a network of separately validating servers that continuously compare transaction records. The crypto is expected to rule international transactions in the entire world, unlike Bitcoin that was never created to become a simple payment machine. Ripple never relies on the energy and computing intensive proof-of-work that is majorly used by Bitcoin.
However, it is yet to take over the crypto space. The platform has its own currency (XRP) although it allows everyone else to use their platform to create their unique tokens using RippleNet. It is entirely based on a shared public database that uses a consensus process between those validating servers to guarantee integrity. Those validating server may belong to anybody ranging from individuals to banks.
The Ripple protocol (token represented as XRP) is meant to facilitate the near-instant and direct transfer of funds between two parties. The platform allows for the exchange of every type of currency including gold, fiat currencies, and airline miles. They allege to avoid the fees and delays of traditional banking systems.
How is Ripple Different from Bitcoin?
The validating servers and consensus mechanism make people believe that Ripple is a typical blockchain-based technology. It is not a blockchain although it is consensus-oriented. Ripple instead uses a HashTree that summarizes the data into a single value. The acquired value is compared across its validating servers to offer consensus.
Many payment providers including banks prefer Ripple over other cryptocurrencies. Although the platform can be used person to person, it is primarily focused for enterprise purposes. It is perfectly designed to move large amounts of money throughout the world as quickly as possible. This far, Ripple has processed at least 35 million transactions without any issue since its release.
The platform can handle 1,500 transactions per second (tps) and has got updated to scale up to the 50,000 transactions per second Visa levels. By comparison, Ethereum can handle 15 tps while Bitcoin can handle 3-6 tps (without including scaling layers). Ripple’s token, XPR, is not mined like many other cryptos.
However, it was issued in a similar manner to the way companies offer stocks when they incorporate. They just picked a number, 100 billion, and they issued that many XRP coins.
What is XRP?
In terms of technology, the Ripple platform displays real history and value that authenticates the allegations made for its functionality. XPR is a token that is primarily used for the representation of value transfers executed across the Ripple Network. However, the token seems to have negligible use cases. Ripple had planned to phase the token out but the increased interest in cryptocurrencies in 2016 convinced them otherwise.
The main purpose of XPR is to act as a mediator for all other exchanges. It can best be described as a ‘Joker’ card. Just like the card that can become any other card, Ripple supports all other crypto and fiat currencies. Moreover, the transaction costs incurred when transferring funds on the platform are considerably low.
The standard transaction cost on the Ripple platform is $0.00001 which ‘disappears’ from the platform after any transaction and it cannot be replenished. Thus, the world loses $0.00001 with every transaction. The platform is designed that way to avoid incidents of spammers’ attacks.
The Ripple Company issued 100 billion XRP coins and they promise that they will never add any other tokens although nothing stops them from doing so in future. The crypto’s hub-and-spoke design positions XRP excellently as a mediator tool that is functional with any digital asset or currency including frequent flyer miles.
Ripple has the ability to settle any form of payment in 3.5 seconds via XRP and have it instantaneously available and spendable. Please note that the use of XRP never depends on the Ripple network in general. Thus, banks, individuals and other entities do not need XRP to transfer fiat currencies or digital assets.
Nonetheless, analysts note that if Ripple rises to the price of $1.42 currently, its market capitalization will surpass that of Bitcoin.
What is RippleNet?
- RippleNet is a worldwide network of institutional payment-providers. Ripple Twitter Photo
It is a worldwide network of institutional payment-providers that include money services businesses and banks. These institutions use Ripple-developed solutions to offer seamless experiences to send money on a global scale.
Ripple’s Value Proposition
The value is mainly determined by the Ripple network itself and its ability to move assets and currencies worldwide quickly as opposed to the XRP token. Banks like UBS, Santander, NBAD, Axis Bank, Union Credit, Westpac, and Yes Bank use the Ripple software to send and receive money using different foreign currencies.
Today, the transactions are accomplished using SWIFT, which takes longer since banks need separate accounts in all countries that they work in. Ripple stated that they have signed up at least 120 banks, compared to SWIFT’s 11,000 financial institutions, but they are slowly gaining ground.
Why All the ‘Noise’?
While Bitcoin saw a dramatic rise throughout 2017 peaked at nearly $20,000 in December, many other altcoins followed suit. The fear of missing out drove many investors to turn to the wild and “lower-priced” currencies who mistakenly think that the high prices of BTC put the currency out of reach. The bears mauled the bulls in 2018 and XRP was no exception.
Last January, rumors about Coinbase listing Ripple on their platform drove the currency high. But, after Coinbase addressed the rumor in this blog post on January 4, 2018, the price fell back down. There are many other methods of acquiring Ripple for the interested investors.
The volatility in the entire crypto markets and various scams led to regulators and institutions turning attention to stablecoins. XRP is expected to fair on well into the future since the Ripple network is rapidly gaining popularity among many financial institutions and entities around the world.
Ripple protocol consensus algorithm (RPCA)
Ripple does not have blockchain like the other cryptocurrencies. It has its own patented technology used for the verification of transactions; the Ripple protocol consensus algorithm (RPCA). The word consensus means that if all nodes are in agreement with each other, the transaction is approved. If a single node is not in agreement with the rest, nothing happens until the issue is sorted out.
Uses of Ripple
Fast international transactions that take approximately 4 seconds to complete.
Low commission currency exchange.
It is a payment ecosystem that lets users issue their distinct currencies for fast and cheap transactions.
Ripple got launched as an official institution focusing primarily on banks. Hence, it is not subjected to many regulation checks that are imposed on most of the other cryptocurrencies.
Ripple is designed ideally as a day to day payment system making it significantly more powersafe than Bitcoin. Thus, transactions on the platform are much cheaper and quicker. Furthermore, it can be exchanged for any valuable like gold or currency costing a unified minimum commission.
- Ripple increases in XRP Transaction Throughput All The Time. Ripple Twitter Photo.
Ripple’s Pros and Cons
There is no investment that is 100% safe. Every decision has risks. Nonetheless here are the pros and cons of Ripple.
All tokens are originally mined and already exist. Therefore, there are no cases of inflation.
Ripple is an official organization that has gained the trust of many banks around the world.
The more banks and financial institutions use it as their primary transaction platform, the higher the value of the XRP token.
It is highly centralized which makes it similar to traditional banks.
It is quite a monopoly since almost 61% of the coins are properties of Ripple Labs.
It is an open source which makes it vulnerable to hackers if its code becomes accessible.
The Endless Criticism
Although many major financial institutions including banks are using the Ripple platform, most are still on the testing stages. The few who use the network often transact real money and not the token. Therefore, it could be confidently said that banks are not yet ‘fully into Ripple.’
Ripple can freeze users’ transactions. A renowned example is when the founder of Ripple Labs, Jed McCaleb, attempted to sell more than 1,000,000 dollars worth of Ripple. That transaction got reversed. Therefore, the very possibility of freezing any transaction is contradictory to the basic cryptocurrency principles of decentralization.
As noted earlier, many crypto and blockchain enthusiasts criticize Ripple of its centralized nature that is in contrast to the benefits and functionalities of decentralized cryptocurrencies and blockchains.
Ripple protects their customers against potentially insecure validating or malicious servers by maintaining a trusted Unique Node List (UNL). The UNL presents a mystery that controls the entire network’s rules. Although it may seem to protect against malicious validators, any government or regulating body could bully the platform into making an undesirable or downright invasive change.
- xRapid by Ripple / Ripple Twitter photo.
Ripple only recommends and recognizes gateways compliant with financial regulations after they updated their policies due to a 2013 FinCEN violation and fine. So far no bank anticipates using the XRP token in any important manner. However, reports show that at least three financial institutions (Mercury FX, Cuallix and Catalyst Corporate Federal Credit Union) are using xRapid (the XRP liquidity product) seriously.