Ripple (XRP)

Last Updated on May 26, 2020

A lot of people perceive cryptocurrencies only as units of value or modern substitutes for government-issued currencies. That’s why they don’t understand the need for so many different cryptocurrencies besides Bitcoin.

In reality, different cryptocurrencies perform different functions, from storing value to serving as utility tokens for building smart blockchain-based applications, or as in the case of XRP, playing the role of a bridge currency.

In our guide today, we’ll talk about Ripple, the payment system behind the XRP token, its history, ledger protocol, and revolutionary cross-border payment network.

Let’s see why hundreds of financial firms have already offered their support for this project.



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Ripple and The Internet of Value

In an age of technological boom, innovation, and instantaneous connectivity, it’s surprising how much the global financial system falls short of keeping the pace.

We’re able to send information from one end of the world to another within seconds thanks to the Internet of Information, but when it comes to money transfers, it can take up to several days and it’s quite expensive.

The latest report from the World Bank on Remittance Prices Worldwide has estimated the global average cost to be 6.79% fees per transaction. The price is even higher if you use a bank as your service provider, with the average cost being 10.51%. This is significantly higher than the G-20 objective of 5% and the UN Sustainable goal target of 3%.

For international payments, most banks use SWIFT, an outdated money system for cross-border accounting between banks developed in the ‘70s. The problem with SWIFT is that it can take up to several days before the system completes the transfer. Plus, it incurs hefty fees that can reach up to $50 depending on the bank and its location.

This is where Ripple proposes the following: why don’t we improve the global financial system by making it blockchain-based? Why not create an Internet of Value, where value can be shared as easily as information?

From OpenCoin to Ripple

Ripple as we know it was launched in 2012, but the system had already been developed by Ryan Fugger in 2005. was a precursor to the blockchain, a kind of online payment system that for some reason didn’t gain enough recognition.

In 2011, Ryan was approached by Jed McCaleb, a software engineer who has worked on numerous successful crypto projects, and the business executive and angel investor Chris Larsen. They proposed redesigning Ryan’s payment system by implementing a community consensus mechanism that would verify transactions.

The company, OpenCoin, wanted to create a system that would allow fast and cost-effective money transfers using both fiat and cryptocurrencies. There would be no high transaction fees or long wait times, typical for traditional payment systems. For greater liquidity, OpenCoin created an XRP value token to fuel the network.

In 2017, the company rebranded to Ripple Lab, Inc. The project was backed up by leading investors and venture capitals like Andreessen Horowitz, Core Innovation Capital, Accenture, CME Ventures, Santander Group, Tetragon, Seagate Technology, Standard Chartered, to name just a few.

By 2020, up to 300 financial institutions have joined Ripple’s network.

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How Does XRP Work?

The XRP Ledger Consensus Protocol powering the XRP ledger, explained in Ripple’s 2018 white paper, is completely different from Bitcoin’s proof of work mining mechanism.

Instead of miners, the XRP ledger consists of validating nodes, i.e. trusted validators that agree on the order of transactions and decide which one to approve to prevent double-spending and generate consistent new “ledger versions” (the equivalent of a Bitcoin “block”).

The main advantage of Ripple’s consensus algorithm is that the XRP ledger spends a negligible amount of electricity compared to the time and energy spent on mining bitcoins with PoW. Moreover, the ledger is able to process up to 1,500 transactions per second.

At the start, Ripple Lab, Inc. controlled most of the validators, which is common for new networks that choose to focus on security and scalability in the initial stages. Only later, when the network is mature enough, the focus shifts towards decentralization.

This is exactly what the company has been doing in the last couple of years. At the moment, the network of validating nodes, also known as the global XRP Community, consists of a total of 36 validators and includes universities, crypto exchanges, and financial institutions. Only 6 of them are run by the company itself (21%).


So, how does Ripple support fast and low-cost cross-border payments?

In 2018, Ripple introduced RippleNet that allows users to access the best blockchain-based technology for international payments in more than 40 currencies. The way it does this is by using its network members, i.e. corporates, SMEs, small banks, and payment providers to act as “Ripple Gateways”.

These Gateways accept deposits and requests for money transfers from network users and issue them balances. Most of them require KYC or AML checks (some kind of identification) to process the requests.

XRP acts as a bridge currency until the money reaches the recipient and gets converted into the sender’s desired currency.

You can also check our guides on how to buy XRP in the US, in Australia, or in the UK.

About The Author

James Page

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James is the main editor. With a passion for finance and anything blockchain, cryptocurrency is right up his alley. He's responsible for most of the content on the site, trying his best to keep everything up to date and as informative as possible.

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